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, 1996 	 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 				(I.R.S. Employer Identification Number) incorporation	or organization) P.O. Box 309, 202 West Main St. Frankfort, Kentucky				 			40601			 (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			 (Title of each class)							(Name of each exchange on which registered) 	Securities registered pursuant to Section 12(g) of the Act: 	Common Stock - $.25 per share Par Value 	(Title of Class) 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 (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 The aggregate market value of the voting stock held by nonaffiliates of the Registrant as of March 1, 1997 was $153,676,521. As of March 1, 1997, there were 3,794,482 shares issued and outstanding. Documents incorporated by reference: 	Form 8-K, Current Report, as filed with the Commission on March 7, 1997 is 		incorporated by reference in Part II, Item 9. 	Proxy Statement for the annual meeting of shareholders scheduled to be held May 13, 	1997 - portions of which are incorporated by reference in Part III. An index of exhibits filed with this Form 10-K can be found on page 53. FARMERS CAPITAL BANK CORPORATION 	FORM 10-K 	INDEX 											Page Part I 	Item 1 -	Business 	4 	Item 2 -	Properties	 9 	Item 3 -	Legal Proceedings	 10 	Item 4 -	Submission of Matters to a Vote of Security Holders	 12 Part II 	Item 5 -	Market for Registrant's Common Equity and Related 			Shareholder Matters	 12 	Item 6 -	Selected Financial Data	 14 	Item 7 -	Management's Discussion and Analysis of Financial 			 Condition and Results of Operations	 15 	Item 8 -	Financial Statements and Supplementary Data	 28 	Item 9 -	Changes in and Disagreements With Accountants 		on Accounting and Financial Disclosure	 49 Part III 	Item 10 - 	Directors and Executive Officers of the Registrant	 50 	Item 11 -	Executive Compensation	 50 	Item 12 -	Security Ownership of Certain Beneficial Owners 			and Management	 50 	Item 13 -	Certain Relationships and Related Transactions	 50 Part IV 	Item 14 -	Exhibits, Financial Statement Schedules, and Reports 			on Form 8-K	 51 Signatures	 			52 Index of Exhibits		 	53 PART I Item 1 - Business 	Organization Farmers Capital Bank Corporation ("the Registrant") is a bank holding company registered under the Bank Holding Company Act of 1956, as amended, and was organized on October 28, 1982, under the laws of the Commonwealth of Kentucky. Its subsidiaries provide a wide range of banking and bank-related services to customers throughout Kentucky. The bank subsidiaries owned by the Registrant are Farmers Bank & Capital Trust Company ("Farmers Bank"), Frankfort, Kentucky; United Bank & Trust Co. ("United Bank"), Versailles, Kentucky; Lawrenceburg National Bank ("Lawrenceburg Bank"), Lawrenceburg, Kentucky; First Citizens Bank, Hardin County, Incorporated ("First Citizens Bank"), Elizabethtown, Kentucky; Farmers Bank and Trust Company ("Farmers Georgetown Bank"), Georgetown, Kentucky; and Horse Cave State Bank ("Horse Cave Bank"), Horse Cave Kentucky. The Registrant also owns two non-bank subsidiaries; FCB Services, Inc. ("FCB Services"), Frankfort, Kentucky and Farmers Capital Insurance Company ("Farmers Insurance"), Frankfort, Kentucky. As of December 31, 1996, the Registrant had $925 million in consolidated assets. 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, 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 issue. 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 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, 1996, it had total assets of $405 million, including loans of $234 million. On the same date, total deposits were $359 million and shareholders' equity totaled $36 million. Farmers Bank had three subsidiaries during the year: Farmers Bank Realty Company ("Realty"); Money One Credit of Kentucky, Inc. ("Money One"); and Leasing One Corporation ("Leasing One"). Farmers Bank, Realty and Money One, Inc. owned a partnership - Money One Credit Company ("MOCC") prior to its dissolution at the end of 1996. Farmers Bank also participates in a joint venture - Frankfort ATM, Ltd. ("ATM"). 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 $3.5 million on December 31, 1996. Money One was incorporated in 1989 and until January 1, 1993, was a direct subsidiary of the Registrant. It managed the consumer finance company, MOCC. At December 31, 1996 it had $824 thousand in assets. As of the close of business on December 31, 1996, Money One was dissolved and all assets were distributed to Farmers Bank, it sole shareholder. MOCC was established on June 1, 1994. It was a partnership engaged in consumer lending activities under Chapter 288 of the Kentucky Revised Statutes. As stated earlier, the partners included Farmers Bank, Realty and Money One. Prior to May 31, 1996, MOCC had fourteen offices throughout Kentucky. On May 31, 1996, MOCC sold its entire loan portfolio and fixed assets to an unrelated third party. At the close of business on December 31, 1996 its total remaining assets of $11.0 million were distributed to its partners and the company dissolved. Leasing One was incorporated in August, 1993 to operate as a commercial equipment leasing company. It is located in Frankfort, but conducts business in Ohio, Indiana, Tennessee and Kentucky. At year end it had total assets of $15.7 million. A fourth subsidiary, Farmers Financial Services Corporation ("FFSC"), was in existence for the first three quarters of 1995. FFSC was incorporated in 1985 in order to enter into a partnership with several other banks to form a statewide electronic network. The partnership, known as "Transaction Services Company", supported an automated teller machine network (Quest) with machines throughout Kentucky and Indiana as well as point-of-sale terminals in retail stores. With the termination of the "Quest" network, the parternship known as "Transaction Services Company" was also terminated. As a result, FFSC was dissolved as of September 27, 1995. Farmers Bank has a 50% interest in ATM, a joint venture for the purpose of ownership of automatic teller machines in the Frankfort area. State National Bank, a Frankfort bank not otherwise associated with the Registrant, also has a 50% interest in ATM. 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. On February 3, 1997, it purchased a building in Midway for the purpose of moving its existing Midway branch. The new building will allow the bank to offer drive thru services to its customers. United Bank is the second largest bank in Woodford County with total assets of $101 million and total deposits of $90 million at December 31, 1996. Pursuant to Parity Letter number Two, issued by the Kentucky Department of Financial Institutions, the Board of Directors authorized (during 1996) the management of United Bank to investigate the merits of establishing and operating an insurance agency at the Midway Branch. 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. It conducts business in its principal office and one branch in Anderson County, Kentucky. Lawrenceburg Bank is the largest bank in Anderson County with total assets of $98 million and total deposits of $89 million at December 31, 1996. 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. It conducts business in its principal office and four branches in Hardin County, Kentucky. First Citizens Bank is the second largest bank domiciled in Hardin County, with total assets of $119 million and total deposits of $99 million at December 31, 1996. 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. During 1996, Farmers Georgetown Bank received notice from the State of Kentucky that it would exercise its power of eminent domain at the site of the downtown Georgetown branch. Management is currently seeking alternative sites to relocate this branch, which is expected to be completed in 1997. Farmers Georgetown Bank is the largest bank in Scott County with total assets of $123 million and total deposits of $111 million at December 31, 1996. On June 15, 1987, the Registrant acquired Horse Cave Bank, a state chartered bank originally organized in 1926. 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 one branch in Hart County, Kentucky. On December 31, 1996, it filed an application with the Kentucky Department of Financial Institutions under Parity Letter number One to move its charter to Glasgow, Kentucky. Once regulatory approval is granted, Horse Cave Bank will maintain a branch in Horse Cave. Horse Cave Bank is the largest bank in Hart County with total assets of $77 million and total deposits of $66 million at December 31, 1996. Subsidiary banks make first and second residential mortgages secured by the real estate not exceeding 90% loan to value without seeking third party guarantees. Commercial real estate loans are made in the low to moderate range, secured by the 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. Secured and unsecured consumer loans generally are made for automobiles and other motor vehicles. In most cases loans are restricted to the subsidiaries' general market area. Prior to the sale of its loans and fixed assets, the consumer finance subsidiary made secured and unsecured installment loans for various purposes. The leasing subsidiary makes secured equipment leases to commercial and municipal entities in Kentucky, Indiana, Ohio and Tennessee. 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. Farmers Insurance was organized in 1988 to engage in insurance activities permitted to the Registrant by federal and state law. This corporation has had no activity to date. 	Supervision and Regulation The Registrant, as a registered bank holding company, is restricted to those activities permissible under the Bank Holding Company Act of 1956, as amended, and is subject to actions of the Board of Governors of the Federal Reserve System thereunder. It is required to file various reports with the Federal Reserve Board, and is subject to examination by the Board. The Registrant's state bank subsidiaries are subject to state banking law and to regulation and periodic examinations by the Kentucky Department of Financial Institutions. Lawrenceburg Bank, a national bank, is subject to similar regulation and supervision by the Comptroller of the Currency under the National Bank Act and the Federal Reserve System under the Federal Reserve Act. Deposits of the Registrant's subsidiary banks are insured by the Federal Deposit Insurance Corporation Bank Insurance Fund, which subjects the banks to regulation and examination under the provisions of the Federal Deposit Insurance Act. The operations of the Registrant and its subsidiary banks also are affected by other banking legislation and policies and practices of various regulatory authorities. Such legislation and policies include statutory maximum rates on some loans, reserve requirements, domestic monetary and fiscal policy, and limitations on the kinds of services which may be offered. The Bank Holding Company 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 shares of an out of state bank. The Financial Reform, Recovery and Enforcement Act of 1989 (FIRREA) provides that a holding company's controlled insured depository institutions are liable for any loss incurred by the Federal Deposit Insurance Corporation in connection with the default of or any FDIC assisted transaction involving an affiliated insured bank. Under the Federal Deposit Insurance Corporation Improvement Act ("FDICIA"), the FDIC was required to establish 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 be undercapitalized. The purpose of the Community Reinvestment Act (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 which will benefit the community. Of the Company's six subsidiary banks, two have an outstanding CRA rating and four have a satisfactory rating. 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 Corporation 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 and Pennsylvania which have banking subsidiaries located in Kentucky and may possess greater resources than the Corporation. The primary areas of competition pertain to quality of services, interest rates and fees. 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 materially 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, 1996, the Registrant and its subsidiaries had 444 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 are available to eligible personnel. The employees are not represented by a union. Management and employee relations are good. Item 2 - Properties All of the Registrant's properties are owned or leased by the Banks or their subsidiaries. Farmers Bank and its subsidiary, Realty, currently own or lease nine buildings. Farmers Bank operates five branches, two of which it owns and three of which it leases. United Bank owns its two branch offices and approximately 52% of a condominiumized building which houses its main office. Lawrenceburg Bank owns its main office and its branch office. 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 being located in a grocery store. Farmers Georgetown Bank owns its main office, another branch in downtown Georgetown and one in Stamping Ground, Kentucky. Farmers Georgetown Bank's third branch is located in a leased facility. Horse Cave Bank owns the building where it is headquartered. In the first quarter of 1991, Horse Cave Bank opened a branch in leased facilities in Munfordville, Kentucky. Prior to the sale of its entire loan portfolio and fixed assets on May 31, 1996, MOCC operated out of fourteen leased offices in fourteen cities within Kentucky. Item 3 - Legal Proceedings Farmers was named, on September 10, 1992, as a defendant in Case No. 92CI05734 in Jefferson Circuit Court, Louisville, Kentucky, Earl H. Shilling et al. v. Farmers Bank & Capital Trust Company. 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 (the "Series A Bonds") and County of Jefferson, Kentucky Nursing Home Improvement Bonds (Filson Care Home Project) Series 1986B (the "Series B Bonds") (collectively the "Bonds"). The plaintiffs alleged that the class which they purported to represent has been damaged in the approximate amount of $2,000,000 through the reduction in value of the Bonds and the collateral security therefore, and through the loss of interest on the Bonds since June 1, 1989, as a result of alleged negligence, breach of trust, and breach of fiduciary duty on the part of Farmers Bank in its capacity as indenture trustee for the Bonds. A subsequent amendment to the complaint further alleges that Farmers Bank conspired with and aided and abetted the former management of the Filson Care Homein its misappropriation of the nursing home's revenues and assets to the detriment of the Bondholders and in order to unlawfully secure and benefit Farmers Bank. The amendment seeks unspecified punitive damages against Farmers Bank. On July 6, 1993, the Circuit Court denied the plaintiff's motion to certify the case as a class action on behalf of all present and former owners of the Bonds. Under that ruling, the action may be maintained only with respect to the individual claims of the named plaintiffs and any other Bondholders whom the court might allow to join in the action with respect to their own individual claims. Since the denial of class certifications, the complaint has been amended twice to join additional Bondholders as plaintiffs. The 42 existing plaintiffs claim to hold Bonds having an aggregate face value of $470,000. The case is presently in the process of discovery. Farmers Bank believes that the claims of the plaintiffs are unfounded and totally without merit, and Farmers Bank intends to vigorously contest any further proceedings in the case. Two of the original named plaintiffs in the case before the Circuit Court filed a similar action, Earl H. Schilling et al v. Farmers Bank & Capital Trust Company, on July 7, 1992 in the United State District Court for the Western District of Kentucky at Louisville, Case No. C-920399 L-M. That action has been dismissed without prejudice on the grounds that the plaintiffs did not appear to be able to establish federal jurisdiction. On November 27, 1995, one of the Registrant's subsidiaries, Farmers Bank & Capital Trust co. ("Farmers Bank') filed suit in the Circuit Court for Franklin County, Kentucky against Travel Professionals of Frankfort, Inc. and Travel Professionals of Scott County, Inc. (the "TPI Companies") to collect five (5) loans totaling approximately $1,158,572 plus interest, costs and attorney's fees. By an amended complaint filed in 1996, alleging breach of contract, fraud and breach of duty of due care and diligence, the plaintiff claimed additional damages in the approximate amount of $1,206,342 against the various defendants. In addition to the TPI Companies, other named defendants were Charles O. Bush, Sr., a director of the bank (by virtue of his directorship and of certain guarantees) and two of his children, Charles O. Bush, Jr. and Karen Wilhelm and their respective spouses, Sandra Bush and David Wilhelm, (collectively, the "Bush Family Members"). In addition, Ray Godbey and Virginia Godbey, officers of the Corporation were joined as defendants. Each of the defendants has filed an answer and counterclaim denying liability to Farmers Bank and asserting various claims for damages against the Bank. The registrant believes that the defenses and claims asserted by the defendants are without merit and Farmers Bank has denied any liability to the defendants. The litigation presently is in the discovery phase and is being vigorously defended. The Registrant's Georgetown, Kentucky affiliate, Farmers Georgetown Bank, and its Executive Vice President, have been named defendants in a civil action brought on August 1, 1994 by a loan customer of the Bank, in which the customer alleges (1) fraud, (2) breach of good faith and fair dealing, (3) disclosure of false credit information (defamation) and (4) outrageous conduct. As earlier reported, the initial amount in controversy for the first three counts was unspecified. The amount originally sought as punitive damages for outrageous conduct was $10,000,000. By order of the Scott County Circuit Court, Georgetown, Kentucky, the plaintiffs were required to quantify the amounts in controversy. For the count of fraud the plaintiffs seek $50,000; for the count of breach of good faith and fair dealing the plaintiff seeks $12,900,000; for the count of defamation the plaintiffs seek $14,800,000 plus an estimated $75,000 in legal costs. Further the amount now sought as punitive damages is $21,000,000. The conduct complained about in counts 1 and 2 involves former officers of Farmers Georgetown Bank. The Bank at this time has had the opportunity to examine those former officers knowledge of the events alleged to have taken place and believes there is no merit to the allegations. The Farmers Georgetown Bank also believes that there is no merit to the allegations in counts 3 and 4 and intends to vigorously defend all claims. The case was set for trial in both November 1995 and February 1996, but was continued the second time to September 1996. In September of 1996, the court granted the defendant's motions for summary judgements on all counts of the complaint. The plaintiff's appealed to the Court of Appeals of Kentucky and that appeal is now pending. Management believes the previously mentioned actions are without merit, that in certain instances its actions or omissions were pursuant to the advice of counsel, or that the ultimate liability, if any, resulting from one or more of the claims will not materially affect the Registrant's consolidated financial position or results of operations or cash flows, although resolution in any year or quarter could be material for that period. 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 and Related Shareholder Matters The Registrant's stock is traded on the National Association of Security Dealers Automated Quotation System (NASDAQ) SmallCap Market tier of the NASDAQ Stock Market, with sales prices reported under the symbol: FFKT. The amount of dividends per share declared by the Registrant during the last two calendar years is also included below: 								 	Dividends Stock Prices				 High	 Low Declared 4th Quarter, 1996			 $40.75	 $39.25	 $0.41 3rd Quarter, 1996			 40.50	 34.50	 0.36 2nd Quarter, 1996	 		41.50	 33.50 	0.36 1st Quarter, 1996		 	42.50 	38.50	 0.36 4th Quarter, 1995 			$43.50 	$37.00 	$0.36 3rd Quarter, 1995		 	39.50 	33.00 	0.33 2nd Quarter, 1995			 37.00	 32.50 	0.33 1st Quarter, 1995			 38.00 	35.50	 0.33 As of January 1, 1997, there were 864 shareholders of record. This figure does not include individual participants in security position listings. Payment of dividends by the Registrant's subsidiary banks is subject to certain regulatory restrictions as set forth in national and state banking laws and regulations. At December 31, 1996, combined retained earnings of the subsidiary banks were approximately $39,378,000 of which $7,742,000 was available for the payment of dividends in 1997 without obtaining prior approval from bank regulatory agencies. 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.	 Herzog, Heine, Geduld, Inc. 			502/588-8400 or			 800/221-3600 			800/444-1854		 	J.C. Bradford and Co., Inc.	 PaineWebber Incorporated 			800/443-8749			 800/222-1448 Item 6 - Selected Financial Data December 31 (In thousands, except per share data)		 1996 	 1995 	1994 	1993 	1992 											 Interest income 	$		67,485	 $ 67,261 	$ 57,750 	$		54,612 	$		60,278 Interest expense	 		28,703	 		28,115 			21,586	 		21,768	 		27,940 Net interest income 		 	38,782	 		39,146	 		36,164	 		32,844	 		32,338 Provision (credit) for loan losses			 4,162 			3,727		 	2,125	 		(2,026) 			3,236 Net income		 	 	 12,656		 	10,389		 	10,250			 10,804	 		6,317 Per shre data Net income		 	 	 3.29	 	2.69	 		2.65	 	2.79	 		1.63 Cash dividends declared	 		 1.49		 	1.35	 		1.23		 	1.11	 		1.08 Book value				 28.86	 		27.14 			25.88	 		24.60	 		22.91 Total shareholders' equity 109,596 		104,929	 	100,064		 	95,091 			88,579 Total assets		 		925,319 			906,113	 		851,703	 		794,269		 	820,991 Long term debt		 	3,571		 	3,886	 		4,865	 		2,695	 		159 Percentage of net income to: Average shareholders' equity (ROE) 			11.80%	 		10.20%	 	10.55%	 		11.86%	 	7.16% Average total assets (ROA)		 1.41		 	1.21	 		1.22 			1.33	 		.78 Percentage of dividends declared 	to net income	 		45.21	 	50.24	 		46.40	 		39.78 			66.26 Percentage of average shareholders'	equity to average total assets	 		11.94	 		11.81	 		11.57	 		11.22	 		10.85 Weighted average shares outstanding			 3,842	 	3,866	 	3,866	 		3,866	 	3,866 Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations Operating Results Farmers Capital Bank Corporation (the "Company') recorded net income of $12.7 million or $3.29 per share for 1996, up 21.8% from $10.4 million or $2.69 per share reported for 1995. The increase is primarily due to the gain on the sale of loans of the Company's consumer finance subsidiary ("Money One") during the second quarter of 1996. The sale of Money One loans affected consolidated results in a number of ways. First, the pre-tax gain of $3.2 million increased earnings for the year. Second, the Company experienced an immediate decrease in net loans of approximately $11.5 million. By year end 1996, loan volume had grown enough to replace the loans sold and to increase net loans by approximately $15 million over the prior year. The impact of the gain on sale of loans can also be seen in the Company's performance ratios. Return on average assets increased from 1.21% to 1.41% and return on average equity increased from 10.20% to 11.80%. Interest Income Total interest income on a tax equivalent basis was $69.1 million, up $438 thousand from 1995. The largest contributors to the increase were taxable and nontaxable investment securities. Interest on taxable and nontaxable investment securities was positively impacted by increases both in volume and in rate. Average taxable investment securities increased $19.7 million or 14.5%, while the average rate earned increased from 5.82% to 5.86%. The average balance of nontaxable investment securities increased $11.1 million or 21.9% while the average rate earned increased from 6.64% to 6.70% Interest on time deposits with banks, federal funds sold, and securities purchased under agreement to resell decreased $328 thousand to $2.7 million. Interest and fees on loans decreased $1.2 million or 2.2%. Although average loans increased $5.4 million or 1.0%, the average rate earned on loans decreased 32 basis points from 10.05% to 9.73%. The decline in the average rate earned on loans is partially due to the decline in higher yielding consumer loans as the consolidated loan portfolio increased in commercial loans and leases. Interest Expense Total interest expense increased $588 thousand or 2.1% from 1995. The increase is primarily due to increases in the volume of time deposits and the rate paid on time deposits. Interest on interest bearing demand deposits decreased $104 thousand due to a 19 basis point decline in the average rate paid in spite of a $12.7 million, or 5.2%, increase in the average balance. Interest expense for savings deposits was similar. A decline of $57 thousand was caused by a 23 basis point decline in rate in spite of a 4.0% increase in the average balance on savings deposits. The average balance of time deposits increased $15.2 million or 4.9% and the average rate paid increased slightly from 5.55% to 5.61%. The result is a $1.1 million increase in interest expense on time deposits. Interest on securities sold under agreements to repurchase declined $270 thousand due to slight declines in both volume and rate. Interest on other borrowed funds also decreased slightly, $38 thousand, due primarily to a decline in volume as the Company was able to use increasing deposits at lower rates as a cheaper source of funds. Net interest income is the most significant component of the Company's earnings. Net interest income is the excess of the interest income earned on assets over the interest paid for funds to support those assets. The following table represents the major components of interest earning assets and interest bearing liabilities on a tax equivalent basis (TE) where tax exempt income is adjusted upward by an amount equivalent to the federal income taxes that would have been paid if the income had been fully taxable (assuming a 34% tax rate). Distribution of Assets, Liabilities and Shareholders' Equity: Interest Rates and Interest Differential (In thousands) December 31,	 	 1996	 1995	 1994 	Average	 	 Average 	Average		 Average	 Average		 Average 				Balances 	Interest 	Rate	 	Balances 	Interest	 	Rate 	 Balances 	Interest 	Rate	 Earning assets 	Investment securities 	Taxable		 	$155,738 		$9,121	 	5.86%		 $136,028		 $ 7,923		 5.82%		 $126,772		 $ 6,106		 4.82% 	Nontaxable 1		 	61,981 4,154	 	6.70		 50,852	 	 3,376		 6.64		 50,476	 	 3,447		 6.83 	Time deposits with banks, 		federal funds sold and 		securities purchased 		under agreements 		to resell		 	51,619	 	2,714		 5.26	 	51,752 		3,042		 5.88		 56,052		 2,398		 4.28 	Loans 1,2,3		 	546,040	 	53,140	 	9.73	 	540,632	 	54,350		 10.05		 511,492		 47,301		 9.25 Total earning assets	 	815,378	 	69,129		 8.48		 779,264 		68,691		 8.81		 744,792		 59,252		 7.96 Less allowance 	for loan losses	 	8,610			 			8,774	 					 8,982				 Total earning assets, net 	of allowance for loan 	losses	 	806,768						 770,490						 735,810				 Non-earning assets 	Cash and due from banks 		59,353					 	57,545	 					 70,433				 	Bank premises and other 		equipment			 19,614						 20,122						 19,950				 	Other assets		 	12,874						 14,001						 13,362				 Total assets	 		$898,609						 $862,158	 					 $839,555				 Interest bearing liabilities 	Deposits 		Interest bearing demand		$258,606	 	7,175	 	2.77 	$245,926	 	7,279		 2.96	 	 $247,554	 	 6,742 		2.72 		Savings			 55,529		 1,646	 	2.96 53,417 		1,703		 3.19		 55,853		 1,612		 2.89 		Time			 326,844	 	18,349		 5.61 		311,668	 	17,292		 5.55		 274,812		 11,817		 4.30 	Securities sold under 		agreements to repurchase 		25,706		 1,314	 	5.11	 	28,889	 	1,584		 5.48		 33,348	 1,209		 3.63 	Other borrowed funds	 	3,719		 219		 5.89		 4,444		 257		 5.78		 3,320		 206		 6.20 Total interest bearing 	liabilities	 		670,404		 28,703	 	4.28		 644,344		 28,115		 4.36		 614,887		 21,586		 3.51 Non-interest bearing liabilities 	Commonwealth of Kentucky 		deposits	 		25,713						 26,093						 32,419				 	Demand deposits - 		other deposits		 86,486						 84,666						 89,073				 	Other liabilities 		8,720					 	5,212						 6,059				 		Total liabilities 		791,323						 760,315	 				 742,438				 	Shareholders' equity	 	107,286						 101,843						 97,117				 Total liabilities and 	shareholders' equity	 	$898,609						 $862,158 			 			 $839,555				 Net interest income (TE)	 			 40,426	 		 40,576						 37,666		 TE basis of adjustment				 (1,644)		 				(1,430)						 (1,502)		 Net interest income		 	 	$38,782					 	$39,146					 $36,164		 Net interest spread (TE)	 					 4.20%						 4.45%						 4.45% Net interest margin (TE)		 				 4.96%						 5.21%						 5.06% 1	Income and yield stated at a fully tax equivalent basis (TE), using a 34% tax rate. 2	Loan balances include principal balances on non-accrual loans. 3	Loan fees included in interest income amounted to $1,977,000, $1,781,000, and $1,731,000 in 1996, 1995 and 1994, respectively. Net Interest Income Net interest income (TE) decreased $150 thousand. Interest income increased $438 thousand, while interest expense increased by $588 thousand. The change in the spread between rates earned and paid and net interest margin are summarized below: 					 		 1996			 1995		 	% change Spread between rates earned and paid			 		4.20%				4.45%	 			(5.62)% 			Net interest margin	 							4.96%				5.21%	 			(4.80)% The declines in the net interest spread and the net interest margin are partially due to a decline in higher yielding consumer loans. As seen in the Interest Rate and Interest Differential table, slightly less interest income was earned in 1996 on a larger average loan balance when compared to 1995. The following table is an analysis of the change in net interest income: Analysis of Changes in Net Interest Income (tax equivalent basis): 						 Variance	 Variance 					 Variance	 Attributed to	 Variance	 Attributed to (In thousands)		 1996/1995 1 	Volume 	Rate 	1995/1994 1	 Volume	 	Rate Interest income 	Taxable investment securities		 $1,198		 $1,154	 $ 	44		 $1,817		 $ 470		 $1,347 	Nontaxable investment securities 2	 	778	 	747	 	31	 	(71)		 26				 (97) 	Time deposits with banks, federal 		funds sold and securities 		purchased under agreement 		to resell			 (328)		 (8)		 (320)		 644		 (172)				 816 	Loans 2			 (1,210)		 540		 (1,750)		 7,049		 2,803				4,246 		Total interest income		 438	 	2,433	 	(1,995)	 	9,439		 3,127				6,312 Interest expense 	Interest bearing demand deposits		 (104)	 	365	 	(469)	 	537		 (44)				 581 	Savings deposits	 	(57)	 	66		 (123)		 91		 (68)				 159 	Time deposits		 1,057	 	850		 207	 	5,475		 1,728	 	3,747 	Securities sold under agreements 		to repurchase	 	(270)	 	(168) 		(102)	 	375		 (145)				520 	Other borrowed funds		 (38)		 (43)	 	5	 	51		 66				 (15) 		Total interest expense		 588	 	1,070	 	(482)	 	6,529		 1,537		 4,992 Net interest income		 $ (150)		 $1,363		$(1,513)	 	$2,910		 $1,590	 $1,320 	Percentage change		 100.0%		 (908.7)% 1,008.7%	 	100%		 54.6%	 45.4% 1	The changes which 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. 2	Income stated at fully tax equivalent basis using a 34% tax rate. As the table indicates, the decrease is nearly equally attributed to an increase in volume and a decrease in the net interest spread. Asset Quality The provision for loan losses represents charges made to earnings to maintain an adequate allowance. Each subsidiary determines its level for the allowance and maintains it at an amount believed to be sufficient to absorb possible losses that may be experienced in the credit portfolio. The following factors are used in establishing an appropriate allowance: 		A careful assessment of the financial condition of individual borrowers 	A realistic determination of the value and adequacy of underlying collateral 		A thorough review of historical loss experience 		The condition of the local economy 		A comprehensive analysis of the levels and trends of loan categories A review of delinquent and criticized loans The provision for loan losses increased $435 thousand compared to 1995. The Company had net charge-offs of $3.9 million, down $251 thousand from $4.1 million in 1995. The allowance was 1.57% of net loans, relatively unchanged from 1.56% at the end of 1995. Management feels the current reserve is adequate to cover any potential future losses within the loan portfolio. Management also continues to emphasize collection efforts and evaluation of risks within the portfolio. The table below summarizes the loan loss experience for the past five years. Year Ended December 31, (In thousands)				 	1996 	 1995 	1994 	1993 	1992 Balance of allowance for loan losses at	 beginning of period	 		$ 8,472 		$ 8,889	 $ 8,547	 $ 8,261	 $ 7,917 Loans charged off: 	Commercial, financial and agricultural			 1,609	 	2,390	 	741		 1,826	 	2,427 Real estate						 920		 118		 416		 638	 	611 Installment loans to individuals			 	1,862	 	2,376	 	1,467 		1,483	 	1,233 Leasing financing					 18 		Total loans charged off				 4,409		 4,884	 	2,624		 3,947		 4,271 Recoveries of loans previously charged off: 	Commercial, financial and agricultural			 144		 192		 193		 343		 651 	Real estate						 38		 146		 230		 5,409		 371 	Installment loans to individuals			 334		 402		 418	 	507		 357 		Total recoveries					 516		 740		 841		 6,259		 1,379 Net loans charged off (recovered)				 3,893		 4,144		 1,783		 (2,312)	 	2,892 Additions to allowance charged	(credited) to expense	 				4,162		 3,727		 2,125	 	(2,026)	 	3,236 Balance at end of period		 $ 8,741		 $ 8,472		$ 8,889		$ 8,547		$ 8,261 Average loans 	net of unearned income				$ 546,040		$ 540,632		$ 511,492		$ 467,738		$ 473,271 Ratio of net charge offs (recoveries)	during period to average loans, net 	of unearned income					 .71%		 .77%	 	.35%	 	(.49)%		 .61% The following is an estimate of the breakdown of the allowance for loan losses by type for the date indicated: Year Ended December 31, (In thousands)		1996		 1995	 	1994 	 	1993 		1992 Commercial, financial and agricultural		 $3,806		 $4,138		 $6,427		 $6,500		 $6,512 Real estate						 2,974		 1,928	 	1,027	 	1,004		 805 Installment loans to individuals			 1,304	 	2,176		 1,264	 	1,035		 944 Direct lease financing					 657		 230		 171		 8 									$8,741		 $8,472	 	$8,889 		$8,547 		$8,261 Noninterest Income Noninterest income for 1996 reached $15.0 million, up $3.3 million or 27.6% from $11.7 million in 1995. The increase is due primarily to the gain on sale of loans of Money One, the Company's consumer finance subsidiary. Service charges on deposits and trust fees also experienced moderate growth. Noninterest Expense Noninterest expense decreased $626 thousand to $31.8 million. The decline is a result of a $109 thousand decrease in equipment expense and an $815 thousand decrease in FDIC insurance. The FDIC lowered premium rates in 1995 from $.23 per $100 to $.04 per $100. Only a nominal premium was charged in 1996. Rates are expected to be approximately $.013 per $100 in 1997. These declines were partially offset by a $458 thousand, or 2.7% increase in salaries and benefits and slight increases in occupancy expense and bank franchise tax. Management implemented a self-insured medical plan effective January 1, 1996 that has helped to control rising costs. The Commonwealth of Kentucky passed new statutes revising the bank franchise tax during 1996 which will increase that expense in 1997. Income Tax Income tax expense increased $806 thousand, or 18.4% due to the increase in earnings. The effective tax rate for 1996 was 29.0%, down 60 basis points from last year. Financial Condition On December 31, 1996, assets were $925 million, an increase of $19 million or 2.1% from year end 1995. Average assets for 1996 increased $36 million, or 4.2% to $899 million. Earning assets, primarily loans and investments, averaged $815 million, up $36 million or 4.6%. Loans As of December 31, 1996, net loans totaled $558 million, up $15 million or 2.8% from $543 million in the prior year. Although the Company's loan balance decreased by $11.5 million around mid year due to the sale of Money One's loans, the Company's affiliate banks made up for this decline by year end. The effect of these changes can be seen in the loan portfolio composition table. Installment loans decreased $14 million or 13.9% primarily as a result of the sale of Money One's loans and cessation of operations. All other loan categories increased: direct leasing by $7 million or 34.5% and mortgage lending by $12 million or 4.2%. The composition of the loan portfolio is summarized in the table below: Year Ended December 31, (In thousands)	 1996	 	% 	 	1995 	 	% 	 	1994	 	%	 	1993	 	 %	 	 1992	 	% Commercial, financial and agricultural		 $120,256	 21.2% $114,412		 20.6%	 $115,068	 	 21.1%	 $108,755		 22.2% 	$111,089		 23.6% Real estate - construction		 	27,098	 	4.8	 	26,380	 	4.8	 	28,755		 5.3		 21,772		 4.4		 18,577		 3.9 Real estate - mortgage			 305,229	 53.8	 	292,913	 	52.8	 	279,264		 51.3		 262,074		 53.5		 247,054		 52.5 Installment			 	85,720		 15.1		 99,571		 17.9	 	107,450		 19.7		 95,544		 19.5		 93,676		 19.9 Direct leasing				 29,144		 5.1	 	21,666		 3.9		 14,029		 2.6		 2,200		 0.4		 215		 0.1 	Total					 $567,447		100.0%	 	$554,942		 100.0% 	$544,566		 100.0%		 $490,345		 100.0%		 $470,611		 100.0% The following table indicates the amount of loans (excluding real estate mortgages, consumer loans and direct lease financing) outstanding at December 31, 1996, which, based on remaining scheduled repayments of principal, are due in the periods indicated. Maturing			 Within		 After One But	 After		 (In thousands)			 One Year	 Within Five Years	 Five Years	 Total Commercial, financial and agricultural		 $ 96,908	 	$20,946	 	$2,402	 	$120,256 Real estate - construction		25,463	 	1,592		 43	 	27,098 							$122,371	 	$22,538		 $2,445	 	$147,354 The table below shows the amount of loans (excluding real estate mortgages, consumer loans and direct lease financing) outstanding at December 31, 1996, which are due after one year classified according to sensitivity to changes in interest rates. Interest Sensitivity	 	Fixed	 	Variable (In thousands)			 Rate		 Rate Due after one but within five years		 $19,396	 	$3,142 Due after five years			 2,356	 	89 	 						$21,752	 	$3,231 Temporary Investments Federal funds sold and securities purchased under agreement to resell are the primary components of temporary investments. These funds help in the management of liquidity and interest rate sensitivity. In 1996, temporary investments averaged $52 million, unchanged from their average in 1995. Temporary investment funds are reallocated as loan demand presents the opportunity. Investment Securities The majority of the investment security portfolio is comprised of U.S. Treasury securities, Federal agency securities, tax-exempt securities, and mortgage- backed securities. Total investment securities were $221 million on December 31, 1996, a decrease of $6 million, or 2.7% from year end 1995. The funds made available from maturing or called bonds have been redirected to fund new loan growth as needed. Remaining funds have been used to increase our holding of tax-free obligations and mortgage-backed securities. Obligations of states and political subdivisions are the primary means of managing the Company's tax position. The alternative minimum tax is not expected to impact the Company's ability to acquire tax-free obligations in the near future as they become available at an attractive yield. Available for sale securities and held to maturity securities were $109 million and $112 million, respectively. Total investment securities averaged $218 million, an increase of $31 million, or 16.5% from year end 1995. Net unrealized losses, net of tax effect, on available for sale securities, were $362 thousand on December 31, 1996. The following table summarizes the carrying values of investment securities on December 31, 1996, 1995 and 1994. The investment securities are divided into available for sale and held to maturity securities. Available for sale securities are carried at the estimated fair value and held to maturity securities are carried at amortized cost. December 31, (In thousands)		 	1996	 1995 					1994 Available 	Held to 	Available 		Held to 	Available		 Held to 				 for sale	 maturity	 for sale	 	maturity		for sale 		maturity U.S. Treasury securities 			$ 27,453		$ 2,000	 	$ 16,668		 $ 15,994 		$ 8,745		 $ 45,559 Obligations of other U.S. Government 	 	agencies				 62,744	 	28,581		 77,624 		34,732	 	55,855 		18,192 Obligations of states and political 	subdivisions 		62,839 				54,696 				51,095 Mortgage-backed securities		 15,329	 	14,680	 	10,251	 	13,151 		4,819	 	5,131 Other securities				3,765		 3,509	 	1,390	 	2,418	 	3,047	 	500 Total				 		$109,291 		$111,609	 	$105,933 		$120,991 		$72,466 		$120,477 The following is an analysis of the maturity distribution and weighted average interest rates of investment securities at December 31, 1996. For purposes of this analysis, available for sale securities are stated at fair value and held to maturity securities are valued at amortized cost. 								Within				 After One But			 After Five But				 After Available for Sale			 	One Year				Within Five Years				Within Ten Years Ten Years (In thousands) 		 	 Amount		Rate	 	Amount		Rate		 Amount		Rate		 Amount		Rate U.S. Treasury securities $16,042		5.54%	 	$11,411		5.55% Obligations of other U.S. 	Government agencies			 33,401		5.11	 	29,343		5.64 Mortgage-backed securities		 509		7.46	 	4,901		6.58		 $6,103		5.42%		$3,816		6.85% Other securities	 			461		5.42	 	381		7.52						 2,923		6.99 Total		 				$50,413		5.27%	 	$46,036		5.73%	 	$6,103		5.42%		$6,739		6.91% 								Within						 After One But			 After Five But				 After Held to Maturity				 One Year				Within Five Years				Within Ten Years Ten Years (In thousands)			 Amount		Rate		 Amount		Rate		 Amount		Rate		 Amount		Rate U.S. Treasury securities	 $ 1,000		7.64%	 	$ 1,000		5.53% Obligations of other U.S. 	Government agencies			 9,000		6.23 		17,331		5.94 		$ 2,250		7.26% States and political subdivisions		 9,097		6.70 		34,963		7.03		 16,963		7.22		 $1,816		7.64% Mortgage-backed securities		1,187		8.13	 	6,147		6.46 		7,346		7.07 Other securities			 	288		5.15	 	1,771		5.90		 1,450		7.16 Total	 					$20,572		6.60%	 	$61,212		6.60%		 $28,009		7.18%		$1,816		7.64% The calculation of the weighted average interest rates for each category is based on the weighted average costs of the securities. The weighted average tax rates on exempt state and political subdivisions is computed on a taxable equivalent basis using a 34% tax rate. Deposits On December 31, 1996, deposits totaled $786 million, an increase of $31 million, or 4.2% from year end 1995. Deposits averaged $753 million, an increase of $31 million, or 4.4% from 1995. During 1996 total average interest bearing deposits increased $30 million, or 4.9% to $641 million while average noninterest bearing deposits increased $1 million, or 1.3% to $112 million. The primary increase in the deposit base has been with interest bearing demand deposits and time deposits. Average interest bearing demand deposits increased $13 million, or 5.2% while average time deposits increased $15 million, or 4.9%. A summary of average balances and rates paid on deposits follows: 								1996			 		1995	 				1994 						Average		Average	Average		Average	Average		Average (In thousands)		 	Balance		Rate	 	Balance		Rate		 Balance		Rate Noninterest bearing demand deposits	 	 $112,199			0.00%		$110,759			0.00%		$121,492			0.00% Interest bearing demand deposits	 	258,606			2.77	 	245,926			2.96	 	247,554			2.72 Savings deposits		 	55,529			2.96 	 	53,417			3.19 		55,853			2.89 Time deposits		 		326,844			5.61	 	311,668			5.55	 	274,812			4.30 							$753,178		 			$721,770			 		$699,711			 Maturities of time deposits of $100,000 or more outstanding at December 31, 1996 are summarized as follows: 								Time Deposits (In thousands)		 			 >$100,000 3 months or less	 		$19,316 Over 3 through 6 months	 	 11,112 Over 6 through 12 months		 12,432 Over 12 months			 9,839 							$52,699 Short-term Borrowings Securities sold under agreement to repurchase: (In thousands) 	1996 		1995 		1994 												 Amount outstanding at year-end	 	$16,594		$34,638		$43,525 Maximum outstanding at any month-end	 	59,452 		55,929 	43,525 Average outstanding	 		25,706 		28,889 		33,348 Weighted average prime rate during the year	 	8.27% 		8.83%	 	7.14% Weighted average interest rate at year-end	 	5.17 		5.48 		3.63 Such borrowings are generally on an overnight basis. Nonperforming Assets Nonperforming assets decreased $383 thousand, or 5.5% to $6.6 million at year end 1996. As a percentage of loans and other real estate owned, nonperforming assets were 1.2% in 1996 and 1.3% in 1995. Since 1992, nonperforming assets have decreased $11 million, or 62.5%. The largest reductions have been in other real estate owned and restructured loans. This trend is the result of management's continued efforts to improve the quality of the loan portfolio. The Company's loan policy includes strict guidelines for approving and monitoring loans. The table below is a five year summary of nonperforming assets. Year Ended December 31, (In thousands)	 			1996	 	1995 		1994 		1993 		 1992	 Loans accounted for on non-accrual basis		 $2,938		$2,897		$ 3,913		$ 1,565		$ 3,981 Loans contractually past due	 	ninety days or more			 1,822		 1,713	 	1,056	 	1,402 		2,730 Restructured loans		 	1,814 		1,571	 	3,538	 	3,734 		5,266 Other real estate owned			 		776	 	380 		1,169 		5,541 Total nonperforming assets		 $6,574 	$6,957		$ 8,887		$ 7,870		$17,518 Effects of Inflation The majority of the Company's assets and liabilities are monetary in nature. Therefore, the Company differs greatly from most commercial and industrial companies that have significant investments in nonmonetary assets, such as fixed assets and inventories. However, inflation does have an important impact on the growth of assets in the banking industry and on the resulting need to increase equity capital at higher than normal rates in order to maintain an appropriate equity to assets ratio. Inflation also affects other expenses, which tend to rise during periods of general inflation. Management believes the most significant impact on financial and operating results is the Company's ability to react to changes in interest rates. Management seeks to maintain an essentially balanced position between interest sensitive assets and liabilities in order to protect against the effects of wide interest rate fluctuations. Liquidity and Interest Rate Sensitivity The liquidity of the Company is dependent on the receipt of dividends from its subsidiary banks (see Note 17 to the financial statements). Management expects that in the aggregate, its subsidiary banks will continue to have the ability to dividend adequate funds to the Company. The Company's objective as it relates to liquidity is to ensure 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. Those sources of funds are: 		The subsidiary banks' core deposits consisting of both business and non- business deposits 		Cash flow generated by repayment of loan principal and interest 		Federal funds purchased and securities sold under agreements to repurchase 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. Interest Rate Sensitivity Since it is extremely difficult to accurately predict interest rate movements, it is management's intention to maintain the cumulative interest sensitivity gap at the one year time frame between plus or minus 10% of total assets. The gap position may be managed by (1) purchasing investment securities with a maturity date within the desired time frame, (2) offering interest rate incentives to encourage loan customers to choose the desired maturity, and (3) offering interest rate incentives to encourage deposit customers to choose the desired maturity. The following chart illustrates interest rate sensitivity at December 31, 1996 for various time periods. The purpose of this GAP chart is to measure interest rate risk utilizing the repricing intervals of the interest sensitive assets and liabilities. Rising interest rates are likely to increase net interest income in a positive GAP position while falling interest rates are beneficial in a negative GAP position. The Company has a negative GAP position through twelve months, but then shifts to a positive GAP position between one and five years. This positioning is due to management's anticipated economic outlook and other competitive factors. 						 After Three 	After 								 Months But	 One Year But 							 Within 	Within Twelve	 Within Five 	After (In millions)			 Three Months	 Months		 Years 		Five Years	 Total Interest earning assets 	Investment securities	 $ 	57.8	 $ 	32.9	 $ 	90.4	 $	39.8		 $220.9 	Federal funds sold	 		69.9	 							69.9 	Loans, net of unearned income		 210.6	 	176.4	 	162.3	 	8.9 		558.2 		Total			 	$ 338.3	 	$ 209.3	 	$ 252.7 	$	48.7 		$849.0 		Percentage of total interest earning assets 39.8%	 24.7%	 	29.8%	 	5.7% 100.0% Rate sensitive sources of funds used	to finance interest earning assets 		Interest bearing demand deposits	 	$303.7	 							$303.7 		Savings				 58.5					 			58.5 		Time				 93.2	 	$119.5	 	$104.1	 	$3.8 		320.6 		Other borrowed funds		 19.0	 	1.2		 				20.2 		Total			 	$474.4	 	$120.7 		$104.1		 $3.8	 	$703.0 		Percent of total rate sensitive sources of funds		 67.5%	 	17.2%	 	14.8%	 	0.5% 	100.0% Interest sensitivity gap 	(136.1) 	88.6 	148.6 	44.9 		146.0 Cumulative interest sensitivity gap		 (136.1) 		(47.5) 		101.1		 46.0 Interest sensitive assets to interest	sensitive liabilities	 		0.71	 	1.73	 	2.43	 	12.82 	1.21 Cumulative ratio of interest sensitive assets 	to interest sensitive liabilities	 	0.71	 	0.92		 1.14	 	1.21 Cumulative gap as a percent of total	earning assets	 (16.03)% 	(5.59)% 		11.91%	 	17.20% 	 Shareholders' Equity Shareholders' equity was $110 million on December 31, 1996, increasing $4.7 million, or 4.4% from year end 1995. The increase in shareholders' equity is due to 1996 net income of $12.7 million offset by the Company's purchase of 69,400 shares of common stock at a cost of $2.7 million and declaration of dividends totaling $5.7 million. The Company's Board of Directors approved a 13.9% increase in the quarterly dividend rate in the fourth quarter of 1996 from $.36 per share to $.41 per share. The Company's capital ratios as of December 31, 1996, 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		 	18.35%	 		4.00%		 	6.00% 	 	Total risk based		 	19.60 			8.00	 		10.00 	Leverage	 			11.91	 		4.00 			5.00 The capital ratios of all the subsidiary banks, on an individual basis, were well in excess of the applicable minimum regulatory capital ratio requirements at December 31, 1996. The table below is an analysis of dividend payout ratios and equity to asset ratios for five years. December 31,		 	1996 		1995 		1994 		1993 		1992 																 Percentage of dividends declared 	to net income			 45.21%		50.24%		46.40%		39.78%		66.26% Percentage of average shareholders' 	equity to average total assets 		11.94	 	11.81	 	11.57 		11.22 		10.85 Shareholder Information As of January 1, 1997, there were 864 shareholders of record. This figure does not include individual participants in security position listings. Stock Prices Farmers Capital Bank Corporation's stock is traded on the National Association of Security Dealers Automated Quotation System (NASDAQ) SmallCap Market tier of The NASDAQ Stock Market, with sales prices reported under the symbol: FFKT. The table below is an analysis of the stock prices and dividends declared for 1996 and 1995. Stock Prices 														Dividends 1996					 High	 			Low 			Declared Fourth Quarter			 	$40.75 				$39.25	 			$0.41 Third Quarter				 40.50 				34.50	 			0.36 Second Quarter		 		41.50	 			33.50	 			0.36 First Quarter			 	42.50	 		38.50			 	0.36 1995 Fourth Quarter	 			$43.50	 			$37.00 				$0.36 Third Quarter			 	39.50	 			33.00	 			0.33 Second Quarter			 	37.00	 			32.50 		 		0.33 First Quarter			 	38.00 				35.50	 			0.33 Dividends declared per share increased $.14 or 10.4% and $.12, or 9.8% for the years 1996 and 1995, respectively. Accounting Requirements Effective in 1997 In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards (SFAS) No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". Under this standard, accounting for transfers and servicing of financial assets and extinguishments of liabilities is based on control. After a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered and derecognizes liabilities when extinguished. This statement applies prospectively in fiscal years beginning after December 31, 1996. The Company does not expect the implementation of this statement to have a material affect on the financial statements. 1995 Compared with 1994 Net income was $10.39 million in 1995 compared to $10.25 million in 1994, an increase of $139 thousand. Net income per share increased from $2.65 to $2.69. The Company benefited during the second quarter of 1994 from a significant nonrecurring recovery of prior year losses amounting to $503 thousand after taxes. Adjusting for the nonrecurring recovery, 1995 net income is $642 thousand or 6.6% higher than net income for 1994. The performance ratios also increased after adjusting for the nonrecurring recovery. The return on average assets and average equity increased from 1.16% to 1.21% and from 9.99% to 10.20%, respectively. Total interest income, on a tax equivalent basis was $68.7 million, up $9.4 million, or 15.9% from 1994. The increase is due primarily to increases in interest income on loans and taxable investment securities which were rate driven. The yield on total earning assets increased from 8.0% to 8.8%. This was accomplished by moving balances from lower yielding asset categories to higher earning loans. Total interest expense was $28.1 million, up $6.5 million, or 30.2%. Time deposits experienced increases both in average balance and in rate paid accounting for $5.5 million of the increase in total interest expense. Net interest income on a tax equivalent basis increased 7.7% to $40.6 million. The growth was the result of a $34.5 million increase in average earning assets and an 85 basis point increase in the average rate earned on earning assets. The spread between rates earned and paid was 4.45%, unchanged from 1994, while the net interest margin increased 3% from 5.06% to 5.21%. Noninterest income increased $212 thousand to $11.7 million in 1995. After considering that in 1994, non interest income was inflated by a $758 thousand nonrecurring recovery, the actual increase would have been $970 thousand. The majority of the improvement came from increased non-sufficient funds and overdraft fees. Noninterest expense increased $1.3 million or 4.3% despite the significant reduction in FDIC insurance premiums. The $686 thousand decrease in deposit insurance expense was offset by an $835 thousand increase in salaries and employee benefits. Equipment expenses and expenses related to other real estate owned all experienced modest increases. Income tax expense was $4.4 million in 1995, up $108 thousand from 1994, which correlates to the increase in income before taxes. The effective tax rate for 1995 was 29.6% compared to 29.4% in 1994. On December 31, 1995, the allowance for loan losses totaled $8.5 million or 1.6% of net loans, down slightly from 1994. Nonperforming assets declined $2 million or 21.7% to $7 million at December 31, 1995. Since 1991, nonperforming assets have decreased $16 million or 69.6%. Average assets, average earning assets, average loans, and average deposits increased between 1995 and 1994 by 2.7%, 4.6%, 5.7% and 3.1%, respectively. Shareholders' equity was $105 million on December 31, 1995, an increase of $5 million or 4.9% from 1994. Item 8 - Financial Statements and Supplementary Data Report of Independent Accountants To the Board of Directors and Shareholders Farmers Capital Bank Corporation We have audited the accompanying consolidated balance sheets of Farmers Capital Bank Corporation and Subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Farmers Capital Bank Corporation and Subsidiaries as of December 31, 1996 and 1995 and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. As discussed in Note 5 to the consolidated financial statements, in 1995 the Company changed its method of accounting for impaired loans. Also, as discussed in Note 3 to the consolidated financial statements, in 1994, the Company changed its method of accounting for certain investments in debt and equity securities. /s/ Coopers & Lybrand L.L.P. Louisville, Kentucky January 16, 1997 Consolidated Balance Sheets December 31, (In thousands, except share figures)	 1996	 	1995 Assets Cash and cash equivalents:		 	Cash and due from banks		 $ 52,073		 $ 41,126 	Interest bearing deposits in other banks		 758	 	688 	Federal funds sold and securities purchased under 		agreement to resell		 69,915 		68,370 		Total cash and cash equivalents		 122,746	 	110,184 Investment securities: 	Available for sale		 	109,291 		105,933 	Held to maturity		 	111,609 		120,991 		Total investment securities	 	220,900	 	226,924 Loans	 				567,447 		554,942 Less: 	Allowance for loan losses 		(8,741) 		(8,472) 	Unearned income			 (9,198) 	(11,762) 		Loans, net	 		549,508 		534,708 Bank premises and equipment	 	19,320 		19,916 Interest receivable			 8,129 		7,889 Deferred income taxes	 		613 		1,363 Other assets		 		4,103	 	5,129 		Total assets		 	$925,319 		$906,113 Liabilities Deposits: 	Noninterest bearing	 		$103,488 		$109,490 	Interest bearing		 	682,822 		645,371 		Total deposits	 		786,310 		754,861 Other borrowed funds			 20,165 		38,524 Dividends payable			 1,558 		1,392 Interest payable				 2,204 		2,370 Other liabilities			 	5,486	 	4,037 		Total liabilities		 	815,723 		801,184 Commitments and contingencies Shareholders' Equity Common stock, par value $.25 per share; 4,804,000 shares 	authorized; 3,796,982 and 3,866,382 shares issued and 	outstanding at December 31, 1996 and 1995, respectively		 949	 	967 Capital surplus				 8,931	 	9,094 Retained earnings			 100,078	 	95,694 Net unrealized loss on securities available for sale, net of tax	 	(362)	 	(826) Total shareholders' equity		 109,596 		104,929 		Total liabilities and shareholders' equity		 $925,319	 	$906,113 The accompanying notes are an integral part of the consolidated financial statements. Consolidated Statements of Income For the years ended December 31, (In thousands, except per share data)	 1996		 	1995 	1994 Interest income Interest and fees on loans	 	$52,778	 	$53,965 		$46,951 Interest on investment securities: 	Taxable				 9,121		 7,923	 	6,106 	Nontaxable			 	2,872	 	2,331	 	2,295 Interest on deposits in other banks	 	61	 	116		 122 Interest on federal funds sold and securities 	purchased under agreement to resell		 2,653		 2,926		 2,276 		Total interest income		 67,485		 67,261	 	57,750 Interest expense Interest on deposits			 27,170	 	26,274 		20,171 Interest on other borrowed funds		 1,533 		1,841	 	1,415 		Total interest expense	 	28,703	 28,115	 	21,586 	Net interest income		 	38,782 		39,146 		36,164 Provision for loan losses			 4,162	 	3,727 		2,125 		Net interest income after provision 			for loan losses 		34,620	 	35,419	 	34,039 Noninterest income Service charges and fees on deposits	 	5,702		 5,425	 	4,743 Trust income			 	1,251	 	1,176		 1,202 Investment gains (losses) net		 10		 2		 (74) Gain on sale of Money One loans		 3,206	 	--		 -- Other					 4,820		 5,140	 	5,660 		Total noninterest income		 14,989		 11,743		 11,531 Noninterest expense Salaries and employee benefits	 	17,246	 	16,788		 15,953 Occupancy expenses, net		 1,995	 	1,982	 	1,991 Equipment expenses		 	2,603 		2,712	 	2,554 Bank shares tax				 1,045		 1,000	 	1,097 Deposit insurance expense	 	11	 	826	 	1,512 Other					 8,875	 	9,093		 7,949 		Total noninterest expense	 	31,775	 	32,401	 	31,056 		Income before income taxes		 17,834	 	14,761 		14,514 Income tax expense			 	5,178 		4,372	 	4,264 		Net income 		 	$12,656 		$10,389 		$10,250 Net income per common share 	$3.29	 	$2.69	 	$2.65 Weighted average shares outstanding		 3,842 		3,866 		3,866 The accompanying notes are an integral part of the consolidated financial statements. Consolidated Statements of Changes in Shareholders' Equity For the years ended December 31, 1996, 1995 and 1994 (In thousands, except per share data) 												 Net Unrealized Gain(Loss)	 Total 	Common	Capital	Retained	 on Securities	 Shareholders' 	 Stock		Surplus	Earnings	 Available for Sale	 	Equity 	Balance at January 1, 1994	 	$967		$9,094		$85,030		 	$95,091 Cumulative effect of net unrealized gain on 	securities available for sale, net of tax							 	$182 		182 Cash dividends declared, $1.23 per share						 (4,756) 				(4,756) Net income								 10,250 				 10,250 Net unrealized loss on securities available 	for sale, net of tax			 						 (703)	 	(703) 	Balance at December 31, 1994		 967 9,094	 90,524	 	 (521)	 	 100,064 Cash dividends declared, $1.35 per share					 	(5,219) 				(5,219) Net income								 10,389 				10,389 Net unrealized loss on securities available 	for sale, net of tax							 		(305)	 	(305) 										 	Balance at December 31, 1995		 967		 9,094	 95,694	 	(826) 		104,929 Cash dividends declared $1.49 per share		 				(5,722) 				(5,722) Purchase of 69,400 shares of common stock	 	(18)	 	(163) (2,550) 				(2,731) Net income								 12,656			 	12,656 Net unrealized gain on securities available 	for sale net of tax					 				464 		464 	 	Balance at December 31, 1996	 $949 		$8,931 $100,078		 $(362)	 	$109,596 The accompanying notes are an integral part of the consolidated financial statements. Consolidated Statements of Cash Flows For the years ended December 31, (In thousands)					1996		 	1995 	1994 Cash flows from operating activities 	Net income				 				$ 12,656		$ 10,389		$ 10,250 	Adjustments to reconcile net income to net cash 			provided by operating activities: 			Depreciation and amortization		 			2,477	 	2,634 		2,553 			Net amortization of investment security premiums 				and discounts: 					Available for sale 						(388)	 	(818) 		117 					Held to maturity						 111 		238 		326 			Provision for loan losses					 	4,162	 	3,727	 	2,125 			Mortgage loans originated for sale					 	(8,017)		 (14,730)	 	(3,840) 			Proceeds from sale of mortgage loans					 	7,955	 	14,730 		3,840 			Deferred income tax expense (benefit)				 		512	 	732	 	(18) 			Gain on sale of mortgage loans						 (18) 			Gain on sale of Money One loans					 	(3,206) 			(Gain) loss on sale of fixed assets						 (150) 				32 			(Gain) loss on sale or call of investment securities: 				Available for sale		 									74 				Held to maturity						 	(10) 			Changes in: 				Interest receivable	 						(240)	 	(1,111) 		(358) 				Other assets						 	491	 	(1,078)		 785 				Interest payable					 		(166) 		655 		240 				Other liabilities					 		1,449 		476	 	589 				Net cash provided by operating activities		 		17,618 		15,844 		16,715 Cash flows from investing activities 			Proceeds from maturities and calls of investment securities: 		 		Available for sale 	 						132,172	 	84,897	 	73,841 			 	Held to maturity					 		39,175	 	51,855 		21,609 			Proceeds from sales of investment securities: 			 	Available for sale											 11,603 			Purchases of investment securities:				 			 	Available for sale						 	(134,440)		(118,004)		(77,005) 			 	Held to maturity						 	(29,894)	 	(52,607)		(35,431) 			Loans originated for investment, net of principal collected 				 (31,123)	 	(14,134)		(53,336) 			Purchases of bank premises and equipment 						(1,594) 		(1,413)	 	(921) 			Proceeds from sale of equipment 		399	 			6 			Proceeds from sale of Money One loans					 	15,447 			Net cash used in investing activities						 (9,858)	 	(49,406)		(59,634) Cash flows from financing activities 			Net increase in deposits		 				31,449	 	58,166 		39,262 			Dividends paid							 (5,557) 		(5,103)	 	(4,640) 			Purchase of common stock					 	(2,731) 			Net (decrease) increase in other borrowed funds			 			(18,359)	 	(9,868) 		11,064 			Net cash provided by financing activities	 					4,802	 	43,195	 	45,686 			Net change in cash and cash equivalents 					 12,562	 	9,633	 	2,767 	Cash and cash equivalents at beginning of year 110,184	 	100,551	 	97,784 			Cash and cash equivalents at end of year	 			$122,746 		$110,184		$100,551 Supplemental disclosures Cash paid during the year for: 	Interest						 		$ 28,869		$ 27,460		$ 21,346 	Income taxes						 		4,210	 	3,730	 	4,255 Cash dividend declared and unpaid				 		1,558	 	1,392 		1,276 The accompanying notes are an integral part of the consolidated financial statements. 1.	Summary of Significant Accounting Policies The accounting and reporting policies of Farmers Capital Bank Corporation and Subsidiaries conform to generally accepted accounting principles and general practices applicable to the banking industry. The more significant accounting policies are summarized below: 			Basis of Presentation and Organization 			The consolidated financial statements include the accounts of Farmers Capital Bank Corporation (the "Company"), a bank 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 Company is predominantly engaged in the business of receiving deposits from and making real estate, commercial and consumer loans to businesses and consumers in Central Kentucky. 			The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at 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. 			 			Reclassifications 			Certain amounts in the accompanying consolidated financial statements presented for prior years have been reclassified to conform with the 1996 presentation. These reclassifications do not affect net income or shareholders' equity as previously reported. 			Cash and Cash Equivalents 			For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks, interest bearing demand deposits in other banks, federal funds sold and securities purchased under agreements to resell. Generally, federal funds sold and securities purchased under agreements to resell are purchased and sold for one-day periods. 			Investment Securities 			All investments in debt securities and all investments in equity securities are classified into three categories. Securities that management has positive intent and ability to hold until maturity are classified as held to maturity. Securities that are bought and held specifically for the purpose of selling them in the near term are classified as trading securities. All other securities are classified as available for sale. Securities are designated as available for sale if management intends to use such securities in its asset/liability management strategy and therefore such securities may be sold in response to changes in interest rates and prepayment risk. Securities classified as trading and available for sale are carried at market value. Unrealized holding gains and losses for trading securities are included in current income. Unrealized holding gains and losses for available for sale securities are reported net as a separate component of shareholders' equity until realized. Investments classified as held to maturity are carried at amortized cost. Realized gains and losses on any sales of securities are computed on the basis of specific identification of the adjusted cost of each security and are included in noninterest income. 			Loans 			Loans are stated at the principal amount outstanding. Interest income on loans is recognized using the interest method based on loan principal amounts outstanding during the period. Accrual of interest is adjusted or discontinued on a loan when, in the opinion of management, its collection becomes doubtful. 			Provision for Loan Losses 			The provision for loan losses charged to operating expenses is an amount that is sufficient to maintain the allowance for loan losses at an adequate level based on management's best estimate of possible future loan losses. Management's determination of the adequacy of the allowance is based on such considerations as the current	condition and volume of the Company's loan portfolios, economic conditions within the Company's service areas, review of specific problem loans, and any other factors influencing the collectibility of the loan portfolios. 			Other Real Estate 			Other real estate owned and held for sale included with other assets on the accompanying consolidated balance sheets includes properties acquired by the Company through actual loan foreclosures. Other real estate owned is carried at the lower of cost or fair value less estimated costs to sell. Fair value is the amount that the Company could reasonably expect to receive in a current sale between a willing buyer and a willing seller, other than in a forced or liquidation sale. Fair value of assets is measured by the market value based on comporable sales. Any reduction to fair value from the fair value recorded at the time of acquisition is accounted for as a valuation reserve. 			Deferred Income Taxes 			Deferred income taxes are recognized for the tax consequences on future years of temporary differences between the financial statement carrying amounts and the tax basis of existing assets and liabilities. 			Bank Premises and Equipment 			Bank premises, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation is computed primarily on the straight-line method over the estimated useful lives for furniture, equipment and buildings. Leasehold improvements are amortized over the shorter of the estimated useful lives or terms of the related leases on the straight-line method. Maintenance, repairs and minor improvements are charged to operating expenses as incurred and major improvements are capitalized. The cost of assets sold or retired and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in income. 			Earnings Per Share 			Earnings per share is calculated on the basis of the weighted average number of common shares outstanding. 2.	Restrictions on Cash and Due From Banks Included in cash and due from banks are certain noninterest bearing deposits that are held at the Federal Reserve Bank and correspondent banks in accordance with regulatory reserve requirements specified by the Federal Reserve Board of Governors. The balance requirement was $9,990,000 at December 31, 1996 and $8,988,000 at December 31, 1995. 3.	Investment Securities Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity Securities". SFAS No. 115 requires investments in equity securities that have a readily determinable fair value and investments in debt securities to be classified into three categories, as follows: held to maturity debt securities, trading securities, and available for sale securities. Investments categorized as available for sale had an estimated fair value in excess of carrying value of $276,000 at January 1, 1994, and had the effect of increasing shareholders' equity by $182,000 (net of tax effect of $94,000). There was no impact on the Company's consolidated net income as a result of the adoption of SFAS No. 115. The following summarizes the amortized cost and estimated fair values of the securities portfolio at December 31, 1996. The summary is divided into available for sale and held to maturity securities. 										 Gross	 Gross	 Estimated December 31, 1996 (In thousands)		Amortized	 Unrealized 	Unrealized	 Fair Available for Sale		 Cost		 Gains	 Losses	 Value U.S. Treasury				 $ 27,485	 	$ 17	 	$ 49 		$27,453 Obligations of U.S. Government agencies	 	63,287 		10 		553 		62,744 Mortgage-backed securities		 15,296 		46 		13 		15,329 Other securities				 3,772			 	7	 	3,765 		Total securities - available for sale		 $109,840	 	$ 73 		$622		$109,291 Held to Maturity U.S. Treasury				 $ 2,000	 	$ 1	 	$ 5		$ 1,996 Obligations of U.S. Government agencies 		28,581 		22 		192 		28,411 Obligations of states and political subdivisions	 	62,839	 	511	 	344	 	63,006 Mortgage-backed securities 		14,680 		145	 	24 		14,801 Other securities				 3,509	 	17	 	12	 	3,514 		Total securities - held to maturity	 	$111,609 		$696 		$577		$111,728 The following summarizes the amortized cost and estimated fair values of the securities portfolio at December 31, 1995. 								 		 		 Gross	 Gross 	Estimated December 31, 1995 (In thousands)			Amortized 	Unrealized	 Unrealized	 Fair Available for Sale 				Cost		 Gains	 Losses	 Value U.S. Treasury				 		$ 16,609	 	$ 70 		$ 11	 	$ 16,668 Obligations of U.S. Government agencies		 		78,992 		52	 	1,420	 	77,624 Mortgage-backed securities				 10,210	 	41			 	10,251 Other securities					 	1,372	 	18		 		1,390 		Total securities - available for sale			 	$107,183 		$181	 	$1,431		$105,933 Held to Maturity U.S. Treasury			 			$ 15,994		 $ 79		 $ 6		$ 16,067 Obligations of U.S. Government agencies			 	34,732 		192 		176	 	34,748 Obligations of states and political subdivisions		 		54,696 		721	 	256 		55,161 Mortgage-backed securities	 			13,151 		214	 	31	 	13,334 Other securities		 				 2,418 		24 		8	 	2,434 		Total securities - held to maturity	 	$120,991 		$1,230	 	$477	 $121,744 The amortized cost and estimated fair value of the securities portfolio at December 31, 1996, by contractual maturity, are shown below. The summary is divided into available for sale and held to maturity securities. 									 	Available for Sale						Held to Maturity 								 Amortized 		Estimated 	 Amortized Estimated December 31, 1996 (In thousands) 	Cost	 	 	Fair Value 	Cost			 Fair Value Due in one year or less			 $ 50,553 				$ 50,413 		$ 20,572 		$ 20,593 Due after one year through five years 46,473		 		46,036	 	61,212 		61,163 Due after five years through ten years 6,098 				6,103 		28,009	 	28,156 Due after ten years			 6,716	 			6,739 		1,816 		1,816 			 						$109,840	 			$109,291 		$111,609 		$111,728 Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Proceeds from sales and maturities of investments in debt securities during 1996, 1995 and 1994 were $171,347,000, $136,752,000, and $107,053,000, respectively. Gross gains of $10,000, $2,000, and $3,000 and gross losses of $0, $0, and $77,000 for 1996, 1995 and 1994, respectively, were realized on those sales and maturities. The amortized cost and estimated fair value of investment securities which were pledged as collateral for public deposits, treasury deposits, trust funds, customer repurchase agreements, and other purposes as required by law at December 31, 1996 and 1995 are shown below. The securities are divided into available for sale and held to maturity. 											1996		 			1995 					 							 	Available			Held to 	Available			Held to December 31, (In thousands) 	for Sale			Maturity	 for Sale	 		Maturity 							 												 Amortized cost	 		$61,264				$56,715	 $51,077	 		$67,903 Estimated fair value	 	60,885	 			56,847 	50,217	 		68,496 4.	Loans Major classifications of loans are summarized as follows: December 31, (In thousands) 	1996	 			1995 Commercial, financial and agricultural 		$120,256				$114,412 Real estate - construction 		27,098	 			26,380 Real estate - mortgage		 	305,229 				292,913 Consumer loans		 	85,720	 			99,571 Lease financing		 	29,144	 			21,666 		Total loans	 			567,447	 			554,942 	Less unearned income 		(9,198)				(11,762) 		Total loans, net of unearned income 		$558,249 			$543,180 Loans to directors, executive officers, principal shareholders, including loans to affiliated companies of which directors, executive officers and principal shareholders are principal owners, and loans to members of the immediate family of such persons, were approximately $13,277,000 and $12,602,000 at December 31, 1996 and 1995, respectively. An analysis of the activity with respect to these loans follows: (In thousands) Balance, December 31, 1995			 			$12,602 Additions, including loans now meeting			 	disclosure requirements				 		8,413 Amounts collected, including loans no longer			 	meeting disclosure requirements				 		7,738 Balance, December 31, 1996			 			$13,277 5.	Allowance for Loan Losses On January 1, 1995, the Company implemented SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures" which amends SFAS No. 114. The two Statements address the following: 			1.	The accounting by creditors for impairment of a loan. 			2.	The accounting by creditors for loans that are restructured in a troubled debt restructuring involving a modification of terms of a receivable. 			3.	The elimination of the categories of loans classified as in-substance foreclosures. SFAS No. 114 requires the measurement of impaired loans based on the present value of expected future cash flows using the loan's effective interest rate or, as a practical expedient, it may be measured on the fair market value of the loan, or the fair value of the collateral, if the loan is collateral dependent. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. If the measure of the impaired loan is less than the recorded investment, an impairment will be recognized by creating a valuation allowance with a corresponding charge to the provision for loan loss. The adoption of SFAS No. 114 did not result in additional provisions for loan losses or changes in previously reported net earnings due to the fact that the Company's existing methods of measuring laon impairment are consistent with the methods prescribed in the Statement. SFAS No. 114 does not apply to large groups of smaller balance homogeneous loans that are collectively evaluated for impairment. The Company has identified these loans as credit card loans, home mortgages, and all other loans less than $500,000. The factors considered by management in determining if a loan is impaired include, but are not limited to, the following: length of delinquency, past history with the borrower, financial condition of the borrower, ability of the borrower to repay the debt based upon cash flow information, intentions of the borrower, and value of the collateral. Impairment is not necessarily determined by a minimum delay in payment. A minimum delay in payment occurs when the exact terms of the loan agreement have not been met by the borrower; however, the Company believes that contractual interest and principal payments will still be received. These loans are considered non-accrual loans because the timing of interest payments is unknown; however, it is still likely that interest will be received. Payments received while a loan is on non-accrual status are applied against principal only. All of the loans of the Company to which SFAS No. 114 applies are classified as commercial loans. Due to the size of the Company and the few loans that meet the criteria for application of SFAS No. 114, no further risk classification is necessary. On December 31, 1996 and 1995, the recorded investment in loans for which impairment has been recognized in accordance with the SFAS No. 114 totaled $2,847,000 and $2,000,000, respectively, and the total allowance related to such loans was $922,000 and $785,000. Of the $2,847,000 recorded investment at December 31, 1996, $1.192,000 was measured using the present value of future cash flows method and $1,655,000 was measured using the fair value of collateral method. Of the $2,000,000 recorded investment at December 31, 1995, $1,100,000 was measured using the present value of future cash flows method and $900,000 was measured using the fair value of collateral method. The recorded investment averaged $2,769,000 and $2,587,000 for the years ended December 31, 1996 and 1995, respectively. The amount of interest on these loans during 1996 and 1995 was $151,000 and $113,000, respectively. If the Company had used a cash-based method of accounting for the interest on these loans, the interest earned would have been $169,000 and $114,000 at December 31, 1996 and 1995, respectively. The Company's charge-off policy for impaired loans does not differ from the charge-off policy for loans outside the definition of SFAS No. 114. Loans that are delinquent in excess of 120 days are charged-off unless there is a valid reason for the delinquency and the borrower continues to maintain a satisfactory financial standing and/or the collateral securing the debt is of such value that any loss appears to be unlikely. An analysis of the allowance for loan losses follows: Year Ended December 31, (In thousands)	 	 	1996						 1995				 1994 												Regular	 SFAS 114	 Total		 Regular	 SFAS 114	 Total		 Regular 			 					 Allowance	 Allowance 	Allowance 	Allowance	 Allowance	 Allowance	 Allowance Balance, beginning of year	 		$7,687	 	$ 785		 $8,472 		$ 8,889	 	 None		 $ 8,889	 $ 8,547 Provisions for loan losses			 3,044		 1,118	 	4,162	 	3,727				 3,727		 2,125 Recoveries				 516				 516		 740				 740		 841 Loans charged off				 (3,428)		 (981)		 (4,409)		 (3,666)	 $(1,218)		 (4,884)		 (2,624) Initial transfer to SFAS 114 allowance								 (2,003)				 (2,003) Initial transfer from regular allowance									 	2,003		 2,003 Balance, end of year	 			$7,819	 	$ 922	 $8,741 		$7,687 		$ 785	 $8,472		 $ 8,889 The following is an estimate of the breakdown of the allowance for loan losses by type for the date indicated: Year Ended December 31, (In thousands)		 		1996	 		1995		 																		 Commercial, financial and agricultural		 		$3,806 			$4,138 Real estate				 	 	2,974	 			1,928 Installment loans to individuals			 	1,304	 		2,176 Direct lease financing		 			657 				230 																		 		Total		 				$8,741	 			$8,472 6.	Nonperforming Assets (In thousands)						 1996 	1995 		1994	 Non-accrual loans			 		$2,938	 $2,897	 $ 3,913 Loans past due 90 days or more				 1,822	 	1,713	 	1,056 Restructured loans			 		1,814	 	1,571	 	3,538 		Total nonperforming loan balances at December 31,				 6,574	 	6,181 		8,507 Other real estate owned					 		776 		380 		Total nonperforming assets at December 31,			 	$6,574 		$6,957		 $ 8,887 Nonperforming loans as a percentage of loans - net	of unearned interest			 		1.2% 		1.1% 		1.6% Nonperforming assets as a percentage of loans and	other real estate owned		 			1.2%	 	1.3%	 	1.7% Interest income that would have been recognized	under original terms for the year on nonperforming loans		 $ 445 		$ 731	 $ 576 Amount of interest income recognized for the year	on nonperforming loans	 		 $ 	189		 $ 133		 $ 117 7.	Bank Premises and Equipment Bank premises and equipment consist of the following: December 31, (In thousands)	 			1996 	1995	 Land, building and leasehold improvement				 $23,082	 	$22,566 Furniture and equipment				 17,564 	17,919 		Total bank premises and equipment		 		40,646	 40,485 Less accumulated depreciation and amortization		 		21,326 	20,569 		Net bank premises and equipment			 	$19,320 	$19,916 Depreciation and amortization of bank premises and equipment was $1,941,000, $2,082,000, and $1,973,000 in 1996, 1995 and 1994, respectively. 8.	Interest Bearing Deposits Time deposits of $100,000 or more at December 31, 1996 and 1995 were $53,488,000 and $58,641,000, respectively. 9.	Other Borrowed Funds Other borrowed funds are comprised primarily of securities sold under agreement to repurchase with balances of $16,594,000 and $34,638,000 at December 31, 1996 and 1995, respectively. The weighted average interest rates on securities sold under agreement to repurchase for 1996 and 1995 were 5.11% and 5.48%, respectively. 10. Income Taxes The components of income tax expense are as follows: December 31, (In thousands)			 1996	 	1995 		1994 Currently payable			 		$4,666 		$3,640	 	$4,282 Deferred income taxes				 	512 		732	 	(18) 		Total					 	$5,178 		$4,372	 	$4,264 An analysis of the difference between the effective income tax rates and the statutory federal income tax rate follows: December 31, (In thousands)				 1996	 1995	 	1994	 Federal statutory rate	 				35.0%	 	35.0% 35.0% Changes from statutory rates resulting from: 	Tax exempt interest					 (6.8)	 	(7.4)		 (7.0) 	Nondeductible interest to carry municipal obligations		 		.8 		.9	 	.7 	Amortization of intangibles				 1.0	 	1.2 		1.3 	Other, net					 	(1.0)	 	(.1)	 	(.6) 		Effective tax rate		 			29.0%	 29.6%	 	29.4% The tax effects of the significant temporary differences which comprise deferred tax assets and liabilities at December 31, 1996 and 1995 follows: December 31, (In thousands)				 1996	 	1995 Assets 	Loan loss reserve			 		$3,059 		$3,000 	Deferred directors' fees			 		168	 	145 	Postretirement benefit obligation			 	366 		257 	Investment securities		 			187	 	425 	Self-funded insurance					 196 	Other							 95 		260 		Total deferred tax assets			 	4,071	 	4,087 Liabilities 	Depreciation				 		1,691 		1,643 	Deferred loan fees				 	632	 	228 	Lease financing operations				 1,045	 	752 	Other						 	90	 	101 		Total deferred tax liabilities				 3,458 		2,724 		Net deferred tax assets		 		$ 613 		$1,363 11.	Retirement Plans The Company maintains a defined contribution-money purchase pension plan which covers substantially all employees. The Company's contributions under the plan are based upon a percentage of covered employees' salaries. The Company has established a stock bonus/employee stock ownership plan for the benefit of substantially all employees of the Company. The Company's contributions under the plan are based upon a percentage of covered employees' salaries, and are paid at the discretion of the Board of Directors of the Company. The Company contributes cash to the plan and Company shares are purchased with the cash in the open market. Cash contributed to the plan was $102,000, $0, and $100,000, respectively for the years ended December 31, 1996, 1995 1995 and 1994. No stock was contributed to the plan for the years ended December 31, 1996, 1995 and 1994, respectively. 														 The Company has also established a profit-sharing (401K) plan which covers substantially all employees. The Company will match all eligible employee contributions up to 4% of the participant's compensation. The Company may, at the discretion of the Board, contribute an additional amount based upon a percentage of covered employees' salaries. The total retirement plans' expense for 1996, 1995 and 1994 was $897,000, $857,000, and $820,000, respectively. 12.	Postretirement Benefits The Company provides lifetime medical and dental benefits for certain eligible retired employees. Only employees meeting the eligibility requirements as of December 31, 1989 will be eligible for such benefits upon retirement. The entire cost of these benefits is paid for by the Company as incurred and totaled $127,000, $131,000, and $86,000, respectively, for the years ended December 31, 1996, 1995 and 1994. The plan is unfunded. The following table sets forth the plan's status reconciled with the amount shown in the Company's balance sheets at December 31, 1996 and 1995. (In thousands)			 			1996 			1995	 Accumulated postretirement benefit obligation Retirees and dependents	 	$2,577	 			$3,367 Fully eligible active plan participants		 		675	 			671 Other active plan participants			 	698 				684 		Total accumulated postretirement benefit obligation	 	3,950				 4,722 Unrecognized net loss				 	(866)				(1,768) Unamortized transition obligation			 	(1,623)				(1,725) Unrecognized prior service cost		 		(509) 				(551) 		Accrued postretirement benefit cost 				$ 952	 			$ 678 The components of the net periodic postretirement benefit cost at December 31, 1996 and 1995 are as follows: (In thousands)			 			1996 			1995	 Service cost		 				$ 24 				$ 19 Interest on accumulated benefit obligation		 		278	 			243 Amortization of transition obligation and other			 	192	 			144 		Total				 		$494	 			$ 406 Major assumptions: 	Discount rate			 			7.5%		 		7.0% For measurement purposes, a 10.6% annual rate of increase in the per capita cost of covered health care benefits for those below the age of 65 and 8.8% for those over 65 was assumed. The rate was assumed to decrease gradually to 6% by 2012 and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. If the health care cost trend rate were to increase 1%, the service and interest cost would be $341,000 and the accumulated benefit obligation would be $4,458,000. 13.	Leases The Company leases certain of its branch sites and certain banking equipment under operating leases. All of the branch site leases have renewal options of varying lengths and terms. The aggregate minimum rental commitments under these leases are not material. 14.	Financial Instruments With Off-Balance Sheet Risk The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. The financial instruments include commitments to extend credit and standby letters of credit. These financial instruments involve to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Total commitments to extend credit at December 31, 1996, were $76,087,000. The Company evaluates each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral held varies, but may include accounts receivable, marketable securities, inventory, property, plant and equipment, residential real estate, and income producing commercial properties. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The credit risk involved in using letters of credit is essentially the same as that received when extending credit to customers. The Company had approximately $5,019,000 in irrevocable letters of credit outstanding at December 31, 1996. 15.	Concentration of Credit Risk The Company's bank subsidiaries actively engage in lending, primarily in home counties and adjacent areas. Collateral is received to support these loans when deemed necessary. The more significant categories of collateral include cash on deposit with the Company's banks, marketable securities, income producing property, home mortgages, and consumer durables. Loans outstanding, commitments to make loans, and letters of credit range across a large number of industries and individuals. The obligations are significantly diverse and reflect no material concentration in one or more areas. 16.	Contingencies The Company's bank subsidiaries are defendants in legal actions arising from normal business activities. Management believes these actions are without merit, that in certain instances its actions or omissions were pursuant to the advice of counsel, or that the ultimate liability, if any, resulting from them will not materially affect the Company's consolidated financial position or results of operations or cash flows, although resolution in any year or quarter could be material for that period. 17.	Dividend Limitations Payment of dividends by the Company's subsidiary banks is subject to certain regulatory restrictions as set forth in national and state banking laws and regulations. At December 31, 1996, combined retained earnings of the subsidiary banks were approximately $39,378,000 of which $7,742,000 is available for the payment of dividends in 1997 without obtaining prior approval from bank regulatory agencies. 18.	Effect of Implementing SFAS No. 125 In June 1996, the Financial Accounting Standards Board ("FASB") issued SFAS No. 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities". Under this standard, accounting for transfers and servicing of financial assets and extinguishments of liabilities is based on control. After a transfer of financial assets, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, derecognizes financial assets when control has been surrendered and derecognizes liabilities when extinguished. This statement applies prospectively in fiscal years beginning after December 31, 1996. The Company does not expect the implementation of this statement to have a material affect on the financial statements. 19.	Disclosures About Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value. 			Cash and Cash Equivalents 			The carrying amount is a reasonable estimate of fair value. 			Investment Securities 			For marketable equity securities held for investment purposes, fair values are based on quoted market prices or dealer quotes. For other securities held as investments, fair value equals quoted market price, if available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. 			Loan Receivables 			For variable rate loans that reprice frequently with no significant change in credit risk, fair values approximate carrying amounts. 			For certain homogeneous categories of loans, such as credit card receivables, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using a discount rate that has been adjusted for credit risk and the remaining maturities. 			Deposit Liabilities 			The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date. The carrying amount for variable rate and fixed maturity money market accounts and certificates of deposit approximates fair value at the reporting date. The fair value of fixed rate and fixed maturity certificates of deposit is estimated using a discounted cash flow method that applies interest rates currently offered for certificates of deposit with similar remaining maturities. 			Commitments to Extend Credit and Standby Letters of Credit 			Pricing of these financial instruments is based on the credit quality and relationship, fees, interest rates, probability of funding, compensating balance, and other covenants or requirements. Loan commitments generally have fixed expiration dates, variable interest rates and contain termination and other clauses which provide for relief from funding in the event there is a significant deterioration in the credit quality of the customer. Many loan commitments are expected to, and typically do, expire without being drawn upon. The rates and terms of the Company's commitments to lend, and standby letters of credit are competitive with others in the various markets in which the Company operates. There are no unamortized fees relating to these financial instruments, as such the carrying value and fair value are both zero. 			Other Borrowed Funds 			The fair value of other borrowed funds is estimated using rates currently available for debt with similar terms and remaining maturities. The estimated fair values of the Company's financial instruments are as follows: 		 							 	1996					 1995 	 		 Carrying		 Fair	 	Carrying		 Fair December 31, (In thousands)	 Amount	 	 Value	 Amount	 	Value Assets 	Cash and cash equivalents 		$122,746	 $122,746	 	$110,184	 $110,184 	Investments securities: 		Available for sale			 109,291			109,291 		105,933			105,933 		Held to maturity		 	111,609			111,728 		120,991			121,744 	Loans, net 		549,508			543,252 		534,708			528,749 Liabilities 	Deposits	 			786,310			787,793 		754,861			757,771 	Other borrowed funds	 	20,165	 		20,419 		38,524	 		37,362 20.	Quarterly Financial Data 												Quarters Ended 1996 Unaudited (In thousands, except per share data) March 31,	June 30,		Sept. 30,	Dec. 31, Interest income 					$16,966		$17,032	 	$16,725		$16,762 Interest expense					 7,323	 	7,111 		7,134	 	7,135 	Net interest income	 				9,643	 	9,921		 9,591 		9,627 Provision for loan losses 				1,270	 	1,819 		468 		605 	Net interest income after provision for loan losses			 8,373	 	8,102 		9,123 		9,022 Other income 						2,897 		5,848	 	2,954 		3,290 Other expense				 		7,847	 	7,766 		7,643 		8,519 	Income before income taxes		 		3,423 		6,184 		4,434	 	3,793 Income tax			 			968 		1,995	 	1,297	 	918 	Net income				 		$2,455 		$4,189	 	$3,137 		$2,875 Net income per common share	 			$0.64 		$1.08 		$0.82 		$0.76 Weighted average shares outstanding				 3,866	 	3,866		 3,836	 	3,798 											Quarters Ended 1995 Unaudited (In thousands, except per share data)			March 31,	June 30,		Sept. 30,	Dec. 31, Interest income		 		$16,148		$16,596	 	$16,972		$17,545 Interest expense					 6,584	 	6,988	 	7,162 		7,381 	Net interest income				 	9,564 		9,608 		9,810	 	10,164 Provision for loan losses		 		713 		1,048	 	945	 	1,021 	Net interest income after provision for loan losses		 	8,851 		8,560 		8,865 		9,143 Other income				 		2,562 	 3,110	 	2,973	 	3,099 Other expense					 	8,057	 	8,564	 	7,692	 	8,089 	Income before income taxes			 	3,356 		3,106	 	4,146	 	4,153 Income tax					 	1,011	 	920	 	1,272	 	1,169 	Net income				 		$ 2,345	 $ 2,186	 	$ 2,874		$ 2,984 Net income per common share		 		$ 0.61		$ 0.57		 $ 0.74		$ 0.77 Weighted average shares outstanding	 	3,866		 3,866	 	3,866	 	3,866 21.	Parent Company Financial Statements Condensed Balance Sheets December 31, (In thousands)			 1996 		1995 Assets Cash on deposit with subsidiaries		 		$ 28,197 		$ 24,598 Investment in subsidiaries			 	82,474	 	81,349 Other assets					 	1,940 		1,581 	Total assets				 		$112,611 		$107,528 Liabilities Dividends payable		 			$ 1,558		 $ 1,392 Other liabilities				 		1,457	 	1,207 	Total liabilities			 		3,015 		2,599 Shareholders' Equity Common stock	 					949	 	967 Capital surplus						 8,931	 	9,094 Retained earnings					 100,078	 	95,694 Net unrealized loss on securities 	available for sale, net of tax		 		(362) 		(826) 	Total shareholders' equity				 109,596	 	104,929 	Total liabilities and shareholders' equity			 	$112,611		 $107,528 Condensed Statements of Income December 31, (In thousands)				 		1996 	 	1995 		1994 Income Dividends from subsidiaries		 				$12,847	 	$ 7,756	 	$ 24,090 Interest income								 98		 	101 		72 Other income					 			689	 		724	 	740 	Total income		 					13,634 			8,581		 24,902 Expense Other expense				 				2,149			 1,556	 	1,526 	Total expense					 		2,149	 		1,556	 	1,526 	Income before income tax benefit and equity in income of subsidiaries 		less amounts distributed to parent		 				11,485		 	7,025	 	23,376 Income tax benefit					 		509	 		288 		154 	Income before equity in income of subsidiaries less amounts distributed to parent					 	11,994 			7,313	 	23,530 	Equity in income of subsidiaries less amounts distributed	to parent		 						662	 		3,076	 	(13,280) 	Net income				 				$12,656		 	$10,389 		$ 10,250 Condensed Statements of Cash Flows December 31, (In thousands)				 1996	 	1995	 		1994 Cash flows from operating activities 	Net income 			 			$12,656 	$10,389			$ 10,250 	Adjustments to reconcile net income to net cash provided by operating activities:				 			Equity in income of subsidiaries less amounts	distributed to parent 		(662)	 	(3,076)	 	13,280 			Change in other assets and liabilities, net		(107) 		420 		548	 		Net cash provided by operating activities		 11,887 		7,733 		24,078 Cash flows from financing activities 	Cash dividends	 		(5,557) 		(5,104) 		(4,640) 	Purchase of common stock	 	(2,731) 		Net cash used in financing activities		 (8,288) 		(5,104) 		(4,640) 		Net change in cash and cash equivalents	 	3,599 		2,629 		19,438 Cash and cash equivalents at beginning of year	24,598 		21,969	 	2,531 		Cash and cash equivalents at end of year	 	$28,197 		$24,598		 $ 21,969 Supplemental disclosures 	Cash paid during the year for income taxes	 	$4,210 		$ 3,730	 	$ 4,255 	Cash dividend declared and unpaid		 1,558 	 	1,392	 	1,276 Item 9 - Changes in and Disagreements with Accountants on Accounting and Financial Disclosure On February 28, 1997, Farmers Capital Bank Corporation (the "Registrant") engaged the accounting firm of KPMG Peat Marwick LLP as principal accountants, subject to the approval of the Registrant's shareholders. KPMG Peat Marwick LLP replaces Coopers & Lybrand L.L.P. (the "Former Accountant") as of the date reported above. The change in the Registrant's independent public accountants was the result of a formal proposal process involving several accounting firms. The decision to change accountants was approved by the Registrant's Board of Directors. During the two most recent fiscal years and the subsequent interim prior to February 28, 1997, there have been no disagreements with the Former Accountant on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure or any reportable events. The Former Accountants report on the consolidated financial statements for the past two years contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. None of the following events has occurred within the Registrant's two most recent fiscal years or the subsequent interim period preceding the change in accountants: (A)	the Former Accountant has not advised the Registrant that the internal controls necessary for the Registrant to develop reliable financial statements do not exist; (B)	the Former Accountant has not advised the Registrant that information had come to the accountant's attention that led it to no longer be able to rely on management's representations, or that made it unwilling to be associated with the financial statements prepared by management; (C)	(1) the Former Accountant has not advised the Registrant of the need to expand significantly the scope of its audit, or that information has come to the accountant's attention that if further investigated could (i) materially impact the fairness or reliability of either a previously issued audit report or the underlying financial statements, or the financial statements issued or to be issued covering the fiscal periods subsequent to the date of the most recent financial statements covered by an audit report (including information that could prevent it from rendering an unqualified report on those financial statements), or (ii) cause it to be unwilling to rely on management's representations or be associated with the Registrant's financial statements, and (2) due to the accountant's dismissal, or for any other reason, the accountant did not so expand the scope of its audit or conduct such further investigations; or (D)	(1) the Former Accountant has not advised the Registrant that information has come to the accountant's attention that it concluded materially impacts the fairness or reliability or either (i) a previously issued audit report or the underlying financial statements, or (ii) the financial statements issued or to be issued covering the fiscal periods subsequent to the date of the most recent financial statements issued or to be issued covered by an audit report (including information that, unless resolved to the accountant's satisfaction, would prevent it from rendering an unqualified audit report on those financial statements), and (2) due to the accountant's dismissal, or for any other reason, the issue has not been resolved to the accountant's satisfaction prior to its dismissal. During the two most recent fiscal years, and the subsequent interim period prior to engaging KPMG Peat Marwick LLP, neither the Registrant, nor anyone on its behalf, consulted KPMG Peat Marwick LLP regarding (i) either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Registrant's financial statements, where either a written report was provided to the Registrant or oral advice was provided, that KPMG Peat Marwick LLP concluded was an important factor considered by the Registrant in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in paragraph 304(a)(l)(iv) of Regulation S-K and the related instructions) or a reportable event (as described in paragraph 304(a)(l)(v) of Regulation S-K). The Registrant has requested that the Former Accountant furnish it with a letter addressed to the SEC stating whether it agrees with the above statements. A copy of the Former Accountant's letter to the SEC dated March 5, 1997 is attached as an exhibit to this report. 	PART III Item 10 - Directors and Executive Officers of the Registrant 									Positions and 	Years of Service 	 		Offices With 	With the Executive Officer	 	 Age 	Registrant	 Registrant Charles S. Boyd		 	55	 Director1 , President	 33* 								 and CEO James H. Childers	 	54 	Executive Vice President,	 27*	 								 Secretary, General Counsel, 								 Director2 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 13, 1997 which will be filed with the Commission in March 1997, pursuant to Regulation 14A. *	Includes years of service with the Registrant and Farmers Bank & Capital Trust Co. 1	Also a director of Farmers Bank, Horse Cave Bank, Farmers Georgetown Bank, United Bank, Lawrenceburg Bank, First Citizens Bank, FCB Services and Money One (prior to the dissolution of Money One in 1996). 2	A director of Farmers Georgetown Bank. Item 11 - Executive Compensation Item 12 - Security Ownership of Certain Beneficial Owners and Management Item 13 - Certain Relationships and Related Transactions The information required by Items 11 through 13 is hereby incorporated by reference from the Registrant's definitive proxy statement in connection with its annual meeting of shareholders scheduled for May 13, 1997 which will be filed with the Commission in March 1997, pursuant to Regulation 14A. PART IV Item 14 - Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a)	List of documents and exhibits 		1 & 2	Financial Statements and Schedules			 Reference (page) 				Report of Independent Accountants			 	28 				Consolidated Balance Sheets at 					December 31, 1996 and 1995	 			29 				Consolidated Statements of Income 					for the years ended December 31, 					1996, 1995 and 1994 				30 				Consolidated Statements of Changes in 					Shareholder Equity for the years 					ended December 31, 1996, 1995 and 1994	 			31 				Consolidated Statements of Cash Flows 					for the years ended December 31, 					1996, 1995 and 1994				 32 				Notes to the Consolidated Financial Statements 	 	33-48 		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. 		3.	Exhibits: 				16.	Letter re change in certifying accountant 				21.	Subsidiaries of the Registrant 27. Financial Data Schedule (b)	Reports on Form 8-K 		No reports on Form 8-K have been filed by the Registrant during the three month period ended December 31, 1996. (c)	Exhibits 	 		See list of exhibits set forth on page 53. (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/ Charles S. Boyd 					 								 Charles Scott Boyd 							 	President and Chief Executive Officer 								Date:	 	3/24/97 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/Charles S. Boyd 		 		President, Chief Executive Officer					3/24/97 Charles Scott Boyd	 			and Director (principal executive 						 officer of the Registrant)							 /s/John P. Stewart 						Chairman								 3/26/97 John Poage Stewart /s/J. Barry Banker 			Director								 3/24/97 J. Barry Banker /s/James E. Bondurant 				Director								 3/21/97 James E. Bondurant /s/G. Anthony Busseni 				Director								 3/24/97 G. Anthony Busseni /s/J.H. Childers 				Director								 3/24/97 James H. Childers /s/J.D. Sutterlin 		 				Director								 3/25/97 John Douglas Sutterlin /s/W. Benjamin Crain 					Director								 3/24/97 W. Benjamin Crain /s/Lloyd C. Hillard,Jr 				Director								 3/21/97 Lloyd C. Hillard, Jr. /s/Ellwood Bruce Dungan 		Director								 3/24/97 Ellwood Bruce Dungan /s/Harold G. Mays 						Director								 3/27/97 Harold G. Mays /s/Frank W. Sower, Jr 				Director								 3/26/97 Frank W. Sower, Jr.				 /s/C. Douglas Carpenter 		Vice President and CFO									 3/20/97 Cecil Douglas Carpenter				(principal financial and 						 accounting officer) FARMERS CAPITAL BANK CORPORATION 	INDEX OF EXHIBITS 16.	Letter re change in certifying accountant 21.	Subsidiaries of the Registrant 27. Financial Data Schedule Exhibit 16 	Letter re Change in Certifying Accountant Coopers 	 	Suite 1800				 Telephone (502)589-6100 & Lybrand, L.L.P.				 500 West Main Street	 		 Facsimile (502)585-7775 						 Louisville, KY 40202-4264 March 5, 1997 Securities and Exchange Commission 450 5th Street, N.W. Washington, D.C. 20549 Gentlemen: We have read the statements made by Farmers Capital Bank Corporation (copy attached), which we understand will be filed with the Commission, pursuant to Item 4 of Form 8-K, as part of the Company's Form 8-K report for the month of March 1997. We agree with the statements concerning Coopers & Lybrand L.L.P. in such Form 8-K. Very truly yours, /s/Coopers & Lybrand L.L.P. JFF:jkh Attachment EXHIBIT 21 	Subsidiaries of the Registrant The following table provides a listing of the direct and indirect operating subsidiaries of the Registrant, the percent of voting stock held by the Registrant as of December 31, 1996 and the jurisdiction or organization in which each subsidiary was incorporated or organized. 								Percentage of Voting 					 	Jurisdiction 	Stock held by Subsidiaries of the Registrant			 of Organization		 Registrant Farmers Bank & Capital Trust Co.		 Kentucky	 	100% United Bank & Trust Company	 		Kentucky	 	100% First Citizens Bank, Hardin County, Inc.	 	Kentucky	 	100% Lawrenceburg National Bank			 Kentucky		 100% Farmers Bank and Trust Company		 Kentucky 		100% Horse Cave State Bank	 			Kentucky 		100% FCB Services, Incorporated	 		Kentucky	 	100% Farmers Capital Insurance Company 1		 Kentucky	 	100% Farmers Bank Realty Company 2	 	 	Kentucky	 Frankfort ATM Ltd. 3		 		Kentucky Money One Credit of Kentucky. Inc. 2, 5 		Kentucky Money One Credit Company 4, 5		 	Kentucky Leasing One Corporation 2	 		Kentucky 					 1	Dormant company, no activity to date. 2	A wholly-owned subsidiary of Farmers Bank & Capital Trust Company. 3	A fifty (50%) percent owned joint venture of Farmers Bank & Capital Trust Company. 4	A partnership of which ninety-eight (98%) is owned by Farmers Bank & Capital Trust Company, one (1%) percent is owned by Money One Credit of Kentucky, Inc. and one (1%) percent is owned by Farmers Bank Realty Company. 5	On May 31, 1996 all of the loans and fixed assets were sold to unrelated third parties. The remaining assets were distributed to their shareholders at the close of business on December 31, 1996.