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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2003
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from
to
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Commission File Number 0-14412
FARMERS CAPITAL BANK CORPORATION
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(Exact name of registrant as specified in its charter)
Kentucky 61-1017851
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
P.O. Box 309, 202 West Main Street
Frankfort, Kentucky 40602
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 227-1600
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934).
Yes |X| No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, par value $0.125 per share
6,711,771 shares outstanding at November 10, 2003
TABLE OF CONTENTS
Part I - Financial Information Page No.
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Item 1 - Financial Statements 3
Unaudited Consolidated Balance Sheets -
September 30, 2003 and December 31, 2002 3
Unaudited Consolidated Statements of Income -
For the Three Months and Nine Months Ended
September 30, 2003 and September 30, 2002 4
Unaudited Consolidated Statements of Comprehensive Income -
For the Three Months and Nine Months Ended
September 30, 2003 and September 30, 2002 5
Unaudited Consolidated Statements of Cash Flows -
For the Nine Months Ended
September 30, 2003 and September 30, 2002 6
Unaudited Consolidated Statements of Changes in
Shareholders' Equity -
For the Nine Months Ended
September 30, 2003 and September 30, 2002 7
Notes to Unaudited Consolidated Financial Statements 8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 25
Item 4 - Controls and Procedures 26
Part II - Other Information
Item 1 - Legal Proceedings 26
Item 6 - Exhibits and Reports on Form 8-K 26
Signatures 27
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UNAUDITED CONSOLIDATED BALANCE SHEETS
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September 30, December 31,
(In thousands, except share data) 2003 2002
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ASSETS
Cash and cash equivalents:
Cash and due from banks $ 105,700 $ 44,083
Interest bearing deposits in other banks 3,449 3,947
Federal funds sold and securities purchased under
agreements to resell 26,810 19,071
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Total cash and cash equivalents 135,959 67,101
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Investment securities:
Available for sale, amortized cost of $313,774 (2003) and $407,560 (2002) 315,899 413,038
Held to maturity, fair value of $25,933 (2003) and $30,312 (2002) 24,223 28,519
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Total investment securities 340,122 441,557
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Loans, net of unearned income 739,298 738,639
Allowance for loan losses (11,127) (11,061)
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Loans, net 728,171 727,578
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Premises and equipment, net 24,121 24,155
Company-owned life insurance 25,090
Other assets 15,384 15,211
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Total assets $ 1,268,847 $ 1,275,602
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LIABILITIES
Deposits:
Noninterest bearing $ 198,851 $ 141,238
Interest bearing 812,035 816,242
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Total deposits 1,010,886 957,480
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Federal funds purchased and securities sold under agreements to repurchase 64,230 115,979
Other short-term borrowings 1,116 9,207
Long-term debt 56,649 57,152
Dividends payable 2,149 2,191
Other liabilities 8,617 7,820
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Total liabilities 1,143,647 1,149,829
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Commitments and contingencies
SHAREHOLDERS' EQUITY
Common stock, par value $.125 per share
9,608,000 shares authorized; 8,150,028 and 8,135,977
shares issued at September 30, 2003 and December 31, 2002, respectively 1,019 1,017
Capital surplus 18,284 17,623
Retained earnings 145,261 141,199
Treasury stock, at cost
1,442,294 and 1,344,463 shares at September 30, 2003 and
December 31, 2002, respectively (40,745) (37,627)
Accumulated other comprehensive income 1,381 3,561
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Total shareholders' equity 125,200 125,773
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Total liabilities and shareholders' equity $ 1,268,847 $ 1,275,602
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See accompanying notes to unaudited consolidated financial statements.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
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Three Months Nine Months
Ended Ended
September 30, September 30,
(In thousands, except per share data) 2003 2002 2003 2002
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INTEREST INCOME
Interest and fees on loans $ 11,921 $ 12,880 $ 36,289 $ 38,583
Interest on investment securities:
Taxable 1,318 2,578 4,818 7,921
Nontaxable 809 850 2,392 2,699
Interest on deposits in other banks 12 17 49 170
Interest on federal funds sold and securities
purchased under agreements to resell 129 317 506 772
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Total interest income 14,189 16,642 44,054 50,145
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INTEREST EXPENSE
Interest on deposits 4,033 5,550 12,996 17,302
Interest on federal funds purchased and securities
sold under agreements to repurchase 182 411 684 1,318
Interest on other borrowed funds 542 411 1,649 1,164
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Total interest expense 4,757 6,372 15,329 19,784
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Net interest income 9,432 10,270 28,725 30,361
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Provision for loan losses 642 869 1,378 1,978
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Net interest income after provision for loan losses 8,790 9,401 27,347 28,383
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NONINTEREST INCOME
Service charges and fees on deposits 1,951 2,088 5,804 5,867
Other service charges, commissions, and fees 909 897 2,682 2,627
Data processing income 337 340 1,071 1,063
Trust income 385 368 1,197 1,096
Investment securities gains, net 822 440 966 1,433
Gain on sale of mortgage loans 276 140 788 325
Income from company-owned life insurance 416 1,089
Other 55 68 198 192
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Total noninterest income 5,151 4,341 13,795 12,603
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NONINTEREST EXPENSE
Salaries and employee benefits 5,188 5,033 15,469 14,984
Occupancy expenses, net 621 623 1,921 1,782
Equipment expenses 934 845 2,795 2,685
Bank franchise tax 330 308 995 921
Other 2,136 2,234 6,636 6,399
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Total noninterest expense 9,209 9,043 27,816 26,771
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Income before income taxes 4,732 4,699 13,326 14,215
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Income tax expense 831 1,173 2,806 3,591
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Net income $ 3,901 $ 3,526 $ 10,520 $ 10,624
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NET INCOME PER COMMON SHARE
Basic $ .58 $ .51 $ 1.56 $ 1.54
Diluted .58 .51 1.55 1.53
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WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 6,712 6,850 6,733 6,880
Diluted 6,761 6,898 6,773 6,925
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See accompanying notes to unaudited consolidated financial statements.
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
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Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands) 2003 2002 2003 2002
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NET INCOME $ 3,901 $ 3,526 $ 10,520 $10,624
Other comprehensive income:
Unrealized holding (loss) gain on available for sale
securities arising during the period, net of tax
of $719, $1,329, $512, and $1,636, respectively (1,335) 2,468 (950) 3,038
Reclassification adjustment for prior period
unrealized gain recognized during current period,
net of tax of $601, $111, $662, and $337, respectively (1,116) (207) (1,230) (625)
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Other comprehensive income (2,451) 2,261 (2,180) 2,413
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Comprehensive Income $ 1,450 $ 5,787 $ 8,340 $ 13,037
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See accompanying notes to unaudited consolidated financial statements.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
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Nine months ended September 30, (In thousands) 2003 2002
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10,520 $ 10,624
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 2,257 2,147
Net amortization of investment security premiums and (discounts):
Available for sale 2,578 394
Held to maturity (52) (49)
Provision for loan losses 1,378 1,978
Noncash compensation expense 319 427
Mortgage loans originated for sale (53,405) (26,768)
Proceeds from sale of mortgage loans 54,724 25,159
Deferred income tax expense 144 3
Gain on sale of mortgage loans (788) (325)
Gain on sale of premises and equipment (2) (2)
Gain on sale of available for sale investment securities, net (966) (1,433)
Decrease in accrued interest receivable 170 768
(Increase) decrease in other assets (1,432) 74
Decrease in accrued interest payable (445) (272)
Increase in other liabilities 2,271 949
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Net cash provided by operating activities 17,271 13,674
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CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of investment securities:
Available for sale 316,365 270,455
Held to maturity 4,348 7,159
Proceeds from sale of available for sale investment securities 108,975 147,229
Purchase of available for sale investment securities (333,166) (368,437)
Loans originated for investment, net of principal collected (2,502) (17,430)
Purchase of company-owned life insurance (24,001)
Purchase of premises and equipment (2,230) (897)
Proceeds from sale of equipment 9 116
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Net cash provided by investing activities 67,798 38,195
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CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 53,406 72,890
Net decrease in federal funds purchased and securities sold under
agreements to repurchase (51,749) (1,232)
Proceeds from long-term debt 3,874 16,500
Repayments of long-term debt (4,377) (1,511)
Net (decrease) increase in other short-term borrowings (8,091) 6,672
Dividends paid (6,500) (6,427)
Purchase of common stock (3,118) (4,338)
Stock options exercised 344 1,516
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Net cash (used in) provided by financing activities (16,211) 84,070
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Net increase in cash and cash equivalents 68,858 135,939
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Cash and cash equivalents at beginning of year 67,101 106,385
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Cash and cash equivalents at end of period $ 135,959 $ 242,324
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SUPPLEMENTAL DISCLOSURES
Cash paid during the period for:
Interest $ 15,774 $ 20,056
Income taxes 500 3,840
Cash dividend declared and unpaid 2,149 2,123
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See accompanying notes to unaudited consolidated financial statements.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
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(In thousands, except per share data) Accumulated
Other Total
Nine months ended Common Stock Capital Retained Treasury Stock Comprehensive Shareholders'
September 30, 2003 and 2002 Shares Amount Surplus Earnings Shares Amount Income Equity
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Balance at January 1, 2003 8,136 $1,017 $17,623 $141,199 1,344 $(37,627) $3,561 $125,773
Net income 10,520 10,520
Other comprehensive income (2,180) (2,180)
Cash dividends declared,
$.96 per share (6,458) (6,458)
Purchase of common stock 98 (3,118) (3,118)
Stock options exercised 14 2 342 344
Noncash compensation expense
attributed to stock option grants 319 319
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Balance at September 30, 2003 8,150 $1,019 $18,284 $145,261 1,442 $(40,745) $1,381 $125,200
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Balance at January 1, 2002 8,058 $1,007 $15,179 $137,227 1,153 $(31,077) $1,224 $123,560
Net income 10,624 10,624
Other comprehensive income 2,413 2,413
Cash dividends declared,
$.93 per share (6,398) (6,398)
Purchase of common stock 126 (4,338) (4,338)
Stock options exercised 62 8 1,508 1,516
Noncash compensation expense
attributed to stock option grants 427 427
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Balance at September 30, 2002 8,120 $1,015 $17,114 $141,453 1,279 $(35,415) $3,637 $127,804
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See accompanying notes to unaudited consolidated financial statements.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Farmers Capital
Bank Corporation (the "Company"), a financial holding company, and its
subsidiaries, including its principal subsidiary, Farmers Bank & Capital Trust
Company. All significant intercompany transactions and accounts have been
eliminated in consolidation.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Estimates used in the preparation of the financial
statements are based on various factors including the current interest rate
environment and the general strength of the local economy. Changes in the
overall interest rate environment can significantly affect the Company's net
interest income and the value of its recorded assets and liabilities. Actual
results could differ from those estimates used in the preparation of the
financial statements.
The financial information presented as of any date other than December 31 has
been prepared from the books and records without audit. The accompanying
consolidated financial statements have been prepared in accordance with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X and do not include
all of the information and the footnotes required by accounting principles
generally accepted in the United States of America for complete financial
statements. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of such financial
statements, have been included. The results of operations for the interim
periods are not necessarily indicative of the results to be expected for the
full year.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2002.
2. RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated financial
statements of prior periods to conform to the current period presentation. Such
reclassifications have no effect on previously reported net income or
shareholders' equity.
3. RECENTLY ISSUED ACCOUNTING STANDARDS
Please refer to the caption "Recently Issued Accounting Standards" under Part I,
Item 2 on page 24 of this document.
4. COMPANY-OWNED LIFE INSURANCE
The Company has purchased life insurance policies on certain key employees with
their knowledge and consent. Company-owned life insurance is recorded at its
cash surrender value, or the amount that can be realized, on the consolidated
balance sheet. The related change in cash surrender value and proceeds received
under the policies are reported on the consolidated statement of income under
the caption "Income from company-owned life insurance".
5. NET INCOME PER COMMON SHARE
Basic net income per common share is determined by dividing net income by the
weighted average total number of shares of common stock outstanding. Diluted net
income per common share is determined by dividing net income by the total
weighted average number of shares of common stock outstanding, plus the total
weighted average number of shares that would be issued upon exercise of dilutive
stock options assuming proceeds are used to repurchase shares pursuant to the
treasury stock method. Net income per common share computations were as follows
at September 30, 2003 and 2002.
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Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands, except per share data) 2003 2002 2003 2002
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Net income, basic and diluted $ 3,901 $ 3,526 $ 10,520 $ 10,624
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Average shares outstanding 6,712 6,850 6,733 6,880
Effect of dilutive stock options 49 48 40 45
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Average diluted shares outstanding 6,761 6,898 6,773 6,925
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Net income per share, basic $ .58 $ .51 $ 1.56 $ 1.54
Net income per share, diluted .58 .51 1.55 1.53
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The sum of diluted earnings per common share of each of the quarters in 2003
does not add to the year-to-date figure reported due to rounding.
6. STOCK-BASED COMPENSATION
In 1997, the Company's Board of Directors approved a nonqualified stock option
plan that provides for granting of stock options to key employees and officers
of the Company. The plan was subsequently ratified by the Company's shareholders
at its annual shareholders' meeting held on May 12, 1998, the measurement date
of the plan. All stock options are awarded at a price equal to the fair market
value of the Company's common stock at the date the options are granted. The
Company applies Accounting Principles Board ("APB") Opinion No. 25 and related
interpretations in accounting for its plan. Accordingly, since options were
granted during 1997 at the fair market value of the Company's stock on the grant
date, and the measurement date occurred during 1998, the Company recognizes
noncash compensation expense based on the intrinsic value of the stock options
measured on the date of shareholder ratification of the plan. The fair market
value of the Company's stock was $24.50 and $39.66 on the grant date and
measurement date, respectively.
The Company granted 54,000 options during 2000. The grant date and the
measurement date for these options are the same, with the fair market value of
$29.75. Pursuant to APB No. 25, there is no compensation expense being
recognized for this grant. Had compensation expense been determined under the
fair value method described in SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, as amended by SFAS No. 148, ACCOUNTING FOR STOCK-BASED
COMPENSATION-TRANSITION AND DISCLOSURE, the Company's net income and income per
common share would have been as shown in the table below.
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Three Months Ended Nine Months Ended
September 30, September 30,
(In thousands, except per share data) 2003 2002 2003 2002
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NET INCOME
As reported $ 3,901 $ 3,526 $ 10,520 $ 10,624
Add: Stock-based employee compensation expense
included in reported net income under the
intrinsic value method, net of related tax effects 69 166 207 358
Less: Stock-based compensation expense determined
under fair value based method for all awards,
net of related tax effects (85) (249) (253) (475)
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Proforma $ 3,885 $ 3,443 $ 10,474 $ 10,507
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NET INCOME PER COMMON SHARE
Basic, as reported $ .58 $ .51 $ 1.56 $ 1.54
Basic, proforma .58 .50 1.56 1.53
Diluted, as reported .58 .51 1.55 1.53
Diluted, proforma .57 .50 1.55 1.52
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The fair value of the options granted are estimated as of the measurement date
using the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 2000 and 1997, respectively: dividend yield of
3.12% and 3.18%; expected volatility of 29.6% and 23.4%; risk-free interest rate
of 6.71% and 5.75%; and expected life of seven years for both grants. The
weighted average fair value of options granted during 2000 and 1997 was $9.25
and $16.11 per share, respectively.
The plan provides for the granting of options to purchase up to 450,000 shares
of the Company's common stock at a price equal to the fair market value of the
Company's common stock on the date the option is granted. The term of the
options expires after ten years from the date on which the options are granted.
Options granted under the plan vest ratably over various time periods ranging
from four to seven years. All options granted must be held for a minimum of one
year before they can be exercised. Forfeited options are available for the
granting of options under the plan.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements under the Private Securities
Litigation Reform Act of 1995 that involve risks and uncertainties. Although the
Company believes that the assumptions underlying the forward-looking statements
contained herein are reasonable, any of the assumptions could be inaccurate, and
therefore, there can be no assurance that the forward-looking statements
included herein will prove to be accurate. Factors that could cause actual
results to differ from the results discussed in the forward-looking statements
include, but are not limited to: economic conditions (both generally and more
specifically in the markets in which the Company and its subsidiaries operate);
competition for the Company's customers from other providers of financial
services; government legislation and regulation (which changes from time to time
and over which the Company has no control); changes in interest rates; material
unforeseen changes in the liquidity, results of operations, or financial
condition of the Company's customers; and other risks detailed in the Company's
filings with the Securities and Exchange Commission, all of which are difficult
to predict and many of which are beyond the control of the Company. The Company
expressly disclaims any intent or obligation to update any forward-looking
statements after the date hereof to conform such statements to actual results or
to changes in our opinions or expectations.
RESULTS OF OPERATIONS
THIRD QUARTER 2003 VS. THIRD QUARTER 2002
-----------------------------------------
The Company reported net income of $3.9 million for the third quarter of 2003,
an increase of $375 thousand or 10.6% compared to $3.5 million for the same
period in 2002. On a basic and diluted per share basis, net income was $0.58 for
the current three months, an increase of $.07 or 13.7% compared to the same
period in the prior year.
A decrease in net interest income had a significant effect on net income in the
reporting periods. The continued low interest rate environment, prepayments of
certain investment securities, and the sales and maturities of investment
securities that were replaced at generally lower yields resulted in lower net
interest income in the quarterly comparison. Net interest income decreased $838
thousand or 8.2% in the current three months compared to the same period in
2002. The decline in net interest income for the current quarter is mainly a
result of continued declines in the overall market interest rate environment.
Interest rates earned on earning assets have declined more rapidly than the
interest rates paid on interest paying liabilities since many of the Company's
funding sources, particularly deposits, have approached their repricing floors.
The provision for loan losses decreased $227 thousand or 26.1% in the three
month comparison. The improvement in the provision for loan losses is attributed
to changes in the general risk characteristics of the Company's entire loan
portfolio from the previous period and can not be attributed directly to any
particular individual credit.
Total noninterest income increased $810 thousand or 18.7% in the three month
comparison. Income from the purchase of company-owned life insurance, instituted
in the first quarter of 2003 to offset the rising costs of the Company's
employee benefit plans, totaled $416 thousand for the current three months.
Securities gains increased $382 thousand in the current three month comparison.
Gains on the sale of mortgage loans increased $136 thousand as the low interest
rate environment continued to fuel the Company's secondary market mortgage loan
originations.
Total noninterest expenses increased $166 thousand or 1.8% in the three month
comparison. Noninterest expenses increased primarily due to an increase in
salaries and employee benefits of $155 thousand or 3.1%. These increases mainly
represent employee benefits and normal salary increases. A decline in
correspondent banking fees of $172 thousand favorably impacted noninterest
expenses in the three month comparison. Other operating expenses generally
increased in the comparison, including depreciation increases of $86 thousand or
12.7% and bank franchise taxes of $22 thousand or 7.1%. The effective income tax
rate declined 740 basis points to 17.56% for the three months ended September
30, 2003 compared to the same period a year earlier. The decrease in the
effective income tax rate is due primarily to lower revenue from taxable
sources, an increased amount of credits derived from qualified zone academy
bonds, and the addition of nontaxable income accrued from the increase in cash
surrender value on company-owned life insurance purchased on key employees.
Return on average assets ("ROA") was 1.24% for the current quarter, an increase
of 8 basis points compared to 1.16% reported for the same period in 2002.
Negatively impacting ROA was a 44 basis point decline in net interest margin to
3.53%. Offsetting the decline in net interest margin that positively effected
ROA was an increase in noninterest income relative to average assets of 20 basis
points and declines in expenses relative to average assets that include 9 basis
points for the provision for loan losses, 7 basis points for other operating
expenses, and 15 basis points attributed to income tax expense. Return on
average equity ("ROE") was 12.44% for the third quarter of 2003 compared to
11.26% in the same period of 2002. The increase is due to higher net income
reported in the current period coupled with a slight increase in financial
leverage compared to the same period a year ago.
NET INTEREST INCOME
- -------------------
The interest rate environment has continued to trend downward after a period of
relative stability throughout much of 2002 and has negatively impacted the
Company's net interest income. Additional actions taken by the Federal Reserve
Board (the "Fed") in the fourth quarter of 2002 and the second quarter of 2003
have resulted in a general reduction in short-term interest rates in the
reporting periods. Short-term interest rates, left unchanged since December
2001, were reduced 50 basis points by the Fed in November 2002 and an additional
25 basis points in June 2003. The prime rate as reported in The Wall Street
Journal was lowered in an identical manner shortly following the Fed changes.
The effects of prior rate reductions by the Fed along with intense competition
in the Company's market areas continue to negatively impact net interest margin.
The effect of the Fed's actions on the Company has generally led to interest
rates on earning assets declining more rapidly than rates paid on interest
bearing liabilities. During a falling rate environment, the challenge is to
reduce the rates paid on interest bearing liabilities (primarily deposits) to
offset the decline in the yield on variable rate assets (primarily loans) while
remaining competitive in our markets.
The Company's tax equivalent ("TE") yield on earning assets for the current
three months was 5.2%, a reduction of 109 basis points from 6.3% in the same
period a year ago. The cost of funds for the current three months was 2.0%, a
decline of 77 basis points compared to 2.7% in the same period a year earlier. A
goal of the Company in the current interest rate environment is to increase
earning assets and decrease the interest rates paid on interest bearing
liabilities. However, many of the Company's funding sources, particularly
deposits, have approached their repricing floors. Average earning assets
increased $33.4 million or 3.1% to $1.1 billion in the quarterly comparison.
However, as a percentage of total average assets, earning assets decreased 97
basis points to 88.97% from 89.94%.
Interest income totaled $14.2 million for the third quarter of 2003, a decrease
of $2.5 million or 14.7% compared to the same period in the prior year. Interest
expense totaled $4.8 million, a decrease of $1.6 million or 25.3%. Net interest
income fell $838 thousand or 8.2% in the comparison and totaled $9.4 million for
the three months ended September 30, 2003.
Interest and fees on loans totaled $11.9 million, a decrease of $959 thousand or
7.4% mainly due to a decrease in the average rate earned. Average loans
increased $33.7 million or 4.8% to $740.2 million in the comparison due to
higher loan demand in a lower rate environment. The tax equivalent yield on
loans decreased 87 basis points to 6.4% from 7.3% and offset the effects of
higher average balances on interest income. Interest on taxable securities was
$1.3 million, a decrease of $1.3 million or 48.9% due primarily to a decrease in
the average rate earned and the effect of higher premium amortization on
mortgage-backed securities. Prepayments on mortgage-backed securities have
increased greatly due to corresponding refinancing of home mortgages that serve
as collateral for these investment securities. The increase in activity is
directly related to the lower interest rate environment. The average rate earned
on taxable securities decreased 237 basis points to 2.2% from 4.6% while the
average balance increased 6.0% to $237.4 million from $224.0 million. Interest
on nontaxable securities was $809 thousand, a decline of $41 thousand or 4.8%
due to a 28 basis point decrease in the tax equivalent yield to 6.3% from 6.6%.
Interest on short-term investments, including time deposits in other banks,
federal funds sold, and securities purchased under agreements to resell,
decreased $193 thousand. This decline was due to a decrease in the average rate
earned on these investments of 85 basis points to .9% from 1.8% along with a
$14.0 million or 18.8% decrease in the average balance.
Interest expense on deposits decreased $1.5 million or 27.3% to $4.0 million in
the quarterly comparison. This decrease resulted from a general decline in the
average rate paid throughout the deposit portfolio and correlates with the
general decline in market interest rates in the reporting periods. The decline
in the average rates paid offset a general increase in average balances. The
decline in interest expense on deposits was as follows: time deposits $1.2
million or 26.0%; interest bearing demand deposits $143 thousand or 34.2%; and
savings deposits $184 thousand or 33.3%. The average rate paid on time deposits,
the largest component of interest bearing deposits, was 3.2% for the third
quarter of 2003 compared to 4.5% for the same period of 2002. The average
balance of time deposits increased $19.2 million or 4.7% to $426.0 million. The
average rate paid on interest bearing demand deposits declined 29 basis points
to .5% from .8% while the average balance increased $12.3 million or 5.7% to
$227.6 million. The average rate paid on savings deposits decreased 46 basis
points to .9% from 1.3% while the average balance increased $3.1 million or 1.9%
to $167.8 million. Interest expense on overnight borrowings, consisting of
federal funds purchased and securities sold under agreements to repurchase,
decreased $229 thousand or 55.7% due to an 86 basis point decline in the average
rate paid along with a $14.8 million decline in the average balance. Interest
expense on other borrowed funds increased $131 thousand or 31.9% in the
comparison as additional borrowings from the Federal Home Loan Bank increased
the average balance outstanding. The average balance of other borrowed funds
totaled $61.9 million, an increase of $16.5 million or 36.5% in the comparison.
The average rate paid on other borrowed funds declined 13 basis points to 3.5%
from 3.6%.
The net interest margin (TE) decreased 44 basis points to 3.53% during the third
quarter of 2003 compared to 3.97% in the third quarter of 2002. The decrease in
net interest margin is primarily attributed to a 32 basis point decline in the
spread between rates earned on earning assets and the rates paid on interest
bearing liabilities to 3.25% in the current quarter from 3.57% in the third
quarter of 2002. The effect of noninterest bearing sources of funds contributed
an additional 12 basis points to the decline in net interest margin. The effect
of noninterest bearing sources of funds on net interest margin typically
declines in a falling rate environment.
The following tables present an analysis of net interest income for the
quarterly periods ended September 30.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY: INTEREST RATES AND INTEREST DIFFERENTIAL
- ----------------------------------------------------------------------------------------------------------------------------------
Quarter Ended September 30, 2003 2002
Average Average Average Average
(In thousands) Balance Interest Rate Balance Interest Rate
- ----------------------------------------------------------------------------------------------------------------------------------
EARNING ASSETS
Investment securities
Taxable $ 237,389 $ 1,318 2.20% $ 224,006 $ 2,578 4.57%
Nontaxable 75,434 1,195 6.29 75,110 1,244 6.57
Time deposits with banks,
federal funds sold and
securities purchased
under agreements to resell 60,342 141 .93 74,335 334 1.78
Loans 740,215 11,991 6.43 706,562 13,009 7.30
- ----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 1,113,380 $ 14,645 5.22% 1,080,013 $ 17,165 6.31%
- ----------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (11,204) (11,164)
- ----------------------------------------------------------------------------------------------------------------------------------
Total earning assets, net
of allowance for loan losses 1,102,176 1,068,849
- ----------------------------------------------------------------------------------------------------------------------------------
NONEARNING ASSETS
Cash and due from banks 89,302 96,373
Premises and equipment, net 24,260 23,777
Other assets 35,626 11,818
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,251,364 $ 1,200,817
- ----------------------------------------------------------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES
Deposits
Interest bearing demand $ 227,607 $ 275 .48% $ 215,260 $ 418 .77%
Savings 167,827 369 .87 164,679 553 1.33
Time 426,007 3,389 3.16 406,770 4,579 4.47
Federal funds purchased
and securities sold
under agreements to repurchase 74,362 182 .97 89,165 411 1.83
Other borrowed funds 61,893 542 3.47 45,352 411 3.60
- ----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 957,696 $ 4,757 1.97% 921,226 $ 6,372 2.74%
- ----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST BEARING LIABILITIES
Commonwealth of Kentucky deposits 30,810 30,146
Other demand deposits 131,681 117,403
Other liabilities 6,763 7,793
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,126,950 1,076,568
- ----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 124,414 124,249
- ----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 1,251,364 $ 1,200,817
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income 9,888 10,793
TE basis adjustment (456) (523)
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest income $9,432 $ 10,270
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest spread 3.25% 3.57%
Impact of noninterest bearing
sources of funds .28 .40
- ----------------------------------------------------------------------------------------------------------------------------------
Net interest margin 3.53% 3.97%
- ----------------------------------------------------------------------------------------------------------------------------------
Income and yield stated at a fully tax equivalent basis using the marginal
corporate Federal tax rate of 35%.
Loan balances include principal balances on nonaccrual loans.
Loan fees included in interest income amount to $563 thousand and $518 thousand
in 2003 and 2002, respectively.
ANALYSIS OF CHANGES IN NET INTEREST INCOME (TAX EQUIVALENT BASIS)
- -----------------------------------------------------------------------------------------------------------
(In thousands) Variance Variance Attributed to
Quarter Ended September 30, 2003/2002 Volume Rate
- -----------------------------------------------------------------------------------------------------------
INTEREST INCOME
Taxable investment securities $(1,260) $ 967 $(2,227)
Nontaxable investment securities (49) 34 (83)
Time deposits with banks, federal funds sold and
securities purchased under agreements to resell (193) (55) (138)
Loans2 (1,018) 3,220 (4,238)
- -----------------------------------------------------------------------------------------------------------
Total interest income (2,520) 4,166 (6,686)
- -----------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest bearing demand deposits (143) 146 (289)
Savings deposits (184) 70 (254)
Time deposits (1,190) 1,316 (2,506)
Federal funds purchased and securities sold under
agreements to repurchase (229) (60) (169)
Other borrowed funds 131 227 (96)
- -----------------------------------------------------------------------------------------------------------
Total interest expense (1,615) 1,699 (3,314)
- -----------------------------------------------------------------------------------------------------------
Net interest income $ (905) $ 2,467 $(3,372)
- -----------------------------------------------------------------------------------------------------------
Percentage change 100.0% (272.6)% 372.6%
- -----------------------------------------------------------------------------------------------------------
The changes that are not solely due to rate or volume are allocated on a
percentage basis using the absolute values of rate and volume variances as a
basis for allocation.
Income stated at fully tax equivalent basis using the marginal corporate Federal
tax rate of 35%.
NONINTEREST INCOME
- ------------------
Noninterest income was $5.2 million for the current quarter, an increase of $810
thousand or 18.7% compared to the third quarter of the prior year. Service
charges and fees on deposits, the largest component of noninterest income,
decreased $137 thousand or 6.6% to $2.0 million. Overdraft fees declined $15
thousand or 1.2% and service charges on demand deposit accounts declined $12
thousand or 5.0% in the comparison. Fees related to deposit accounts of the
Commonwealth of Kentucky also declined $123 thousand or 65.0% and corresponds to
the decrease in correspondent bank fees included in noninterest expense. Other
service charges, commissions, and fees were up $12 thousand or 1.3% to $909
thousand. Data processing fees were $337 thousand, a decline of less than 1%.
Trust income totaled $385 thousand, an increase of $17 thousand or 4.6% compared
to $368 thousand a year earlier. Net gains on the sale of available for sale
securities totaled $822 thousand, an increase of $382 thousand or 86.8% compared
to the comparable period a year ago as the Company sought to manage the
composition of its balance sheet in a continuing difficult economic environment.
Net gains on the sale of mortgage loans were $276 thousand, an increase of $136
thousand or 97.1% from $140 thousand in the prior year as mortgage loans
originated for sale increased $6.1 million in the comparison due to the low
interest rate environment. Income from company-owned life insurance, purchased
near the end of the first quarter of 2003, was $416 thousand in the current
three-month period. Other noninterest income totaled $55 thousand, a decrease of
$13 thousand compared to the same period in the prior year.
NONINTEREST EXPENSE
- -------------------
Total noninterest expenses were $9.2 million for the third quarter of 2003, an
increase of $166 thousand or 1.8% from the third quarter of 2002. Salaries and
employee benefits account for a significant portion of the total increase in
noninterest expense. Total salaries and benefits increased $155 thousand or 3.1%
to $5.2 million in the quarterly comparison. Employee benefit expenses increased
$55 thousand or 5.8%. Salary and related payroll expenses increased $126
thousand or 3.2% in the comparison while noncash compensation expense related to
the Company's nonqualified stock option plan declined $26 thousand or 19.6% due
to the structure of the vesting schedule and forfeitures. The number of full
time equivalent employees decreased to 450 from 452 reported in the prior
period. Occupancy expense, net of rental income, was virtually unchanged in the
comparison and totaled $621 thousand for the current quarter. Equipment expense
totaled $934 thousand in the current quarter, an increase of $89 thousand or
10.5% due primarily to increased depreciation expense. Other noninterest
expenses, including bank franchise taxes, decreased $76 thousand or 3.0% to $2.5
million. This decrease is due mainly to a $172 thousand decline in correspondent
bank fees related to activity attributed to the Commonwealth of Kentucky.
INCOME TAXES
- ------------
Income tax expense for the third quarter of 2003 was $831 thousand, a decrease
of $342 thousand or 29.2% from the same period a year earlier. The effective tax
rate decreased 740 basis points to 17.56% from 24.96% in 2002. The change in the
effective tax rate is due to a combination of factors, primarily including lower
revenue from taxable sources, increased credits derived from qualified zone
academy bonds, and the addition of nontaxable income accrued from the increase
in cash surrender value on life insurance purchased on key employees.
FIRST NINE MONTHS OF 2003 VS. FIRST NINE MONTHS OF 2002
-------------------------------------------------------
The Company reported net income of $10.5 million for the nine months ended
September 30, 2003, a decrease of $104 thousand or 1.0% compared to $10.6
million for the same period in 2002. Basic and diluted net income per share were
$1.56 and $1.55, respectfully, for the current nine months. This represents an
increase of $.02 or 1.3% on both a basic and diluted per share basis. The per
share earnings increase is a result of fewer common shares outstanding
attributed to the Company's share buy back program.
A decrease in net interest income had a significant effect on net income in the
reporting periods. The continued low interest rate environment, prepayments of
certain investment securities, and the sales and maturities of investment
securities that were replaced at generally lower yields resulted in lower net
interest income in the nine month comparison. Net interest income decreased $1.6
million or 5.4% in the current nine months compared to the same period in 2002.
The decline in net interest income for the current period is mainly a result of
lower revenues earned on earning assets due to a continued decline in the
overall market interest rate environment. Interest rates earned on earning
assets have declined more rapidly than the interest rates paid on interest
paying liabilities since many of the Company's funding sources, particularly
deposits, have approached their repricing floors.
The provision for loan losses decreased $600 thousand or 30.3% in the nine month
period ended September 30, 2003 compared to the same period in 2002. The
improvement in the provision for loan losses is attributed to changes in the
general risk characteristics of the Company's entire loan portfolio from the
previous period and can not be attributed directly to any particular individual
credit.
Total noninterest income increased $1.2 million or 9.5% in the nine month
comparison despite lower gains reported on the sale of investment securities of
$467 thousand in the current period. Income from the purchase of company-owned
life insurance, instituted in the first quarter of 2003 to offset the rising
costs of the Company's employee benefits plans, totaled $1.1 million for the
current nine months. Gains on the sale of mortgage loans also increased $463
thousand in the comparison as the low interest rate environment continued to
fuel the Company's secondary market mortgage loan originations.
Offsetting the increase in noninterest income were increases in noninterest
expenses totaling $1.0 million or 3.9% for the current nine months. Noninterest
expenses increased primarily due to higher salaries and employee benefits of
$485 thousand or 3.2%. These increases relate primarily to increases in employee
benefits and normal salary increases. An increase in correspondent banking fees
totaling $104 thousand also contributed to the increase in noninterest expenses.
The effective income tax rate declined 420 basis points to 21.06% for the nine
months ended September 30, 2003 compared to the same period a year earlier.
ROA was 1.13% for the nine months ended September 30, 2003, a decrease of 5
basis points from the same period in 2002. Negatively impacting ROA was a 38
basis point decline in net interest margin to 3.58% and an increase in
noninterest expenses of 2 basis points. Partially offsetting these declines that
positively effected ROA was an increase in earning assets that contributed 7
basis points, a decrease in the provision for loan losses that contributed 7
basis points, an increase in noninterest income contributing 8 basis points, and
a decrease in income tax expense that contributed 13 basis points. ROE was
11.27% for the first nine months of 2003 compared to 11.42% for the same period
of 2002. The decrease is due to lower net income reported in the current period
coupled with a slight increase in average equity compared to the same period a
year ago.
NET INTEREST INCOME
- -------------------
Continuing weaknesses in the overall economic environment remain present and
have impacted the Company's net interest income. The interest rate environment
has continued to trend downward after a period of relative stability throughout
much of 2002. Additional actions taken by the Fed in the fourth quarter of 2002
and the second quarter of 2003 have resulted in a general reduction in
short-term interest rates in the reporting periods. Short-term interest rates,
left unchanged since December 2001, were reduced 50 basis points by the Fed in
November 2002 and an additional 25 basis points in June 2003. The prime rate as
reported in The Wall Street Journal was lowered in an identical manner shortly
following the Fed changes. The effects of prior rate reductions by the Fed along
with intense competition in the Company's market areas continue to negatively
impact net interest margin. The effect of the Fed's actions on the Company has
generally led to interest rates on earning assets declining more rapidly than
rates paid on interest bearing liabilities. During a falling rate environment,
the challenge is to reduce the rates paid on interest bearing liabilities
(primarily deposits) to offset the decline in the yield on variable rate assets
(primarily loans) while remaining competitive in our markets.
The Company's tax equivalent yield on earning assets for the current nine months
was 5.4%, a reduction of 101 basis points from 6.4% in the same period a year
ago. The cost of funds for the current nine months was 2.2%, a decline of 72
basis points compared to 2.9% in the same period a year earlier. A goal of the
Company in the current interest rate environment is to increase earning assets
and decrease the interest rates paid on interest bearing liabilities. However,
many of the Company's funding sources, particularly deposits, have approached
their repricing floors. Average earning assets increased $46.6 million or 4.3%
to $1.1 billion in the comparison. As a percentage of total average assets,
earning assets increased to 90.57% from 89.76%. This increase had the effect of
adding an additional 7 basis points to ROA in the comparison.
Interest income totaled $44.1 million for the first nine months of 2003, a
decrease of $6.1 million or 12.1% compared to the same period in the prior year.
Interest expense totaled $15.3 million, a decrease of $4.5 million or 22.5%. Net
interest income fell $1.6 million or 5.4% in the comparison and totaled $28.7
million at September 30, 2003.
Interest and fees on loans totaled $36.3 million, a decrease of $2.3 million
mainly due to a decrease in the average rate earned. Average loans increased
$42.8 million or 6.2% to $739.5 million in the comparison due to higher loan
demand in a lower rate environment. The tax equivalent yield on loans decreased
87 basis points to 6.6% from 7.5% and offset the effects of higher average
balances on interest income. Interest on taxable securities was $4.8 million, a
decrease of $3.1 million or 39.2% due primarily to a decrease in the average
rate earned and the effect of higher premium amortization on mortgage-backed
securities. Prepayments on mortgage-backed securities have increased greatly due
to corresponding refinancing of home mortgages that serve as collateral for
these investment securities. The increase in activity is directly related to the
lower interest rate environment. The average rate earned on taxable securities
decreased 187 basis points to 2.6% from 4.4% while the average balance increased
$11.7 million or 4.9%. Interest on nontaxable securities declined $307 thousand
or 11.4% due to a $7.2 million or 9.1% decrease in the average balance to $72.4
million from $79.6 million. Interest on short-term investments, including time
deposits in other banks, federal funds sold, and securities purchased under
agreements to resell, decreased $387 thousand due primarily to a decrease in the
average rate earned on these investments of 79 basis points to 1.2% from 1.9%.
Interest expense on deposits decreased $4.3 million or 24.9% to $13.0 million in
the nine month comparison. This decrease resulted from a general decline in the
average rate paid throughout the deposit portfolio and correlates with the
general decline in market interest rates in the reporting periods. The decline
in the average rates paid offset a general increase in average balances. The
decline in interest expense on deposits was as follows: time deposits $3.3
million or 23.3%; interest bearing demand deposits $518 thousand or 34.5%; and
savings deposits $524 thousand or 29.7%. The average rate paid on time deposits,
the largest component of interest bearing deposits, was 3.4% for the nine months
ended September 30, 2003 compared to 4.7% for the same period of 2002. The
average balance of time deposits increased $20.0 million or 5.0% to $423.3
million. The average rate paid on interest bearing demand deposits declined 34
basis points to .6% from .9% while the average balance increased $7.9 million or
3.7% to $223.2 million. The average rate paid on savings deposits decreased 44
basis points to 1.0% from 1.4% while the average balance increased $2.6 million
or 1.6% to $167.0 million from $164.4 million. Interest expense on overnight
borrowings, consisting of federal funds purchased and securities sold under
agreements to repurchase, decreased $634 thousand due to a 60 basis point
decline in the average rate paid along with a $22.4 million decline in the
average balance. Interest expense on other borrowed funds increased $485
thousand in the comparison as additional borrowings from the Federal Home Loan
Bank increased the average balance outstanding. The average balance of other
borrowed funds totaled $64.8 million, an increase of $22.7 million or 53.9% in
the comparison. The average rate paid on other borrowed funds declined 30 basis
points to 3.4% from 3.7%.
The net interest margin (TE) decreased 38 basis points to 3.58% during the nine
months ended September 30, 2003 compared to 3.96% in the same period of 2002.
The decrease in net interest margin is primarily attributed to a 29 basis point
decline in the spread between rates earned on earning assets and the rates paid
on interest bearing liabilities to 3.25% in the current nine months from 3.54%
in the same period in 2002. The effect of noninterest bearing sources of funds
contributed an additional 9 basis points to the decline in net interest margin.
The effect of noninterest bearing sources of funds on net interest margin
typically declines in a falling rate environment.
The following tables present an analysis of net interest income for the nine
months ended September 30.
DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY: INTEREST RATES AND INTEREST DIFFERENTIAL
- -----------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended September 30, 2003 2002
- -----------------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
(In thousands) Balance Interest Rate Balance Interest Rate
- -----------------------------------------------------------------------------------------------------------------------------------
EARNING ASSETS
Investment securities
Taxable $ 250,403 $ 4,818 2.57% $ 238,733 $ 7,921 4.44%
Nontaxable 72,405 3,523 6.51 79,621 3,943 6.62
Time deposits with banks,
federal funds sold and
securities purchased under
agreements to resell 64,310 555 1.15 64,964 942 1.94
Loans 739,505 36,575 6.61 696,679 38,977 7.48
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets 1,126,623 $ 45,471 5.40% 1,079,997 $ 51,783 6.41%
- -----------------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses (11,244) (10,705)
- -----------------------------------------------------------------------------------------------------------------------------------
Total earning assets, net
of allowance for loan losses 1,115,379 1,069,292
- -----------------------------------------------------------------------------------------------------------------------------------
NONEARNING ASSETS
Cash and due from banks 74,655 98,272
Premises and equipment, net 24,206 24,261
Other assets 29,634 11,386
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,243,874 $ 1,203,211
- -----------------------------------------------------------------------------------------------------------------------------------
INTEREST BEARING LIABILITIES
Deposits
Interest bearing demand $ 223,166 $ 982 .59% $ 215,263 $ 1,500 .93%
Savings 167,014 1,240 .99 164,443 1,764 1.43
Time 423,319 10,774 3.40 403,358 14,038 4.65
Federal funds purchased
and securities sold under
agreements to repurchase 74,668 684 1.22 97,079 1,318 1.82
Other borrowed funds 64,750 1,649 3.40 42,071 1,164 3.70
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest bearing liabilities 952,917 $ 15,329 2.15% 922,214 $ 19,784 2.87%
- -----------------------------------------------------------------------------------------------------------------------------------
NONINTEREST BEARING LIABILITIES
Commonwealth of Kentucky deposits 34,130 33,479
Other demand deposits 125,224 115,741
Other liabilities 6,843 7,344
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities 1,119,114 1,078,778
- -----------------------------------------------------------------------------------------------------------------------------------
Shareholders' equity 124,760 124,433
- -----------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 1,243,874 $ 1,203,211
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 30,142 31,999
TE basis adjustment (1,417) (1,638)
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income $ 28,725 $ 30,361
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest spread 3.25% 3.54%
Impact of noninterest bearing
sources of funds .33 .42
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest margin 3.58% 3.96%
- -----------------------------------------------------------------------------------------------------------------------------------
Income and yield stated at a fully tax equivalent basis using the marginal
corporate Federal tax rate of 35%.
Loan balances include principal balances on nonaccrual loans.
Loan fees included in interest income amount to $1.7 million and $1.4 million in
2003 and 2002, respectively.
ANALYSIS OF CHANGES IN NET INTEREST INCOME (TAX EQUIVALENT BASIS)
- ---------------------------------------------------------------------------------------------
(In thousands) Variance Variance Attributed to
Nine Months Ended September 30, 2003/2002 Volume Rate
- ---------------------------------------------------------------------------------------------
INTEREST INCOME
Taxable investment securities $(3,103) $ 606 $(3,709)
Nontaxable investment securities (420) (355) (65)
Time deposits with banks, federal funds sold and
securities purchased under agreements to resell (387) (10) (377)
Loans2 (2,402) 3,361 (5,763)
- ---------------------------------------------------------------------------------------------
Total interest income (6,312) 3,602 (9,914)
- ---------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest bearing demand deposits (518) 86 (604)
Savings deposits (524) 45 (569)
Time deposits (3,264) 1,060 (4,324)
Federal funds purchased and securities sold under
agreements to repurchase (634) (261) (373)
Other borrowed funds 485 641 (156)
- ---------------------------------------------------------------------------------------------
Total interest expense (4,455) 1,571 (6,026)
- ---------------------------------------------------------------------------------------------
Net interest income $(1,857) $ 2,031 $(3,888)
- ---------------------------------------------------------------------------------------------
Percentage change 100.0% (109.4)% 209.4%
- ---------------------------------------------------------------------------------------------
The changes that are not solely due to rate or volume are allocated on a
percentage basis using the absolute values of rate and volume variances as a
basis for allocation.
Income stated at fully tax equivalent basis using the marginal corporate Federal
tax rate of 35%.
NONINTEREST INCOME
- ------------------
Noninterest income was $13.8 million for the first nine months of 2003, an
increase of $1.2 million or 9.5% compared to the same period in 2002. The
largest component of noninterest income, service charges and fees on deposits,
decreased $63 thousand or 1.1% to $5.8 million. Overdraft fees declined $121
thousand or 3.2% and service charges on demand deposit accounts declined $56
thousand or 7.6% in the comparison. Offsetting these declines was an increase in
fees related to the Commonwealth of Kentucky of $61 thousand or 22.5% and
corresponds to the increase in correspondent bank fees included in noninterest
expense. Other service charges, commissions, and fees increased $55 thousand or
2.1% to $2.7 million. Data processing fees were relatively unchanged at $1.1
million. Trust fees increased $101 thousand or 9.2% to $1.1 million. Net gains
on the sale of available for sale securities was $966 thousand for the current
nine months, a decrease of $467 thousand or 32.6% compared to $1.4 million in
the comparable period a year ago as the Company sought to manage the composition
of its balance sheet in a continuing difficult economic environment. Net gains
on the sale of mortgage loans were $788 thousand, an increase of $463 thousand
from $325 thousand in the prior year as mortgage loans originated for sale
increased $26.7 million in the comparison due to the low interest rate
environment. Income from company-owned life insurance, purchased near the end of
the first quarter of 2003, was $1.1 million. Other noninterest income totaled
$198 thousand, relatively unchanged from $192 thousand in the prior year.
NONINTEREST EXPENSE
- -------------------
Noninterest expenses totaled $27.8 million for the first nine months of 2003, an
increase of $1.0 million or 3.9% compared to the same period in 2002. Salaries
and employee benefits, the largest component of noninterest expense, increased
$485 thousand or 3.2% and totaled $15.5 million at September 30, 2003. Employee
benefit expenses increased $237 thousand primarily due to the new postretirement
health insurance coverage initiated during the first quarter of 2003. Salary and
related payroll expenses increased $362 thousand or 3.0% in the comparison while
noncash compensation expense related to the Company's nonqualified stock option
plan declined $115 thousand or 26.6% due to the structure of the vesting
schedule and forfeitures. The number of full time equivalent employees decreased
to 450 from 452 reported in the prior period. Occupancy expense, net of rental
income, increased $139 thousand or 7.8% and totaled $1.9 million. The increase
in net occupancy expense is attributed to increases in maintenance and repairs,
utilities costs, and depreciation. Equipment expense was $2.8 million, an
increase of $110 thousand or 4.1% due to higher depreciation and maintenance
related to additional asset purchases. Other noninterest expenses, including
bank franchise taxes, increased $311 thousand or 4.2% to $7.6 million mainly due
to a $104 thousand increase in correspondent bank fees related to activity
attributed to the Commonwealth of Kentucky.
INCOME TAXES
- ------------
Income tax expense for the first nine months of 2003 was $2.8 million, a
decrease of $785 thousand or 21.9% from the same period a year earlier. The
effective tax rate decreased 420 basis points to 21.06% from 25.26% in 2002. The
change in the effective tax rate is due to a combination of factors, primarily
including lower revenue from taxable sources, increased credits derived from
qualified zone academy bonds, and the addition of nontaxable income accrued from
the increase in cash surrender value on life insurance purchased on key
employees.
FINANCIAL CONDITION
Total assets were $1.3 billion on September 30, 2003, a decrease of $6.8 million
or .5% from December 31, 2002. The decrease in assets includes a $101.4 million
lower balance in the securities portfolio, offset by a $68.9 million increase in
cash and cash equivalents and a $25.8 million increase in all other assets
resulting primarily from the purchase of company-owned life insurance during the
first quarter of 2003. Fed funds purchased and securities sold under agreements
to repurchase declined $51.7 million while net deposits and other borrowings
increased $44.8 million. The makeup of the balance sheet continually changes as
the Company responds to extremely competitive market forces. Management of the
Company considers it noteworthy to understand the relationship between the
Company's principal subsidiary, Farmers Bank & Capital Trust Co., and the
Commonwealth of Kentucky. Farmers Bank provides various services to state
agencies of the Commonwealth. As the depository for the Commonwealth, these
agencies issue checks drawn on Farmers Bank, including paychecks and state
income tax refunds. Farmers Bank also processes vouchers of the WIC (Women,
Infants and Children) program for the Cabinet for Human Resources. The Bank's
investment department also provides services to the Teacher's Retirement
systems. As the depository for the Commonwealth, large fluctuations in deposits
are likely to occur on a daily basis. Therefore, reviewing average balances is
important to understanding the financial condition of the Company. On an average
basis, total assets were $1.2 billion for the first nine months of 2003, an
increase of $37.5 million or 3.1% from year-end 2002. Average earning assets,
primarily loans and securities, were $1.1 billion at September 30, 2003, an
increase of $36.2 million or 3.3% from year-end 2002. Average earning assets
represent 90.57% of total average assets on September 30, 2003, an increase of
18 basis points compared to 90.39% at year-end 2002.
LOANS
- -----
Loans, net of unearned income, totaled $739.3 million at September 30, 2003, an
increase of $659 thousand or .1% from year-end 2002. The composition of the loan
portfolio is summarized in the table below.
- --------------------------------------------------------------------------------
September 30, 2003 December 31, 2002
(Dollars in thousands) Amount % Amount %
- --------------------------------------------------------------------------------
Commercial, financial,
and agriculture $ 105,331 14.3% $ 110,056 14.9%
Real estate - construction 52,926 7.1 55,896 7.6
Real estate - mortgage 473,900 64.1 459,620 62.2
Installment 71,588 9.7 76,162 10.3
Lease financing 35,553 4.8 36,905 5.0
- --------------------------------------------------------------------------------
Total $ 739,298 100.0% $ 738,639 100.0%
- --------------------------------------------------------------------------------
On average, loans represented 65.6% of earning assets during the current nine
month period compared to 64.7% for year-end 2002. As loan demand fluctuates, the
available funds are reallocated between loans and lower earning temporary
investments or investment securities, which typically involve a decrease in
credit risk and lower yields.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses was $11.1 million at September 30, 2003, an
increase of $66 thousand or .6% from the prior year-end. The allowance for loan
losses was 1.51% of loans net of unearned income at September 30, 2003, an
increase of 1 basis point from 1.50% at December 31, 2002. The provision for
loan losses decreased $227 thousand and $600 thousand in the current three-month
and nine-month periods, respectively, compared to the same periods in 2002. The
improvement in the provision for loan losses is attributed to changes in the
general risk characteristics of the Company's entire loan portfolio from the
previous periods and cannot be attributed directly to any particular individual
credit. The Company had net charge-offs of $671 thousand and $1.3 million in the
current three and nine months of 2003, respectively, compared to net charge-offs
of $277 thousand and $909 thousand in the same periods of 2002. Annualized net
charge-offs represent .36% and .24% of average net loans for three and nine
months ended September 30, 2003, respectively, compared to .60% at year-end
2002. The allowance for loan losses as a percentage of nonperforming loans
totaled 80.5% and 57.3% at September 30, 2003 and December 31, 2002,
respectively. The increase is primarily reflective of the decline in nonaccrual
loans of $4.7 million in the comparison. Management continues to emphasize
collection efforts and evaluation of risks within the loan portfolio. In
management's opinion, the provision for loan losses represents incurred credit
losses during the periods presented and the allowance for loan losses is
adequate to cover losses inherent in the loan portfolio.
NONPERFORMING ASSETS
- --------------------
Nonperforming assets for the Company include nonperforming loans, other real
estate owned, and other foreclosed assets. Nonperforming loans consist of
nonaccrual loans, restructured loans, and loans past due ninety days or more on
which interest is still accruing. Nonperforming assets totaled $15.5 million at
September 30, 2003, a decrease of $4.3 million or 21.9% from the prior year-end.
Nonperforming loans totaled $13.8 million at September 30, 2003 a decrease of
$5.5 million or 28.4% compared to year-end 2002. Nonperforming loans include a
pool of constructions loans secured by residential real estate to a financially
troubled builder. This pool of loans totaled $9.4 million at September 30, 2003.
Interest income lost on this group of loans due to their nonaccrual status
totaled $154 thousand and $520 thousand during the three and nine months ended
September 30, 2003, respectively. At its current outstanding balance, it is
estimated that a total of $137 thousand of interest income will be lost in each
subsequent quarter related to this credit while it remains on nonaccrual status.
Nonperforming loans as a percentage of net loans were 1.9% at September 30,
2003, a decrease of 74 basis points from 2.6% compared to year-end 2002.
Other real estate owned ("OREO"), which had a balance of $385 thousand at
year-end 2002, increased $916 thousand and totaled $1.3 million at September 30,
2003. The increase in OREO is mainly due to the transfer to the Company of
approximately $1.2 million in real estate that served as collateral for a
portion of the pool of construction loans identified in the preceding paragraph.
TEMPORARY INVESTMENTS
- ---------------------
Temporary investments consist of interest bearing deposits with other banks,
federal funds sold, and securities purchased under agreements to resell and
totaled $30.3 million at September 30, 2003. This represents an increase of $7.2
million or 31.5% from year-end 2002. Temporary investments averaged $64.3
million for the first nine months of 2003, a decrease of $4.6 million from
year-end 2002. The decrease is primarily a result of the Company's net funding
position and the relationship between its principal subsidiary and the
Commonwealth of Kentucky as described in preceding sections of this report.
Temporary investments are reallocated as loan demand and other investment
alternatives present the opportunity.
INVESTMENT SECURITIES
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Investment securities were $340.1 million on September 30, 2003, a decrease of
$101.4 million or 23.0% from year-end 2002. Available for sale and held to
maturity securities were $315.9 million and $24.2 million, respectively.
Investment securities averaged $322.8 million for the first nine months of 2003,
an increase of $6.4 million or 2.0% from year-end 2002. The increase in average
investment securities is attributable to the Company's continued efforts to
manage its net interest margin during a period of low market interest rates and
correlates with the increase in average borrowed funds. The Company had an
unrealized gain on available for sale investment securities of $2.1 million at
September 30, 2003 compared to $5.5 million at year-end 2002. The decrease is
primarily the result of a lower balance in the available for sale portfolio
attributed to the sale of investment securities during the current period.
COMPANY-OWNED LIFE INSURANCE
- ----------------------------
The Company purchased life insurance policies on certain key employees, with
their knowledge and consent, during the current year at a cost of $24.0 million.
Company-owned life insurance is recorded at its cash surrender value, or the
amount that can be realized, on the consolidated balance sheet with the related
change in cash surrender value and proceeds received under the policies reported
on the consolidated statement of income as tax-free noninterest income, which
totaled $1.1 million for the current nine-month period. The Company is the sole
beneficiary of proceeds received under the policies. Expected income from the
purchase of the insurance policies will be used to offset the rising costs of
the Company's various benefit plans as well as the additional costs of
implementing a new postretirement health insurance program. Under the new
postretirement health insurance plan, any employee that meets the service
requirements upon retirement would be eligible to continue their health
insurance coverage, identical to the coverage that is offered to active
employees. The employee will pay 50% of the cost and the Company will pay 50%.
It is currently estimated that the expense related to the new postretirement
health insurance plan will be approximately $114 thousand per quarter for the
remainder of 2003.
DEPOSITS
- --------
Total deposits were $1.0 billion at September 30, 2003, an increase of $53.4
million or 5.6% from year-end 2002. Noninterest bearing deposits increased $57.6
million or 40.8% in the comparison. This increase is primarily due to the
relationship between the Company's principal subsidiary and the Commonwealth of
Kentucky as described in preceding sections of this report. On average,
noninterest bearing deposits were $159.4 million during the current period, an
increase of $8.5 million or 5.7%. End of period interest bearing deposit
balances decreased $4.2 million or .5% during the nine months ended September
30, 2003 due primarily to a decrease in money market deposit accounts of $11.5
million or 10.0%. Other savings and interest bearing demand accounts were
relatively unchanged at $65.5 million and $223.2 million, respectively. Time
deposits increased $7.4 million or 1.8% in the end of period comparisons. On
average, interest bearing deposits were $813.5 million in the current period, an
increase of $26.0 million or 3.3% from year-end 2002. The increase in average
interest bearing deposits is attributable to increases in interest bearing
demand deposits of $7.4 million or 3.4%, time deposits of $18.7 million or 4.6%,
and savings accounts of $3.0 million or 5.0%. Average money market deposit
accounts declined $3.1 million or 2.9% in the comparison. Total deposits
averaged $972.9 million, an increase of $34.6 million or 3.7% from year-end
2002.
BORROWED FUNDS
- --------------
Borrowed funds totaled $122.0 million at September 30, 2003, a decrease of $60.3
million or 33.1% from $182.3 million at year-end 2002. A $59.8 million net
decrease in short term borrowings coupled with a net decrease in long-term
borrowings of $503 thousand account for the total decrease in borrowed funds.
Federal funds purchased and securities sold under agreements to repurchase,
which are included in short-term borrowings, decreased $51.7 million or 44.6%
due primarily to the relationship between the Company's principal subsidiary and
the Commonwealth of Kentucky as described in preceding sections of this report.
Other short-term borrowings, primarily short-term borrowings from the Federal
Home Loan Bank ("FHLB") declined $8.1 million to $1.1 million from $9.2 million.
Total borrowed funds averaged $139.4 million, an increase of $3.4 million or
2.5% from year-end 2002.
LIQUIDITY
The Parent Company's primary use of cash consists of dividend payments to its
common shareholders, purchases of its common stock, and other general operating
purposes. Liquidity of the Parent Company depends primarily on the receipt of
dividends from its subsidiary banks and cash balances maintained. As of
September 30, 2003 combined retained earnings of the subsidiary banks were $45.6
million, of which $4.0 million was available for the payment of dividends to the
Parent Company without obtaining prior approval from bank regulatory agencies.
As a practical matter, payment of future dividends is also subject to the
maintenance of other capital ratio requirements. During the current nine months
ended September 30, 2003 the Parent Company received dividends of $30.8 million.
Management expects that in the aggregate, its subsidiary banks will continue to
have the ability to pay dividends in order to provide funds to the Parent
Company during the remainder of 2003 sufficient to meet its liquidity needs. The
Parent Company had cash balances of $26.3 million at September 30, 2003.
The Company's objective as it relates to liquidity is to insure that subsidiary
banks have funds available to meet deposit withdrawals and credit demands
without unduly penalizing profitability. In order to maintain a proper level of
liquidity, the banks have several sources of funds available on a daily basis,
which can be used for liquidity purposes. These sources of funds primarily
include the subsidiary banks' core deposits, consisting of both business and
nonbusiness deposits; cash flow generated by repayment of loan principal and
interest; and federal funds purchased and securities sold under agreements to
repurchase. The terms of the recent FHLB advances have been taken into
consideration in relation to the overall funding needs of the Company.
For the longer term, the liquidity position is managed by balancing the maturity
structure of the balance sheet. This process allows for an orderly flow of funds
over an extended period of time. The Company's Asset and Liability Management
Committee meets regularly and monitors the composition of the balance sheet to
ensure comprehensive management of interest rate risk and liquidity.
Liquid assets consist of cash, cash equivalents, and securities available for
sale. At September 30, 2003, such assets totaled $451.9 million, a decrease of
$28.3 million or 5.9% from year-end 2002. The decrease in liquid assets is
attributed to the overall funding position of the Company combined with the
purchase of company-owned life insurance on key employees during the current
nine months. Net cash provided by operating activities was $17.3 million in the
first nine months of 2003, an increase of $3.6 million or 26.3% compared to
$13.7 million in the same period last year. Net cash provided by investing
activities was $67.8 million, an increase of $29.6 million due primarily to a
$40.1 million increase from investments securities transactions, lower net loans
originated for investment in the current nine months of $14.9 million, and the
purchase of company-owned life insurance on key employees of $24.0 million. Net
cash used in financing activities was $16.2 million for the nine months ended
September 30, 2003. In the prior nine-month comparison financing activities
provided $84.1 million. The change is mainly due to lower funding activity
during the current nine-month period compared to the activity in the same period
a year earlier.
CAPITAL RESOURCES
Shareholders' equity was $125.2 million on September 30, 2003, a decrease of
$573 thousand or .5% from year-end 2002. Treasury stock purchases along with a
decline in unrealized gains on available for sale investment securities offset
increases in other equity components.
The Company purchased 98 thousand shares of its outstanding common stock during
the first nine months of 2003 for a total cost of $3.1 million. The Company
issued 14 thousand shares of common stock during this same period pursuant to
its nonqualified stock option plan. Dividends of $6.5 million or $.96 per share
were declared during the first nine months of 2003, an increase of 3.2% per
share compared to the prior year. Accumulated other comprehensive income,
consisting of the unrealized holding gain on available for sale investment
securities (net of tax) decreased $2.2 million from year-end 2002 primarily as a
result of a lower balance in the available for sale investment portfolio
attributed to the sale of investment securities during the current period.
Consistent with the objective of operating a sound financial organization, the
Company's goal is to maintain capital ratios well above the regulatory minimum
requirements. The Company's capital ratios as of September 30, 2003, the
regulatory minimums and the regulatory standard for a "well capitalized"
institution are as follows:
Farmers Capital Regulatory Well
Bank Corporation Minimum Capitalized
- --------------------------------------------------------------------------------
Tier 1 risk based 15.42% 4.00% 6.00%
Total risk based 16.67% 8.00% 10.00%
Leverage 9.95% 4.00% 5.00%
The capital ratios of all the subsidiary banks, on an individual basis, were in
excess of the applicable minimum regulatory capital ratio requirements at
September 30, 2003.
RECENTLY ISSUED ACCOUNTING STANDARDS
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, CONSOLIDATION OF VARIABLE INTEREST ENTITIES, AN
INTERPRETATION OF ARB NO. 51. This Interpretation provides new guidance for the
consolidation of variable interest entities ("VIEs") and requires such entities
to be consolidated by their primary beneficiaries if the entities do not
effectively disperse risk among parties involved. The Interpretation also adds
disclosure requirements for investors that are involved with unconsolidated
VIEs. The consolidation requirements apply immediately to VIEs created after
January 31, 2003 and are effective for the first fiscal year or interim period
ending after December 15, 2003 for VIEs acquired before February 1, 2003. The
adoption of this interpretation is not expected have a significant impact on the
Company's financial condition of results of operations.
In April 2003, The FASB issued Statement of Financial Accounting Standards
("SFAS") No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES. SFAS No. 149 amends and clarifies financial accounting and
reporting for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities under SFAS No. 133,
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. This statement is
effective for contracts entered into or modified after June 30, 2003. Because
the Company does not have these instruments or is only nominally involved in
these instruments, management expects the adoption of this statement will not
have a material effect on the Company's consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150, ACCOUNTING FOR CERTAIN FINANCIAL
INSTRUMENTS WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY. This statement
affects the accounting for certain financial instruments that, under previous
guidance, issuers could account for as equity. This statement requires that
freestanding financial instruments that embody obligations for the issuer be
classified as liabilities on the balance sheet. Most of this statement is
effective for financial instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. Because the Company does not have these
instruments or is only nominally involved in these instruments, management
expects the adoption of this statement will not have a material effect on the
Company's consolidated financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- -------------------------------------------------------------------
The Company uses a simulation model as a tool to monitor and evaluate interest
rate risk exposure. The model is designed to measure the sensitivity of net
interest income and net income to changing interest rates over future time
periods. Forecasting net interest income and its sensitivity to changes in
interest rates requires the Company to make assumptions about the volume and
characteristics of many attributes, including assumptions relating to the
replacement of maturing earning assets and liabilities. Other assumptions
include, but are not limited to, projected prepayments, projected new volume,
and the predicted relationship between changes in market interest rates and
changes in customer account balances. These effects are combined with the
Company's estimate of the most likely rate environment to produce a forecast of
net interest income and net income. The forecasted results are then adjusted for
the effect of a gradual increase and decrease in market interest rates on the
Company's net interest income and net income. Because assumptions are inherently
uncertain, the model cannot precisely estimate net interest income or net income
or the effect of interest rate changes on net interest income and net income.
Actual results could differ significantly from simulated results.
At September 30, 2003, the model indicated that if rates were to gradually
increase by 75 basis points during the calendar year, then net interest income
and net income would increase .11% and .25%, respectively for the year ending
December 31, 2003. The model indicated that if rates were to gradually decrease
by 75 basis points over the same period, then net interest income and net income
would decrease .07% and .13%, respectively.
In the current low interest rate environment, it is not practical or possible to
reduce certain deposit rates by the same magnitude as rates on earning assets.
The average rates paid on some of the Company's deposits are below 1.0%. This
situation magnifies the model's predicted results when modeling a decrease in
interest rates, as earning assets with higher yields have more of an opportunity
to reprice at lower rates than lower-rate deposits.
ITEM 4. CONTROLS AND PROCEDURES
- --------------------------------
The Company's Chief Executive Officer and Chief Financial Officer have reviewed
and evaluated the Company's disclosure controls and procedures as of the end of
the period covered by this report, and have concluded that the Company's
disclosure controls and procedures were adequate and effective to ensure that
information required to be disclosed is recorded, processed, summarized, and
reported in a timely manner.
There were no significant changes in the Company's internal controls or in other
factors that could significantly affect these controls subsequent to the date of
the Chief Executive Officer and Chief Financial Officers evaluation, nor were
there any significant deficiencies or material weaknesses in the controls which
required corrective action.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- --------------------------
Previously filed in Part II, Item 1 of Farmers Capital Bank Corporation's
quarterly report on Form 10-Q for the period ended June 30, 2003 and
incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
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a) List of Exhibits
----------------
3i. Amended and Restated Articles of Incorporation of Farmers Capital
Bank Corporation (incorporated by reference to Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 1998).
3ii. Amended and Restated By-Laws of Farmers Capital Bank Corporation
(incorporated by reference to Annual Report of Form 10-K for the
fiscal year ended December 31, 1997.
3iia Amendments to By-Laws of Farmers Capital Bank Corporation
(incorporated by reference to Quarterly Report of Form 10-Q for
the quarterly period ended March 31, 2003).
31.1 CEO Certification (page 28)
31.2 CFO Certification (page 29)
32 CEO & CFO Certifications Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (page 30)
b) Reports on Form 8-K
-------------------
On October 20, 2003, the Registrant filed a report on Form 8-K under
Item 12 reporting its earnings for the third quarter of 2003. There
were no financial statements filed with this Form 8-K.
On October 28, 2003, the Registrant filed a report on Form 8-K under
item 5 reporting an increase in its quarterly dividend. There were no
financial statements filed with this Form 8-K.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: 11/12/03 /s/ G. Anthony Busseni
-------------------- --------------------------------------------
G. Anthony Busseni,
President and CEO
(Principal Executive Officer)
Date: 11-12-03 /s/ C Douglas Carpenter
-------------------- --------------------------------------------
C. Douglas Carpenter,
Vice President, Secretary, and CFO
(Principal Financial and Accounting Officer)