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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2003
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-14412
Farmers Capital Bank Corporation
(Exact name of registrant as specified in its charter)
Kentucky 61-1017851
- --------------------------------------------- -----------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
P.O. Box 309, 202 West Main St.
Frankfort, Kentucky 40601
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 227-1600
Securities registered pursuant to Section 12(b) of the Act:
None None
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(Title of each class) (Name of each exchange
on which registered)
Securities registered pursuant to Section 12(g)of the Act:
Common Stock - $ .125 per share Par Value
-----------------------------------------
(Title of Class)
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).
Yes [x] No [ ]
The aggregate market value of the registrant's outstanding voting stock held by
non-affiliates on June 30, 2003 (the last business day of the registrant's most
recently completed second fiscal quarter) was $214,690,533.
As of March 11, 2004 there were 6,727,380 shares outstanding.
Documents incorporated by reference:
Portions of the Registrant's 2003 Annual Report to Shareholders are incorporated
by reference into Part II.
Portions of the Registrant's Proxy Statement relating to the Registrant's 2004
Annual Meeting of Shareholders are incorporated by reference into Part III.
An index of exhibits filed with this Form 10-K can be found on page 16.
FARMERS CAPITAL BANK CORPORATION
FORM 10-K
INDEX
Page
Part I
Item 1. Business 3
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 10
Part II
Item 5. Market for Registrant's Common Equity, Related
Stockholder Matters and Issuer Purchases of
Equity Securities 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 12
Item 8. Financial Statements and Supplementary Data 12
Item 9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure 12
Item 9A. Controls and Procedures 12
Part III
Item 10. Directors and Executive Officers of the Registrant 13
Item 11. Executive Compensation 13
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 13
Item 13. Certain Relationships and Related Transactions 13
Item 14. Principal Accountant Fees and Services 13
Part IV
Item 15. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 14
Signatures 16
Index of Exhibits 17
PART I
Item 1. Business
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Organization
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Farmers Capital Bank Corporation (the "Registrant" or the "Company") is a
financial holding company. The Registrant was originally formed as a bank
holding company under the Bank Holding Company Act of 1956, as amended, on
October 28, 1982 under the laws of the Commonwealth of Kentucky. During 2000,
the Registrant elected to change from a bank holding company to a financial
holding company (see discussion in Supervision and Regulation section of this
report). The Registrant's subsidiaries provide a wide range of banking and
bank-related services to customers throughout Kentucky. The bank subsidiaries
owned by the Registrant include Farmers Bank & Capital Trust Co. ("Farmers
Bank"), Frankfort, Kentucky; United Bank & Trust Co. ("United Bank"),
Versailles, Kentucky; Lawrenceburg National Bank ("Lawrenceburg Bank"),
Harrodsburg, Kentucky; First Citizens Bank, Shepherdsville, Kentucky; Farmers
Bank and Trust Company ("Farmers Georgetown Bank"), Georgetown, Kentucky; and
Kentucky Banking Centers, Inc. ("Ky. Banking Centers"), Glasgow, Kentucky. The
Registrant also owns FCB Services, Inc., ("FCB Services"), a nonbank data
processing subsidiary located in Frankfort, Kentucky and Kentucky General Life
Insurance Company, Inc., ("Kentucky General"), a nonbank insurance agency
subsidiary located in Frankfort, Kentucky. The Registrant provides a broad range
of financial services to individuals, corporations, and others through its 23
banking locations throughout Central Kentucky. These services primarily include
the activities of lending and leasing, receiving deposits, providing cash
management services, safe deposit box rental, and trust activities. Operations
are managed and financial performance is evaluated at the subsidiary level. The
Registrant's chief decision makers monitor the results of the various banking
products and services of its subsidiaries. Accordingly, all of the Registrant's
operations are considered by management to be aggregated in one reportable
operating segment: commercial and retail banking. As of December 31, 2003, the
Registrant had $1.3 billion in consolidated assets.
Farmers Capital Bank Corporation
Frankfort, KY
.
.
.
......................................................................................................................
. . . . . . . .
. . . . . . . .
. . . . . . . .
. . . . . . . Kentucky General
United Bank & Lawrenceburg Farmers Bank Farmers Bank & First Citizens Kentucky Banking FCB Services, Life Insurance
Trust Co. National Bank and Trust Company Capital Trust Co. Bank Centers, Inc. Inc. Company, Inc
Versailles, KY Harrodsburg, KY Georgetown, KY Frankfort, KY Shepherdsville, KY Glasgow, KY Frankfort, KY Frankfort, KY
100% 100% 100% 100% 100% 100% 100% 100%
. . . .
. . . .
. . . ...............................................
. . . .
. . ..................................................... .
. ......... . . . . .
. . . . . . .
. . . . . . .
. Community Development Farmers Bank Leasing One Farmers Capital . .
EV Propeties, Inc. of Kentucky, Inc. Realty Co. Corporation Insurance Corp. EG Properties, Inc. EH Properties, Inc.
Versailles, KY Georgetown, KY Frankfort, KY Frankfort, KY Frankfort, KY Frankfort, KY Frankfort, KY
(Inactive) (Inactive) 100% 100% 100% 100% 100%
.
.
.
Farmers Fidelity
Insurance Agency, LLP
50%
Farmers Bank, originally organized in 1850, is a state chartered bank engaged in
a wide range of commercial and personal banking activities, which include
accepting savings, time and demand deposits; making secured and unsecured loans
to corporations, individuals and others; providing cash management services to
corporate and individual customers; issuing letters of credit; renting safe
deposit boxes; and providing funds transfer services. The bank's lending
activities include making commercial, construction, mortgage, and personal loans
and lines of credit. The bank serves as an agent in providing credit card loans.
It acts as trustee of personal trusts, as executor of estates, as trustee for
employee benefit trusts and as registrar, transfer agent and paying agent for
bond issues. Farmers Bank also acts as registrar, transfer agent and paying
agent for the Registrant's stock. Farmers Bank is the general depository for the
Commonwealth of Kentucky and has been for more than 70 years.
Farmers Bank is the largest bank chartered in Franklin County. It conducts
business in its principal office and four branches within Frankfort, the capital
of Kentucky. Franklin County is a diverse community, including government,
commerce, finance, industry, medicine, education and agriculture. The bank also
serves many individuals and corporations throughout Central Kentucky. On
December 31, 2003, it had total consolidated assets of $569.5 million, including
loans net of unearned income of $256.7 million. On the same date, total deposits
were $444.3 million and shareholders' equity totaled $34.5 million.
Farmers Bank had four active subsidiaries during 2003: Farmers Bank Realty Co.
("Realty"), Leasing One Corporation ("Leasing One"), Farmers Capital Insurance
Corporation ("Farmers Insurance"), and EG Properties, Inc. ("EG Properties"). In
May 2000 Farmers Bank incorporated E Properties, Inc. This company was
liquidated on December 31, 2001.
Realty was incorporated in 1978 for the purpose of owning certain real estate
used by the Registrant and Farmers Bank in the ordinary course of business.
Realty had total assets of $3.3 million on December 31, 2003.
Leasing One was incorporated in August 1993 to operate as a commercial equipment
leasing company. It is located in Frankfort and is currently licensed to conduct
business in thirteen states. In 1997, it began to service leases for
unaffiliated third parties. At year-end 2003 it had total assets of $19.7
million, including leases net of unearned income of $21.6 million.
Farmers Insurance was organized in 1988 to engage in insurance activities
permitted to the Registrant under federal and state law. Farmers Bank
capitalized this corporation in December 1998. Farmers Insurance acts as an
agent for Commonwealth Land Title Co. At year-end 2003 it had total assets of
$1.1 million. Farmers Insurance holds a 50% interest in Farmers Fidelity
Insurance Company, LLP ("Farmers Fidelity"). The Creech & Stafford Insurance
Agency, Inc., an otherwise unrelated party to the Registrant, also holds a 50%
interest in Farmers Fidelity.
In November 2002 Farmers Bank incorporated EG Properties. EG Properties is
involved in real estate management and liquidation for properties repossessed by
Farmers Bank.
On February 15, 1985, the Registrant acquired United Bank, a state chartered
bank originally organized in 1880. It is engaged in a general banking business
providing full service banking to individuals, businesses and governmental
customers. It conducts business in its principal office and two branches in
Woodford County, Kentucky. During 2003 United Bank incorporated EV Properties,
Inc. This company, which was inactive at year-end 2003, will be involved in real
estate management and liquidation for properties repossessed by United Bank.
Based on deposits, United Bank is the second largest bank chartered in Woodford
County with total assets of $161.0 million and total deposits of $141.7 million
at December 31, 2003.
On June 28, 1985, the Registrant acquired Lawrenceburg Bank, a national
chartered bank originally organized in 1885. It is engaged in a general banking
business providing full service banking to individuals, businesses and
governmental customers. During 1998, it was granted permission by the Office of
the Comptroller of the Currency ("OCC") to move its charter and main office to
Harrodsburg, Kentucky in Mercer County. Construction of the new site in
Harrodsburg was completed and operations began there in July 1999. Lawrenceburg
Bank conducts business at the Harrodsburg site and two branches in Anderson
County, Kentucky. Based on deposits, the Anderson County branches rank number
one in size compared to all banks chartered in Anderson County. Total assets
were $142.5 million and total deposits were $130.6 million at December 31, 2003.
On March 31, 1986, the Registrant acquired First Citizens Bank, a state
chartered bank originally organized in 1964. It is engaged in a general banking
business providing full service banking to individuals, businesses and
governmental customers. During 1997, it applied and was granted permission by
the Kentucky Department of Financial Institutions ("KDFI") to move its charter
and main office to Shepherdsville, Kentucky in Bullitt County. First Citizens
Bank completed construction of the site and began operations there in April
1998. During 1999, First Citizens Bank closed its South Dixie branch in
Elizabethtown, Kentucky. It now conducts business in its four branches in Hardin
County, Kentucky along with its principal office in Shepherdsville. During 2003
First Citizens Bank incorporated EH Properties, Inc. This company is involved in
real estate management and liquidation for properties repossessed by First
Citizens Bank. Based on deposits, First Citizens Bank's Hardin County branches
rank number four in size compared to all banks chartered in Hardin County. Total
assets were $169.2 million and total deposits were $140.9 million at December
31, 2003.
On June 30, 1986, the Registrant acquired Farmers Georgetown Bank, a state
chartered bank originally organized in 1850. It is engaged in a general banking
business providing full service banking to individuals, businesses and
governmental customers. It conducts business in its principal office and three
branches in Scott County, Kentucky. Based on deposits, Farmers Georgetown Bank
is the largest bank chartered in Scott County with total assets of $195.3
million and total deposits of $132.5 million at December 31, 2003. On July 16,
2002, Farmers Georgetown Bank incorporated Community Development of Kentucky,
Inc. ("CDK, Inc.") in order to apply to be certified as a Community Development
Entity for participation in the New Markets Tax Credit Program ("Program") as
provided by the Community Renewal Tax Relief Act of 2000. The Program is
designed to promote economic development in qualified low-income communities as
defined by the tax regulations. The Program is still evolving and the extent of
the Company's participation will be determined at a future date.
On June 15, 1987, the Registrant acquired Horse Cave State Bank, a state
chartered bank originally organized in 1926. During 1997, it received approval
from the KDFI to move its charter to Glasgow, Kentucky. Subsequent to that
approval, Horse Cave State Bank changed its name to Kentucky Banking Centers,
Inc. Ky. Banking Centers is engaged in a general banking business providing full
service banking to individuals, businesses, and governmental customers. It
conducts business in its principal office in Glasgow and two branches in Hart
County, Kentucky. Based on deposits, Ky. Banking Centers' Hart County branches
rank number one in size compared to all banks chartered in Hart County. Total
assets were $119.8 million and total deposits were $108.0 million at December
31, 2003.
FCB Services, organized in 1992, provides data processing services and support
for the Registrant and its subsidiaries. It is located in Frankfort, Kentucky.
During 1994, FCB Services began performing data processing services for
nonaffiliated banks. FCB Services had total assets of $2.9 million at December
31, 2003.
Kentucky General was incorporated on June 22, 2000 to engage in insurance
activities permitted by federal and state law. This corporation was inactive as
of December 31, 2003.
On February 13, 2004 the Registrant entered into a Stock Purchase Agreement with
Citizens Bank (Kentucky), Inc. ("Citizens Bank") and Premier Financial Bancorp,
Inc. ("Premier") under which agreement the Registrant would acquire from Premier
the capital stock of Citizens Bank for $14,500,000 in cash. Subject to the
required regulatory approvals and other conditions set forth in the agreement,
this transaction is expected to close during the second quarter of 2004.
Citizens Bank is a Kentucky state banking corporation which had total deposits
of $65,486,000 as of December 31, 2003.
Lending
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A significant part of the Company's operating activities include originating
loans, approximately 71% of which are secured by real estate at December 31,
2003. Real estate lending primarily includes loans secured by owner-occupied
one-to-four family residential properties as well as commercial real estate
mortgage loans to developers and owners of other commercial real estate. Real
estate lending primarily includes both variable and adjustable rate products.
Loan rates on variable rate loans generally adjust upward or downward
immediately based on changes in the loan's index, normally prime rate as
published in the Wall Street Journal. Rates on adjustable rate loans move upward
or downward after an initial fixed term of normally 1, 3, or 5 years. However,
rate adjustments on adjustable rate loans are made annually after the initial
fixed term expires and are indexed primarily to shorter-term Treasury indexes.
Generally, variable and adjustable rate loans contain provisions that cap annual
increases at a maximum of 100 basis points with lifetime caps and floors of up
to 600 basis points. The Registrant also makes fixed rate commercial real estate
loans to a lesser extent with repayment terms generally not exceeding 12 months.
The Registrant's subsidiary banks make first and second residential mortgage
loans secured by real estate not to exceed 90% loan to value without seeking
third party guarantees. Commercial real estate loans are made primarily to small
and mid-sized businesses, secured by real estate not exceeding 80% loan to
value. Other commercial loans are asset based loans secured by equipment and
lines of credit secured by receivables and include lending across a diverse
range of business types. Commercial lending and real estate construction
lending, including commercial leasing, generally includes a higher degree of
credit risk than other loans, such as residential mortgage loans. Commercial
loans, like other loans, are evaluated at the time of approval to determine the
adequacy of repayment sources and collateral requirements. Collateral
requirements vary to some degree among borrowers and depend on the borrower's
financial strength, the terms and amount of the loan, and collateral available
to secure the loan. Credit risk results from the decreased ability or
willingness to pay by a borrower. Credit risk also results when a liquidation of
collateral occurs and there is a shortfall in collateral value as compared to a
loans outstanding balance. For construction loans, inaccurate initial estimates
of a property's value could lead to a property having a value that is
insufficient to satisfy full payment of the amount of funds advanced for the
property. Secured and unsecured consumer loans generally are made for
automobiles, boats, and other motor vehicles. In most cases loans are restricted
to the subsidiaries' general market area.
Supervision and Regulation
--------------------------
The Registrant originally registered as a bank holding company and was
restricted to those activities permissible under the Bank Holding Company Act of
1956, as amended ("BHC Act"). The BHC Act provides for regulation, supervision,
and examination by the Board of Governors of the Federal Reserve System ("FRB").
On July 30, 2002, President Bush signed into law the Sarbanes-Oxley Act of 2002,
a law that addresses, among other issues, corporate governance, auditing and
accounting oversight, executive compensation, and enhanced and timely disclosure
of corporate information. The Nasdaq Stock Market has also proposed and adopted
various corporate governance rules. These changes are intended to allow
shareholders to more easily and efficiently monitor the performance of companies
and their directors.
Effective August 29, 2002, as directed by Section 302(a) of the Sarbanes-Oxley
Act, the Company's chief executive officer and chief financial officer are each
required to certify that the Company's Quarterly and Annual Reports do not
contain any untrue statement of a material fact. The rules have several
requirements, including having these officers certify that: they are responsible
for establishing, maintaining and regularly evaluating the effectiveness of the
Company's internal controls; they have made certain disclosures to the Company's
auditors and the audit committee of the Board of Directors about the Company's
internal controls; and they have included information in the Company's Quarterly
and Annual Reports about their evaluation and whether there have been
significant changes in the Company's internal controls or in other factors that
could significantly affect internal controls subsequent to the evaluation.
The Gramm-Leach-Bliley Act of 1999 ("GLB Act") signed into law in 1999 had a
significant effect on Federal banking laws applicable to the Registrant and its
subsidiary banks. The GLB Act permitted the Registrant to elect to become a
financial holding company. The Registrant elected this option during the year
2000. In order to be granted status as a financial holding company, a bank
holding company and each of its subsidiary depository institutions must be well
capitalized, well managed, and have achieved at least a satisfactory record of
meeting community credit needs at its most recent Community Reinvestment Act
("CRA") examination. A financial holding company is subject to corrective action
by the FRB if any depository institution controlled by the company fails to
maintain both well capitalized and well managed status. The GLB Act places
limitations on a financial holding company's ability to engage in new financial
activities and affiliations if the company fails to maintain its satisfactory
CRA rating.
The GLB Act amended the BHC Act to allow a bank holding company that has elected
financial holding company status to engage in an expanded list of permissible
activities, including insurance and securities underwriting, among others. The
GLB Act includes a system of functional regulation in which the FRB serves as
the umbrella regulator of the holding company. The FRB regulates the
Registrant's business activities in a variety of ways including, but not limited
to, requirements on acquiring control of other banks and bank holding companies,
limitations on activities and investments, and regulatory capital requirements.
State and other federal financial regulators, such as the KDFI, OCC, the Federal
Deposit Insurance Corporation ("FDIC"), and the Securities and Exchange
Commission ("SEC") also regulate either affiliates of the Registrant or the
Registrant itself.
The Registrant's state bank subsidiaries are subject to state banking law and
regulation and periodic examinations by the KDFI. Lawrenceburg Bank, a national
bank, is subject to similar regulation and supervision by the OCC under the
National Bank Act and the Federal Reserve System under the Federal Reserve Act.
Other regulations that apply to the Registrant's bank subsidiaries include, but
are not limited to, insurance of deposit accounts, capital ratios, payment of
dividends, liquidity requirements, the nature and amount of investments that can
be made, transactions with affiliates, community and consumer lending, and
internal policies and control.
The operations of the Registrant and its subsidiary banks are also affected by
other banking legislation and policies and practices of various regulatory
authorities. Such legislation and policies include statutory maximum rates on
loans, reserve requirements, domestic monetary and fiscal policy, and
limitations on the kinds of services that may be offered. During 2000, the State
Wide Branching Bill became effective, which allows banks to open a branch
anywhere in the Commonwealth of Kentucky. Previously, banks could only branch
within the county where the main office was located.
The BHC Act formerly prohibited the Federal Reserve Board from approving an
application from a bank holding company to acquire shares of another bank across
its own state lines. However, effective September 1995, new legislation
abolished those restrictions and now allows bank holding companies to acquire
shares of out of state banks, subject to certain conditions. Currently, the
Company has no plans to purchase an out of state bank.
The GLB Act includes various extensive customer privacy protection provisions.
The GLB Act requires a financial institution to clearly disclose its privacy
policy to its customers regarding the sharing of non-public personal information
with affiliates and third parties. The financial institution's privacy policy
must be disclosed at the time a customer relationship is established and not
less than annually thereafter.
The Financial Reform, Recovery and Enforcement Act of 1989 provides that a
holding company's controlled insured depository institutions are liable for any
loss incurred by the FDIC in connection with the default of, or any FDIC
assisted transaction involving, an affiliated insured bank.
Deposits of the Registrant's subsidiary banks are insured by the FDIC's Bank
Insurance Fund, which subjects the banks to regulation and examination under the
provisions of the Federal Deposit Insurance Act.
Under the Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), the
FDIC established a risk-based assessment system for insured depository
institutions, which became effective January 1, 1994. The FDIC has adopted a
risk-based deposit insurance assessment system under which the assessment rate
for an insured depository institution depends on the assessment risk
classification assigned to the institution by the FDIC which is determined by
the institution's capital level.
Under FDICIA, the federal banking regulators are required to take prompt
corrective action if an institution fails to satisfy certain minimum capital
requirements, including a leverage limit, a risk-based capital requirement, and
any other measure deemed appropriate by the federal banking regulators for
measuring the capital adequacy of an insured depository institution. All
institutions, regardless of their capital levels, are restricted from making any
capital distribution or paying any management fees that would cause the
institution to become undercapitalized.
The purpose of the CRA is to encourage banks to respond to the credit needs of
the communities they serve, including low and moderate-income neighborhoods. CRA
states that banks should accomplish this while still preserving the flexibility
needed for safe and sound operations. It is designed to increase the bank's
sensitivity to investment opportunities that will benefit the community.
References under the caption "Supervision and Regulation" to applicable statutes
and regulations are brief summaries of portions thereof which do not purport to
be complete and which are qualified in their entirety by reference thereto.
Competition
-----------
The Registrant and its subsidiaries compete for banking business with various
types of businesses other than commercial banks and savings and loan
associations. These include, but are not limited to, credit unions, mortgage
lenders, finance companies, insurance companies, stock and bond brokers,
financial planning firms, and department stores which compete for one or more
lines of banking business. The banks also compete for commercial and retail
business not only with banks in Central Kentucky, but with banking organizations
from Ohio, Indiana, Tennessee, Pennsylvania, and North Carolina which have
banking subsidiaries located in Kentucky and may possess greater resources than
the Registrant.
The primary areas of competition pertain to quality of services, interest rates,
and fees charged on loans and deposits.
The business of the Registrant is not dependent upon any one customer or on a
few customers, and the loss of any one or a few customers would not have a
material adverse effect on the Registrant.
No material portion of the business of the Registrant is seasonal. No material
portion of the business of the Registrant is subject to renegotiation of profits
or termination of contracts or subcontracts at the election of the government,
though certain contracts are subject to such renegotiation or termination.
The Registrant is not engaged in operations in foreign countries.
Employees
---------
As of December 31, 2003, the Registrant and its subsidiaries had 459 full-time
equivalent employees. Employees are provided with a variety of employee
benefits. A retirement plan, a profit-sharing (401K) plan, group life insurance,
hospitalization, dental, and major medical insurance along with postretirement
health insurance benefits are available to eligible personnel. Employees are not
represented by a union. Management and employee relations are good.
During 1997, the Registrant's Board of Directors approved its Stock Option Plan
("Plan"), which grants certain eligible employees the option to purchase a
limited number of the Registrant's common stock. The Plan specifies the
conditions and terms that the grantee must meet in order to exercise the
options. The Registrant's shareholders at its annual meeting held on May 12,
1998 subsequently ratified the Plan.
On January 26, 2004, the Registrant's Board of Directors adopted an Employee
Stock Purchase Plan. Under this Plan, in the discretion of the Board of
Directors, employees of the Registrant and its subsidiaries could purchase
Registrant common stock at a discounted price and without payment of brokerage
costs or other fees, in the process benefiting from the favorable tax treatment
afforded such plans pursuant to Section 423 of the Internal Revenue Code.
Approval of this Plan by the Registrant's shareholders is on the agenda for the
Registrant's 2004 Annual Shareholders' Meeting on May 11, 2004.
Available Information
---------------------
The Registrant makes available, free of charge through its website
(www.farmerscapital.com), its Code of Ethics, its annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to
these reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act as soon as reasonably practicable after electronically filing such
material with the Securities and Exchange Commission.
Item 2. Properties
- ------------------
The Registrant leases its main office from Realty.
Farmers Bank and its subsidiaries currently own or lease nine buildings. Farmers
Bank operates at five locations, two of which it owns and three of which it
leases. United Bank owns its two branch offices and approximately 52% of a
condominium building that houses its main office. Lawrenceburg Bank owns its
main office in Harrodsburg and its two branch sites in Lawrenceburg. First
Citizens Bank owns its main office and two of its four branches. The other two
branch locations of First Citizens Bank are leased facilities, one of which is
located in a grocery store. Farmers Georgetown Bank owns its main office,
another branch in Georgetown, and one in Stamping Ground, Kentucky. Farmers
Georgetown Bank's third branch is located in a leased facility. Ky. Banking
Centers owns its main office in Glasgow, Kentucky and its branch site in Horse
Cave, Kentucky. It leases its branch facilities in Munfordville, Kentucky.
Item 3. Legal Proceedings
- -------------------------
In September 1992, Farmers Bank & Capital Trust Company (the "Bank") was named
as a defendant in Case No. 92CIO5734 in Jefferson Circuit Court, Louisville,
Kentucky, in a case styled Shilling et al. v. Farmers Bank & Capital Trust
Company. Details of this case have been disclosed in previous Annual Reports on
Form 10-K and subsequent 10-Q filings. The named plaintiffs purported to
represent a class consisting of all present and former owners of the County of
Jefferson, Kentucky, Nursing Home Refunding Revenue Bonds (Filson Care Home
Project) Series 1986A and County of Jefferson, Kentucky, Nursing Home
Improvement Revenue Bonds (Filson Care Home Project) Series 1986B (collectively
"the Bonds"). The plaintiffs alleged that the class had been damaged through a
reduction in the value of the Bonds and a loss of interest on the Bonds because
of the actions of the Bank in its capacity as indenture trustee for the
Bondholders. The plaintiffs demanded compensatory and punitive damages.
On July 6, 1993, the Court denied the plaintiffs' motion to certify the case as
a class action. Subsequently, the plaintiffs amended their complaint to join
additional Bondholders as plaintiffs. The plaintiffs claimed to hold Bonds in
the aggregate principal amount of $480,000. Before trial, the Court dismissed
thirty-nine of the plaintiffs because they were unable or unwilling to present
testimony to support their claims.
The case was tried to a jury beginning on March 28, 2000 on the claims of four
plaintiffs holding Bonds in the aggregate principal amount of $80,000. The Court
granted a directed verdict in favor of the Bank on the plaintiffs' claim that
the Bank had engaged in commercial bribery and that the legal fees that were
paid by the Bank should be disgorged because of an alleged conflict of interest
of the Bank's counsel. The jury found for the plaintiffs on the claim that the
Bank had breached its fiduciary duty and awarded the plaintiffs $99,875 in
compensatory damages and $600,000 in punitive damages.
The Bank filed a motion for judgment notwithstanding the verdict or, in the
alternative, for a new trial, asserting that the jury's verdict that the Bank
breached its fiduciary duty was not supported by sufficient evidence, that the
jury's award of damages was speculative and was not supported by the evidence,
and that the jury's award of punitive damages was not supported by sufficient
evidence. The Bank also asserted that a new trial was warranted because of the
erroneous admission of evidence concerning legal fees paid by the Bank.
Plaintiffs filed an appeal contending that the denial of class certification was
erroneous, that the individual plaintiffs should not have been dismissed from
the lawsuit, that certain evidence was erroneously excluded, and that the
directed verdict regarding the disgorgement of legal fees and the commercial
bribery claims was erroneous. On August 1, 2000, the Kentucky Court of Appeals
dismissed the appeal as having been prematurely filed.
On January 3, 2001, the Jefferson Circuit Court entered judgment in favor of the
Bank notwithstanding the jury's verdict in favor of the plaintiffs, holding that
the Bank reasonably relied in good faith on the advice of its counsel, that
there was no evidence that the Bank breached its fiduciary duty to the
plaintiffs, and that there was no evidence that the Bank caused the plaintiffs'
losses.
On January 31, 2001, the plaintiff bondholders appealed, and on February 9,
2001, defendant Bank cross-appealed, the judgment of the Jefferson Circuit Court
to the Kentucky Court of Appeals.
In their appeal, the Bondholders claim that the trial court's denial of class
certification was erroneous, that certain individual plaintiffs should not have
been dismissed from the lawsuit, that the trial court erroneously directed a
verdict against them on the issue of a conflict of interest, and that the
judgment notwithstanding the verdict was erroneously granted because the
evidence was sufficient to support the jury's verdict.
In its cross-appeal, the Bank claims that the trial court erroneously bifurcated
the trial on the issue of liability and damages, that certain witnesses should
have been excluded from the trial, that the Bank should have been granted
summary judgment, and that certain evidence and testimony regarding attorneys'
fees should have been excluded.
On May 10, 2002, the Kentucky Court of Appeals affirmed the Jefferson Circuit
Court's judgment in favor of the Bank. The plaintiff bondholders filed a motion
for discretionary review to the Kentucky Supreme Court on June 7, 2002.
On June 7, 2002, the plaintiffs filed with the Kentucky Supreme Court a motion
for discretionary review. The Bank filed a response opposing the plaintiffs'
motion
On April 17, 2003 the Kentucky Supreme Court denied plaintiffs' motion for
discretionary review. The judgment in favor of the Bank is therefore now final
and subject to no further appeal or judicial review.
As of December 31, 2003, there were various other pending legal actions and
proceedings against the Company arising from the normal course of business and
in which claims for damages are asserted. Management, after discussion with
legal counsel, believes that these actions are without merit and that the
ultimate liability resulting from these legal actions and proceedings, if any,
will not have a material adverse effect upon the consolidated financial
statements of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------
No matters were submitted during the fourth quarter of the fiscal year covered
by this report to a vote of security holders, through the solicitation of
proxies or otherwise.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and
- --------------------------------------------------------------------------------
Issuer Purchases of Equity Securities
-------------------------------------
The information set forth under the sections "Shareholder Information" and
"Stock Prices" on page 22 of the 2003 Annual Report to Shareholders is hereby
incorporated by reference. Additional information set forth under Footnote 16 in
the notes to the Registrant's 2003 audited consolidated financial statements on
pages 42 through 44 of the 2003 Annual Report to Shareholders is also hereby
incorporated by reference.
STOCK TRANSFER AGENT AND REGISTRAR:
Farmers Bank & Capital Trust Co.
P.O. Box 309
Frankfort, Kentucky 40602
The Registrant offers shareholders automatic reinvestment of dividends in shares
of stock at the market price without fees or commissions. For a description of
the plan and an authorization card, contact the Registrar above.
NASDAQ MARKET MAKERS:
J.J.B. Hilliard, W.L. Lyons, Inc. Morgan, Keegan and Company
(502) 588-8400 (800) 260-0280
(800) 444-1854
Knight Securities LP Trident Securities, Inc.
(888) 302-9197 (800) 340-6355
Item 6. Selected Financial Data
- -------------------------------
SELECTED FINANCIAL HIGHLIGHTS
- ----------------------------------------------------------------------------------------------------------------------------
December 31, 2003 2002 2001 2000 1999
(In thousands, except per share data)
- ----------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Interest income $ 58,413 $ 66,291 $ 77,039 $ 75,481 $ 69,034
Interest expense 19,883 25,746 34,357 32,536 27,184
Net interest income 38,530 40,545 42,682 42,945 41,850
Provision for loan losses 2,592 4,748 2,448 2,472 2,863
Net income 12,963 12,561 14,671 14,380 13,930
- ----------------------------------------------------------------------------------------------------------------------------
PER SHARE DATA
Net income -
Basic $ 1.93 $ 1.83 $ 2.10 $ 1.97 $ 1.86
Diluted 1.92 1.82 2.09 1.97 1.86
Cash dividends declared 1.29 1.25 1.21 1.17 1.13
Book value 18.83 18.52 17.89 17.49 16.82
- ----------------------------------------------------------------------------------------------------------------------------
SELECTED RATIOS
Percentage of net income to:
Average shareholders' equity (ROE) 10.39% 10.04% 11.93% 11.61% 11.20%
Average total assets (ROA) 1.04 1.04 1.28 1.40 1.41
Percentage of dividends declared to net income 66.91 68.38 57.70 59.33 60.66
Percentage of average shareholders'
equity to average total assets 9.98 10.37 10.75 12.06 12.58
- ----------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity $ 126,471 $ 125,773 $ 123,560 $ 125,461 $ 125,106
Total assets 1,318,565 1,275,602 1,183,530 1,204,752 1,039,787
Long-term debt 56,413 57,152 10,913 10,501 3,668
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic 6,727 6,870 6,982 7,304 7,478
Diluted 6,770 6,910 7,025 7,307 7,478
- ----------------------------------------------------------------------------------------------------------------------------
Item 7. Management's Discussion and Analysis of Financial Condition and Results
- -------------------------------------------------------------------------------
of Operations
-------------
The discussion on pages 10 through 23 of the 2003 Annual Report to Shareholders
is hereby incorporated by reference.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
The information set forth under the item "Market Risk Management" on page 20 of
the 2003 Annual Report to Shareholders is hereby incorporated by reference.
Item 8. Financial Statements and Supplementary Data
- ---------------------------------------------------
The information set forth below on pages 25 through 48 of the 2003 Annual Report
to Shareholders is hereby incorporated by reference:
Independent Auditors' Report
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Item 9. Changes in and Disagreements with Accountants on Accounting and
- -----------------------------------------------------------------------
Financial Disclosure
--------------------
On October 28, 2002, the Audit Committee of the Registrant determined and
approved the replacement of KPMG LLP ("KPMG") with Crowe Chizek and Company LLC
("Crowe Chizek") as its independent accountants. KPMG's services terminated at
the completion of its audit and issuance of its related report on the
Registrant's financial statements filed on Form 10-K for the Registrant's 2002
fiscal year ended December 31, 2002. Additional information regarding the change
can be found in the Registrant's current report on Form 8-K filed with the SEC
on November 4, 2002. There have been no disagreements between the Registrant and
its independent accountants on any matter of accounting principles or practices
or financial statement disclosure.
Item 9A. Controls and Procedures
- ---------------------------------
The Registrant's Chief Executive Officer and Chief Financial Officer have
reviewed and evaluated the effectiveness of the Registrant's disclosure controls
and procedures as of the end of the period covered by this report, and have
concluded that the Registrant's disclosure controls and procedures were adequate
and effective to ensure that all material information required to be disclosed
in this annual report has been made known to them in a timely fashion.
There were no significant changes in the Registrant'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 III
Item 10. Directors and Executive Officers of the Registrant
- -----------------------------------------------------------
Positions and Years of Service
Offices With With the
Executive Officer1 Age the Registrant Registrant
- --------------------------------------------------------------------------------
G. Anthony Busseni 55 President and CEO, 19*
Director2
Allison B. Gordon 40 Senior Vice President3 17*
The Registrant has adopted a Code of Ethics that applies to the Registrant's
directors, officers and employees, including the Registrant's chief executive
officer and chief financial officer. The Registrant makes available its Code of
Ethics on its Internet website at www.farmerscapital.com.
Additional information required by Item 10 is hereby incorporated by reference
from the Registrant's definitive proxy statement in connection with its annual
meeting of shareholders scheduled for May 11, 2004 which will be filed with the
Commission on or about April 1, 2004, pursuant to Regulation 14A.
* Includes years of service with the Registrant and its subsidiaries.
1 For Regulation O purposes, Frank W. Sower, Jr., Chairman of the
Registrant's board of directors, is considered an executive officer in name
only.
2 Also a director of Farmers Bank, Ky. Banking Centers, Farmers Georgetown
Bank, United Bank, Lawrenceburg Bank, First Citizens Bank, FCB Services,
Farmers Insurance (Chairman), and Leasing One (Chairman).
3 Also a director of Farmers Bank, Farmers Georgetown Bank, and FCB Services.
Item 11. Executive Compensation
- -------------------------------
Item 12. Security Ownership of Certain Beneficial Owners and Management and
- --------------------------------------------------------------------------------
Related Stockholder Matters
---------------------------
Item 13. Certain Relationships and Related Transactions
- -------------------------------------------------------
Item 14. Principal Accountant Fees and Services
- ------------------------------------------------
The information required by Items 11 through 14 is hereby incorporated by
reference from the Registrant's definitive proxy statement in connection with
its annual meeting of shareholders scheduled for May 11, 2004 which will be
filed with the Commission on or about April 1, 2004, pursuant to Regulation 14A.
PART IV
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
- -------------------------------------------------------------------------
2003 Annual
Report To
Shareholders
(a)1. Financial Statements Page
- --------------------------
Independent Auditors' Report 25
Consolidated Balance Sheets at
December 31, 2003 and 2002 26
Consolidated Statements of Income
for the years ended December 31, 2003, 2002, and 2001 27
Consolidated Statements of Comprehensive Income
for the years ended December 31, 2003, 2002, and 2001 28
Consolidated Statements of Changes in
Shareholders' Equity for the years
ended December 31, 2003, 2002, and 2001 29
Consolidated Statements of Cash Flows
for the years ended December 31, 2003, 2002, and 2001 30
Notes to Consolidated Financial Statements 31 - 48
(a)2. Financial Statement Schedules
- -----------------------------------
All schedules are omitted for the reason they are not required, or are
not applicable, or the required information is disclosed elsewhere in
the financial statements and related notes thereto.
(a)3. Exhibits:
- ---------------
3.1 Amended and Restated Articles of Incorporation of the Registrant
(incorporated by reference to Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1998).
3.2 Amended and Restated Bylaws of the Registrant (incorporated by
reference to Annual Report of Form 10-K for the fiscal year ended
December 31, 1997).
3.3 Amendments to Bylaws of the Registrant (incorporated by reference to
Quarterly Report of Form 10-Q for the quarterly period ended March 31,
2003).
4 Articles of Incorporation and Bylaws of the Registrant (incorporated
by reference to Quarterly Report on Form 10-Q for the quarterly period
ended June 30, 1998, the Annual Report of Form 10-K for the fiscal
year ended December 31, 1997, and the Quarterly Report of Form 10-Q
for the quarterly period ended March 31, 2003).
13 2003 Annual Report to Shareholders
21 Subsidiaries of the Registrant
23.1 Independent Auditors' Consent (Crowe Chizek)
23.2 Independent Auditors' Consent (KPMG)
31.1 CEO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
31.2 CFO Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
32 CEO and CFO Certification Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
- -----------------------
On January 20, 2004, the Registrant filed a report on Form 8-K consisting
of its press release issued on January 16, 2004 announcing the Registrant's
earnings results for 2004. There were no financial statements filed with
this Form 8-K.
On February 20, 2004, the Registrant filed a report on Form 8-K consisting
of its press release issued on February 13, 2004 announcing it had reached
an agreement to acquire Citizens Bank (Kentucky), Inc. There were no
financial statements filed with this Form 8-K.
(c) Exhibits
- ------------
See Index of Exhibits set forth on page 17.
(d) Separate Financial Statements and Schedules
- -----------------------------------------------
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
FARMERS CAPITAL BANK CORPORATION
By: /s/ G. Anthony Busseni
------------------------------------------
G. Anthony Busseni
President and Chief Executive Officer
Date: March 5, 2004
------------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
/s/ G. Anthony Busseni President, Chief Executive Officer March 5, 2004
- ---------------------------and Director (principal executive--------------------
G. Anthony Busseni officer of the Registrant)
/s/ Frank W Sower, Jr. Chairman 3-12-2004
- --------------------------- --------------------
Frank W. Sower, Jr.
/s/ Gerald R. Hignite Director 3/11/04
- --------------------------- --------------------
Gerald R. Hignite
/s/ Lloyd C Hillard Jr. Director 3/11/04
- --------------------------- --------------------
Lloyd C. Hillard, Jr.
/s/ W. Benjamin Crain Director 3/4/04
- --------------------------- --------------------
W. Benjamin Crain
Director
- --------------------------- --------------------
Shelley S. Sweeney
/s/ Donald J Mullineaux Director 3/9/04
- --------------------------- --------------------
Dr. Donald J. Mullineaux
/s/ Harold G Mays Director 3/5/04
- --------------------------- --------------------
Harold G. Mays
Director
- --------------------------- --------------------
Dr. John D. Sutterlin
/s/ Michael M Sullivan Director 3/8/04
- --------------------------- --------------------
Michael M. Sullivan
/s/ J. Barry Banker Director 3/5/04
- --------------------------- --------------------
J. Barry Banker
/s/ Robert Roach Jr. Director 3/5/04
- --------------------------- --------------------
Robert Roach, Jr.
/s/ C Douglas Carpenter Vice President, Secretary and 3-4-04
- ---------------------------CFO (principal financial and --------------------
C. Douglas Carpenter accounting officer)
INDEX OF EXHIBITS
Exhibit Page
13. 2003 Annual Report to Shareholders Enclosed
21. Subsidiaries of the Registrant 18
23.1 Independent Auditors' Consent (Crowe Chizek) 19
23.2 Independent Auditors' Consent (KPMG) 20
31.1 CEO Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 21
31.2 CFO Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 22
32 CEO and CFO Certifications Pursuant to Section 906
of the Sarbanes-Oxley Act of 2002 23