UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to
___________________
Commission File Number: 33-96358
BOURBON BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-0993464
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. Box 157, Paris, Kentucky 40362-0157
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(859)987-1795
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No _____
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
Aggregate market value of voting stock held by non-
affiliates as of February 28, 2001 was approximately $55.7
million. For purposes of this calculation, it is assumed
that directors, executive officers and beneficial owners of
more than 5% of the registrant's outstanding voting stock
are affiliates.
Number of shares of Common Stock outstanding as of
February 28, 2001: 2,800,358.
PART I
Item 1. Business
General
Bourbon Bancshares, Inc. ("Company" or "Bourbon") is a
Kentucky corporation organized in 1981 and a bank and
savings and loan holding company registered under the Bank
Holding Company Act of 1956, as amended ("BHCA") and the
Home Owners Loan Act of 1933, as amended ("HOLA").
The Company conducts business through one banking
subsidiary, Kentucky Bank. Kentucky Bank is a commercial
bank and trust company organized under the laws of Kentucky.
Kentucky Bank has its main office in Paris (Bourbon County),
Kentucky, additional offices in Paris, North Middletown
(Bourbon County), Winchester (Clark County), Georgetown
(Scott County), Versailles (Woodford County), Nicholasville
(Jessamine County), Wilmore (Jessamine County), Kentucky and
a loan production office in Cynthiana (Harrison County),
Kentucky. During 2001, the Company plans to add a full
service banking facility in Cynthiana. The deposits of
Kentucky Bank are insured up to prescribed limits by the
Bank Insurance Fund ("BIF") and the Savings Association
Insurance Fund ("SAIF"), both of the Federal Deposit
Insurance Corporation ("FDIC"). Kentucky Bank is engaged in
general full-service commercial and consumer banking.
Kentucky Bank makes commercial, agricultural and real estate
loans to its commercial customers, with emphasis on small-to-
medium-sized industrial, service and agricultural
businesses. Kentucky Bank makes residential mortgage,
installment and other loans to its individual and other non-
commercial customers. Kentucky Bank also offers its
customers the opportunity to obtain a credit card. Kentucky
Bank offers its customers a variety of other services,
including checking, savings, club and money market accounts,
certificates of deposits, safe deposit facilities and other
consumer-oriented financial services. In 2000, Kentucky
Bank made Internet banking available to its customers at
www.kybank.com. Through its Wealth Management Department,
Kentucky Bank provides brokerage services, personal trust
and agency services (including management agency services)
and, to a lesser extent, corporate trust services (including
the management of corporate pension and profits sharing
plans).
Competition
The Company and its subsidiary face vigorous competition
from a number of sources, including other bank holding
companies and commercial banks, consumer finance companies,
thrift institutions, other financial institutions and
financial intermediaries. In addition to commercial banks,
savings and loan associations, savings banks and credit
unions actively compete to provide a wide variety of banking
services. Mortgage banking firms, finance companies,
insurance companies, brokerage companies, financial
affiliates of industrial companies and government agencies
provide additional competition for loans and for many other
financial services. The subsidiary also currently competes
for interest-bearing funds with a number of other financial
intermediaries, including brokerage firms and mutual funds,
which offer a diverse range of investment alternatives.
Supervision and Regulation
As a bank holding company, the Company is subject to the
regulation and supervision of the Federal Reserve Board.
The Company's subsidiary is subject to supervision and
regulation by applicable state and federal banking agencies,
including the Federal Reserve Board, the Federal Deposit
Insurance Corporation and the Kentucky Department of
Financial Institutions. The subsidiary is also subject to
various requirements and restrictions under federal and
state law, including requirements to maintain reserves
against deposits, restrictions on the types and amounts of
loans that may be granted and the interest that may be
charged thereon, and limitations on the types of investments
that may be made and the types of services that may be
offered. Various consumer laws and regulations also affect
the operations of the subsidiary. In addition to the impact
of regulation, the subsidiary is affected significantly by
the actions of the Federal Reserve Board as it attempts to
control the money supply and credit availability in order to
influence the economy.
There are a number of obligations and restrictions imposed
on bank holding companies and their depository institution
subsidiaries by federal law and regulatory policy that are
designed to reduce potential loss exposure to the depositors
of such depository institutions and to the FDIC insurance
funds in the event the depository institution becomes in
danger of default or is in default. For example, under a
policy of the Federal Reserve Board with respect to bank
holding company operations, a bank holding company is
required to serve as a source of financial strength to its
subsidiary depository institutions and commit resources to
support such institutions in circumstances where it might
not do so absent such policy. In addition, the "cross-
guarantee" provisions of federal law require insured
depository institutions under common control to reimburse
the FDIC for any loss suffered or reasonably anticipated as
a result of the default of a commonly controlled insured
depository institution or for any assistance provided by the
FDIC to a commonly controlled insured depository institution
in danger of default.
The federal banking agencies have broad powers under current
federal law to take prompt corrective action to resolve
problems of insured depository institutions. The extent of
these powers depends upon whether the institutions in
question are "well capitalized", "adequately capitalized",
"undercapitalized", "significantly undercapitalized" or
"critically undercapitalized", as such terms are defined
under uniform regulation defining such capital levels issued
by each of the federal banking agencies.
There are various legal and regulatory limits on the extent
to which the Company's subsidiary bank may pay dividends or
otherwise supply funds to the Company. In addition, federal
and state regulatory agencies also have the authority to
prevent a bank or bank holding company from paying a
dividend or engaging in any other activity that, in the
opinion of the agency, would constitute an unsafe or unsound
practice.
Beginning January 1, 2001, a new accounting standard
requires all derivatives to be recorded at fair value.
Unless designated as hedges, changes in these fair values
will be recorded in the income statement. Fair value
changes involving hedges will generally be recorded by
offsetting gains and losses on the hedge and on the hedged
item, even if the fair value of the hedged item is not
otherwise recorded. The Company periodically enters into
non-exchange traded mandatory forward sales contracts in
conjunction with its mortgage banking operation. These
contracts, considered derivatives, typically last 90 days
and are used to hedge the risk of interest rate changes
between the time of the commitment to make a loan to a
borrower at a stated rate and when the loan is sold. The
Company did not have any mandatory forward sales contracts
at December 31, 2000. As allowed in conjunction with the
adoption of this standard, the Company transferred its
entire securities held to maturity portfolio to available
for sale. As a result of this transfer and the
corresponding adjustment to fair value, on January 1, 2001
securities increased $407,000, other assets decreased
$138,000, and accumulated other comprehensive income
increased $269,000.
The Gramm-Leach-Bliley Act of 1999 eliminates restrictions
imposed by the Glass-Steagall Financial Services Law,
adopted in the 1930s, which prevented banking, insurance and
securities firms from fully entering each other's
businesses. While it is still uncertain what the impact of
this legislation will be, it is likely to result in further
consolidation in the financial services industry. In
addition, removal of these barriers will likely increase the
number of entities providing banking services, thereby
increasing competition.
Employees
At December 31, 2000, the number of full time equivalent
employees of the Company was 159.
Item 2. Properties
The main banking office of Kentucky Bank, which also serves
as the principal office of Bourbon Bancshares, Inc., is
located at Fourth and Main Streets, Paris, Kentucky 40361.
In addition, Kentucky Bank serves customer needs at 10 other
locations. All locations, except for the Cynthiana office
(which is a loan production office), offer a full range of
banking services. In Cynthiana, land has been purchased and
plans have been made to construct a full service facility
during the 2001 year. Kentucky Bank owns all of the
properties at which it conducts its business, except the
location in Scott County at Paris Pike, which is leased.
The Company owns approximately 63,000 square feet of office
space and leases approximately 2,000 square feet of office
space, with aggregate annual lease payments of approximately
$16 thousand in 2000.
Note 5 to the Company's consolidated financial statements
included in this report contains additional information
relating to amounts invested in premises and equipment.
Item 3. Legal Proceedings
The Company and its subsidiary are from time to time
involved in routine legal proceedings occurring in the
ordinary course of business that, in the aggregate,
management believes will not have a material impact on the
Company's financial condition and results of operation.
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable.
PART II
Item 5. Market for Common Equity and Related Stockholder
Matters
The Company's Common Stock is not listed on any national
securities exchange nor is it quoted on the NASDAQ system.
However, it is listed on the OTC Bulletin Board under the
symbol "BBON.OB". Trading in the Common Stock has been
infrequent, with two regional retail brokerage firms making
the market. On June 8, 1999, the stockholders approved a
two-for-one stock split effective July 15, 1999. All shares
and per share amounts have been retroactively restated to
reflect the split. The following table sets forth the high
and low sales prices of the Common Stock and the dividends
declared thereon, for the periods indicated below:
High Low Dividend
2000 Quarter 4 $23.50 $21.00 $.13
Quarter 3 24.50 19.00 .13
Quarter 2 30.00 24.00 .13
Quarter 1 26.00 24.00 .13
1999 Quarter 4 $26.00 $24.00 $.11
Quarter 3 24.00 22.00 .11
Quarter 2 22.50 20.50 .11
Quarter 1 21.00 20.00 .11
Note 13 to the Company's consolidated financial statements
included in this report contains additional information
relating to amounts available to be paid as dividends.
As of December 31, 2000 the Company had 2,808,067 shares of
Common Stock outstanding and approximately 442 holders of
record of its Common Stock.
Item 6. Selected Financial Data
The following selected financial data should be read in
conjunction with the Company's Consolidated Financial
Statements and the accompanying notes presented elsewhere
herein. On June 8, 1999, the stockholders approved a two-
for-one stock split effective July 15, 1999. All shares and
per share amounts have been retroactively restated to
reflect the split.
>CAPTION>
At or For the Year Ended December 31
(dollars and shares in thousands, except per share amounts)
2000 1999 1998 1997 1996
CONDENSED STATEMENT OF INCOME:
Total Interest Income $28,207 $23,453 $21,983 $20,962 $19,425
Total Interest Expense 13,597 10,547 10,666 10,415 9,839
Net Interest Income 14,610 12,906 11,317 10,547 9,586
Provision for Losses 750 700 700 493 402
Net Interest Income After
Provision for Losses 13,860 12,206 10,617 10,054 9,184
Noninterest Income 3,798 3,386 3,073 2,390 2,284
Noninterest Expense 10,374 9,422 8,514 7,888 7,715
Income Before Income
Tax Expense 7,284 6,170 5,176 4,556 3,753
Income Tax Expense 2,031 1,720 1,372 1,148 866
Net Income $ 5,253 $ 4,450 $ 3,804 $ 3,408 $ 2,887
SHARE DATA:
Basic Earnings per Share (EPS) $ 1.87 $ 1.59 $ 1.36 $ 1.22 $ 1.02
Diluted EPS 1.83 1.55 1.33 1.20 1.00
Cash Dividends Declared per share 0.52 0.44 0.40 0.36 0.32
Book Value per share 12.77 11.32 10.46 9.58 8.72
Average Common Shares-Basic 2,812 2,803 2,801 2,792 2,849
Average Common Shares-Diluted 2,868 2,868 2,862 2,844 2,887
SELECTED BALANCE SHEET DATA:
Loans, net including held for sale $269,757 $238,998 $210,108 $182,839 $157,564
Investment Securities 68,054 70,623 72,353 81,703 92,540
Total Assets 371,847 347,479 308,705 290,655 272,453
Deposits 300,816 274,566 258,740 241,325 231,071
Securities sold under agreements to
repurchase and other borrowings 9,446 11,858 11,248 9,458 4,160
Federal Home Loan Bank advances 21,644 26,592 6,954 10,236 10,534
Stockholders' Equity 35,860 31,720 29,372 26,716 24,633
PERFORMANCE RATIOS:
(Average Balances)
Return on Assets 1.49% 1.39% 1.31% 1.23% 1.10%
Return on Stockholders' Equity 15.63% 14.57% 13.57% 13.43% 12.06%
Net Interest Margin (1) 4.47% 4.46% 4.27% 4.18% 4.02%
Equity to Assets (annual average) 9.51% 9.54% 9.62% 9.17% 9.11%
SELECTED STATISTICAL DATA:
Dividend Payout Ratio 27.84% 27.73% 29.49% 29.49% 31.57%
Number of Employees (at period end) 159 149 144 145 137
ALLOWANCE COVERAGE RATIOS:
Allowance to Total Loans 1.24% 1.28% 1.28% 1.25% 1.32%
Net Charge-offs as a Percentage
of Average Loans 0.18% 0.15% 0.15% 0.16% 0.10%
(1) Tax equivalent
Item 7. Management's Discussion and Analysis
The following discussion and analysis of financial condition
and results of operations should be read in conjunction with
the Consolidated Financial Statements and accompanying notes
included as Exhibit 13. When necessary, reclassifications
have been made to prior years' data throughout the following
discussion and analysis for purposes of comparability with
2000 data. On June 8, 1999, the stockholders approved a two-
for-one stock split effective July 15, 1999. All shares and
per share amounts have been retroactively restated to
reflect the split.
Forward-Looking Statements
This discussion contains forward-looking statements under the Private
Securities Litigation Reform Act of 1995 that involve risks and
uncertainties. Although the Company believes that the assumptions
underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore,
there can be no assurance that the forward-looking statements included
herein will prove to be accurate. Factors that could cause actual
results to differ from the results discussed in the forward-looking
statements include, but are not limited to: economic conditions (both
generally and more specifically in the markets, including the tobacco
market, in which the Company and its bank operate); competition for the
Company's customers from other providers of financial and mortgage
services; government legislation and regulation (which changes from time
to time and over which the Company has no control); changes in interest
rates (both generally and more specifically mortgage interest rates);
material unforeseen changes in the liquidity, results of operations, or
financial condition of the Company's customers; and other risks detailed
in the Company's filings with the Securities and Exchange Commission,
all of which are difficult to predict and many of which are beyond the
control of the Company. The Company undertakes no obligation to
republish revised forward-looking statements to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
Summary
Net income for the year ended December 31, 2000 was $5.3
million, or $1.87 per common share compared to $4.5 million,
or $1.59 for 1999 and $3.8 million, or $1.36 for 1998.
Earnings per share assuming dilution were $1.83, $1.55 and
$1.33 for 2000, 1999 and 1998, respectively. For 2000, net
income increased $803 thousand, or 18%. Net interest income
increased 13%, loan loss provision increased 7%, other
income increased 12% and other expenses increased 10%.
During 1999, net income increased $647 thousand, up 17%.
Net interest income increased 14% and the loan loss
provision remained relatively constant, while other income
increased 10% and other expenses increased 11%.
Return on average equity was 15.6% in 2000 compared to 14.6%
in 1999 and 13.6% in 1998. Return on average assets was
1.49% in 2000 compared to 1.39% in 1999 and 1.31% in 1998.
Non-performing loans as of a percentage of loans (including
held for sale) were 0.66%, 0.31% and 0.50% as of December
31, 2000, 1999 and 1998, respectively. With emphasis on
loan growth and through management's concerted effort on
loan quality, these ratios have remained well below peer
groups over the last three years.
RESULTS OF OPERATIONS
Net Interest Income
Net interest income, the Company's largest source of
revenue, on a tax equivalent basis increased from $11.7
million in 1998 to $13.2 million in 1999 to $14.9 million in
2000. The taxable equivalent adjustment (nontaxable
interest income on state and municipal securities net of the
related non-deductible portion of interest expense) is based
on our Federal income tax rate of 34%.
Based on the volume rate analysis that follows, during 2000,
average earning assets and interest bearing liabilities
continued to increase. Average earning assets increased $36
million, or 12%. This increase in volume accounted for 72%
of the increase in net interest income. Bank-wide efforts
to increase loan demand have also been successful. Loans
were the largest contributor to the 2000 increase with real
estate mortgages increasing $29 million from 1999 to 2000.
Average interest liabilities increased $27 million, or 11%
during this same period. The increase in volume accounted
for 46% of the increase in interest expense. Certificates
of deposit and other time deposits composed $19 million of
this increase. Federal Home Loan Bank (FHLB) advances made
up an additional $5 million. The Company continues to
actively pursue quality loans and fund these primarily with
deposits and FHLB advances. During 2000 rates were on the
rise. Bank prime rates increased 100 basis points during
the year. As a result of this, the tax equivalent yield on
earning assets increased from 8.00% in 1999 to 8.54% in
2000. The volume rate analysis that follows indicates that
28% of the increase in interest income was attributable to
the change in rates. The rate increase also caused an
increase in the cost of interest bearing liabilities. The
average rate of these liabilities increased from 4.29% in
1999 to 4.99% in 2000. Based on the volume rate analysis
that follows, the change in rates was responsible for 54% of
the change in interest expense. As a result, 2000 gross and
net interest income and margin is attributed to increases in
volume reduced slightly by the negative impact of increases
in rates. In spite of the conversely positive impact on net
interest income that may result from the declining rates
environment in 2001, competitive pressures on interest rates
will continue and are likely to result in tighter net
interest margins.
Average earning assets and interest bearing liabilities both
increased from 1998 to 1999. The increase in earning assets
of $24 million offset with a decline of 18 basis points in
the tax equivalent yield have resulted in tax equivalent
interest income increasing $1.5 million. Average loans
increased $28 million along with a 25 basis point drop in
the yield, resulting in the loan income increasing $2
million. Average interest bearing liabilities increased $20
million, which coupled with a 42 basis point decline in the
yield caused the interest on liabilities to decline $119
thousand. The $488 thousand decline in deposit interest is
a result of average deposits increasing $12 million and the
corresponding yield dropping 47 basis points.
The accompanying analysis of changes in net interest income
in the following table shows the relationships of the volume
and rate portions of these increases in 2000 and 1999.
Changes in interest income and expenses due to both rate and
volume are allocated on a pro rata basis.
2000 vs. 1999 1999 vs. 1998
Increase (Decrease) Due Increase (Decrease) Due
to Change in to Change in
Net Net
Volume Rate Change Volume Rate Change
INTEREST INCOME
Loans $3,293 $1,220 $4,513 $2,419 $ (462) $1,957
Investment Securities (35) 37 2 (135) (263) (398)
Federal Funds Sold and
Securities Purchased under
Agreements to Resell 184 51 235 (69) (18) (87)
Deposits with Banks 4 1 5 (1) (1) (2)
Total Interest Income 3,446 1,309 4,755 2,214 (744) 1,470
INTEREST EXPENSE
Deposits
Demand 16 339 355 793 (833) (40)
Savings 11 1 12 23 (69) (46)
Negotiable Certificates of
Deposit and Other
Time Deposits 990 1,151 2,141 255 (657) (402)
Securities sold under
agreements to
repurchase and
other borrowings 120 33 153 176 32 208
Federal Home Loan
Bank advances 285 105 390 223 (62) 161
Total Interest Expense 1,422 1,629 3,051 1,470 (1,589) (119)
Net Interest Income $2,024 $ (320) $1,704 $ 744 $ 845 $1,589
Average Consolidated Balance Sheets and Net Interest Analysis (dollars in thousands)
2000 1999 1998
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
ASSETS
Interest-Earning Assets
Securities Held to Maturity
State and Municipal obligations $ 15,837 $ 912 5.76% $ 16,360 $ 945 5.78% $ 16,371 $ 971 5.93%
Securities Available for Sale (1)
U.S. Treasury and Federal
Agency Securities 44,585 2,726 6.11% 47,887 2,725 5.69% 50,902 3,108 6.11%
State and Municipal obligations 2,947 148 5.02% 3,642 182 5.00% 3,917 197 5.03%
Other Securities 6,110 346 5.66% 4,943 278 5.62% 3,931 252 6.41%
Total Securities Available for sale 53,642 3,220 6.00% 56,472 3,185 5.64% 58,750 3,557 6.05%
Total Investment Securities 69,479 4,132 5.95% 72,832 4,130 5.67% 75,121 4,528 6.03%
Tax Equivalent Adjustment 278 0.40% 340 0.47% 345 0.46%
Tax Equivalent Total 4,410 6.35% 4,470 6.14% 4,873 6.49%
Federal Funds Sold and
Agreements to Repurchase 6,038 384 6.36% 2,999 149 4.97% 4,372 236 5.40%
Interest-Bearing Deposits with Banks 193 11 5.70% 124 6 4.84% 152 8 5.26%
Loans, Net of Deferred Loan Fees (2)
Commercial 29,497 2,822 9.57% 26,530 2,306 8.69% 23,150 2,093 9.04%
Real Estate Mortgage 204,197 18,371 9.00% 175,429 14,946 8.52% 154,764 13,525 8.74%
Installment 24,017 2,488 10.36% 19,350 1,916 9.90% 15,268 1,593 10.43%
Total Loans 257,711 23,681 9.19% 221,309 19,168 8.66% 193,182 17,211 8.91%
Total Interest-Earning Assets 333,421 28,486 8.54% 297,264 23,793 8.00% 272,827 22,328 8.18%
Allowance for Loan Losses (3,330) (2,969) (2,550)
Cash and Due From Banks 10,063 12,899 9,225
Premises and Equipment 7,445 6,952 6,187
Other Assets 5,816 6,091 5,793
Total Assets $353,415 $320,237 $291,482
LIABILITIES
Interest-Bearing Deposits
Interest-Bearing Checking
And Money Market Investment Accounts $ 70,788 $ 2,514 3.55% $ 70,263 $ 2,159 3.07% $ 63,413 $ 2,199 3.47%
Savings 14,089 281 1.99% 13,533 269 1.99% 12,679 315 2.48%
Certificates of Deposit and
Other Deposits 158,106 9,013 5.70% 139,381 6,872 4.93% 134,893 7,274 5.39%
Total Interest-Bearing 242,983 11,808 4.86% 223,177 9,300 4.17% 210,985 9,788 4.64%
Securities sold under agreements to
repurchase and other borrowings 10,316 632 6.13% 8,332 479 5.75% 5,222 271 5.19%
Federal Home Loan Bank advances 19,442 1,158 5.96% 14,499 768 5.30% 10,067 607 6.03%
Total Interest-Bearing Liabilities 272,741 13,598 4.99% 246,008 10,547 4.29% 226,274 10,666 4.71%
Noninterest-Bearing Demand Deposits 43,813 40,715 34,487
Other Liabilities 3,254 2,963 2,693
Total Liabilities 319,808 289,686 263,454
STOCKHOLDERS' EQUITY 33,607 30,551 28,028
Total Liabilities and
Shareholder's Equity $353,415 $320,237 $291,482
Average Equity to Average Total Assets 9.51% 9.54% 9.62%
Net Interest Income 14,610 12,906 11,317
Net Interest Income (tax equivalent) (3) $14,888 $13,246 $11,662
Net Interest Spread
(tax equivalent) (3) 3.55% 3.72% 3.47%
Net Interest Margin
(tax equivalent) (3) 4.47% 4.46% 4.27%
(1) Averages computed at amortized cost.
(2) Includes loans on a nonaccrual status and loans held for sale.
(3) Tax equivalent difference represents the nontaxable interest
income on state and municipal securities net of the related non-
deductible portion of interest expense.
Noninterest Income and Expenses
Noninterest income was $3.8 million in 2000 compared to $3.4
million in 1999 and $3.1 million in 1998. The $413 thousand
increase in 2000 is mainly attributable to an increase in
service charges, as a result of an increase in overdraft
charges of $444 thousand. In 2000 securities losses were
$88 thousand compared to $1 thousand gains in 1999 and $41
thousand gains in 1998. These resulted principally from U.
S. Treasury securities sold before maturity to obtain
interest yields. In addition, gains on loans sold were $133
thousand, $351 thousand and $440 thousand in 2000, 1999 and
1998, respectively. During 2000 and 1999, the volume of
origination of mortgage loans held for sale declined. Loans
held for sale are generally sold after closing to the
Federal Home Loan Mortgage Corporation. During 2000, the
Company sold some loans along with their servicing rights
and therefore there was a slight decline in loan service fee
income in 2000. The sales of loans were $15 million, $25
million and $35 million in 2000, 1999 and 1998,
respectively. Volume of loan sales are inverse to rate
changes. The rate environment in 2000 and 1999 was rising
and therefore resulted in declining loan sales. Rates have
fallen in the first quarter of 2001 and as a result, will
favorably impact our loan sales in 2001 compared to 2000.
Other noninterest income excluding security and loans net
gains was $3.8 million in 2000, $3.0 million in 1999 and
$2.6 million in 1998. Service charges and trust department
income have both been big contributors to this increase in
income over this three-year period. Overdraft income
increased $444 thousand in 2000, principally the result of
increases in deposits and implementation of a new "Kentucky
Courtesy" overdraft in the last quarter of 2000.
Noninterest expense increased $952 thousand in 2000 to $10.4
million, $908 thousand in 1999 to $9.4 million from $8.5
million in 1998. The increases in salaries and benefits
from $4.5 million in 1998 to $5.1 million in 1999 and to
$5.5 million in 2000 are mainly attributable to normal
salary and benefit increases and a change in bonus
compensation in 1999, with an increased focus on incentive
compensation. Due to this change, bonuses were $23 thousand
higher in 2000 compared to 1999 and $234 thousand higher in
1999 compared to 1998. Occupancy expense increased $177
thousand, or 13% in 2000 to $1.5 million and increased $197
thousand, or 17% in 1999 to $1.4 million and 16% in 1998, to
$1.2 million. The Company has purchased land and plans are
under way to construct a new full service facility in
Cynthiana. This project is expected to be complete toward
the end of the third quarter of 2001. Other noninterest
expense increased from $2.8 million in 1998 to $3.0 million
in 1999 and in 2000 other noninterest expenses increased to
$3.3 million.
The following table is a summary of noninterest income and
expense for the three-year period indicated.
For the Year Ended December 31
(in thousands)
2000 1999 1998
NON-INTEREST INCOME
Service Charges $ 2,650 $ 2,075 $ 1,811
Loan Service Fee Income 287 291 283
Trust Department Income 420 398 300
Investment Securities Gains
(Losses), net (88) 1 41
Gains on Sale of Mortgage Loans 132 351 440
Other 397 270 198
Total Non-interest Income $ 3,798 $ 3,386 $ 3,073
NON-INTEREST EXPENSE
Salaries and Employee Benefits $ 5,539 $ 5,054 $ 4,527
Occupancy Expenses 1,538 1,361 1,164
Other 3,297 3,007 2,823
Total Non-interest Expense $10,374 $ 9,422 $ 8,514
Net Non-interest Expense as a
Percentage of Average Assets 1.86% 1.88% 1.87%
Income Taxes
The Company had income tax expense of $2.0 million in 2000
compared to $1.7 million in 1999 and $1.4 million in 1998.
This represents an effective income tax rate of 27.9% in
2000 and in 1999, and 26.5% in 1998. The difference between
the effective tax rate and the statutory federal rate of 34%
is primarily due to tax exempt income on certain investment
securities. The higher effective rate for 1999 compared to
1998 is a result of tax-free income remaining virtually
unchanged for these two years while income before taxes
increased $995 thousand in 1999 and $619 thousand in 1998.
Balance Sheet Review
Assets at year-end 2000 totaled $372 million compared to
$347 million in 1999 and $309 million in 1998. In 2000,
loan growth was $34 million and deposit growth was $26
million. FHLB advances declined $5 million. An additional
$5 million FHLB advance was received in 2000 and the short
term advance of $10 million discussed below was repaid.
Loan growth of $32 million in 1999 was funded by deposit
growth of $16 million and an increase in borrowings of $20
million. At the end of 1999, Cash and Due From Banks were
$9 million higher and an additional short term FHLB advance
was obtained for $10 million as a precaution for possible
Y2K anxieties. The advance was repaid in the first quarter
of 2000 and cash and due from banks returned to their normal
levels in the first quarter of 2000 also.
Loans
Total loans (including loans held for sale) were $273
million at December 31, 2000 compared to $242 million at the
end of 1999 and $213 million in 1998. As of the end of 2000
and compared to the prior year-end, real estate construction
loans decreased $1.7 million, real estate mortgage loans
(including loans held for sale) increased $24.9 million,
agricultural loans increased $5.6 million and installment
loans increased $2.4 million. As of the end of 1999 and
compared to the prior year-end, commercial loans increased
$2.5 million, real estate construction loans increased $5.9
million, real estate mortgage loans (including loans held
for sale) increased $13.6 million, agricultural loans
increased $2.2 million and installment loans increased $4.8
million. Since 1998, management has utilized regional loan
goals for each type of loan and this emphasis has resulted
in improved sales efforts by the lending personnel.
Management continues to place more emphasis on the growth
without sacrificing the quality of the loan portfolio.
As of December 31, 2000, the real estate mortgage portfolio
comprised 60% of total loans compared to 57% in 1999. Of
this, 1-4 family residential property represented 73% in
2000 and 76% in 1999. Agricultural loans comprised 19% in
2000 and in 1999 of the loan portfolio. Approximately 77%
and 75% of the agricultural loans are secured by real estate
for 2000 and 1999, respectively. The remainder of the
agricultural portfolio is used to purchase livestock,
equipment and other capital improvements and for general
operation of the farm. Generally, a secured interest is
obtained in the capital assets, equipment, livestock or
crops. Automobile loans account for 51% in 2000 and 52% in
1999 of the installment loan portfolio, while the purpose of
the remainder of this portfolio is used by customers for
purchasing retail goods, home improvement or other personal
reasons. Collateral is generally obtained on these loans
after analyzing the repayment ability of borrower.
Commercial loan's portfolio is mainly for capital outlays
and business operation. Collateral is requested depending
on the creditworthiness of the borrower. Unsecured loans
are made to individuals or companies mainly based on the
creditworthiness of the customer. Approximately 5% of the
loan portfolio is unsecured. Management is not aware of any
significant concentrations that may cause future material
risks, which may result in significant problems with future
income and capital requirements.
The following table represents a summary of the Company's
loan portfolio by category for each of the last five years.
There is no concentration of loans (greater than 5% of the
loan portfolio) in any industry. Bourbon has no foreign
loans or highly leveraged transactions in its loan
portfolio.
Loans Outstanding
At December 31 (in thousands)
2000 1999 1998 1997 1996
Commercial $ 17,452 $ 17,713 $ 15,177 $ 10,644 $ 10,216
Real Estate Construction 15,270 17,003 11,055 7,657 4,200
Real Estate Mortgage 163,190 138,337 124,721 113,524 99,293
Agricultural 52,008 46,443 44,199 37,924 30,947
Installment 24,807 22,358 17,608 15,182 14,789
Other 434 280 159 287 374
Total Loans 273,161 242,134 212,919 185,218 159,819
Less Deferred Loan Fees 16 33 76 57 154
Total Loans Net of
Deferred Loan Fees 273,145 242,101 212,843 185,161 159,665
Less loans held for sale 868 3,494 5,909 5,418 863
Less Allowance For Loan
Loan Losses 3,388 3,103 2,734 2,322 2,101
Net Loans $268,889 $235,504 $204,200 $177,421 $156,701
The following table sets forth the maturity distribution and
interest sensitivity of selected loan categories at December
31, 2000. Maturities are based upon contractual term. The
total loans in this report represents loans net of deferred
loan fees, including loans held for sale but excluding the
allowance for loan losses. In addition, deferred loan fees
on the above schedule is netted with real estate mortgage
loans on the following schedule.
Loan Maturities and Interest Sensitivity
At December 31, 2000 (in thousands)
One
Through Over
One Year Five Five Total
or Less Years Years Loans
Commercial $ 8,351 $ 6,550 $ 2,551 $ 17,452
Real Estate Construction 12,122 2,755 393 15,270
Real Estate Mortgage 14,391 102,543 46,240 163,174
Agricultural 14,258 35,913 1,837 52,008
Installment 5,973 18,698 136 24,807
Other 434 0 0 434
Total Loans 55,529 166,459 51,157 273,145
Fixed Rate Loans 27,695 157,162 14,132 198,989
Floating Rate Loans 27,834 9,297 37,025 74,156
Total $ 55,529 $166,459 $ 51,157 $273,145
Mortgage Banking
The Company has been in Mortgage Banking since the early
1980's. The activity in origination and sale of these loans
fluctuates, mainly due to changes in interest rates. During
2000 interest rates were rising. As a result of this,
mortgage loan originations decreased from $36 million in
1998 to $22 million in 1999 to $13 million in 2000. The
sale of loans were $15 million, $25 million and $35 million
for the year 2000, 1999 and 1998, respectively. Mortgage
loans held for sale decreased from $3.5 million at December
31, 1999 to $868 thousand at December 31, 2000. Volume of
loan sales are inverse to rate changes. The rate
environment in 2000 and 1999 was rising and therefore
resulted in declining loan sales. Rates have fallen in the
first quarter of 2001 and as a result, will favorably impact
our loan sales in 2001 compared to 2000. The effect of
these changes was also reflected on the income statement.
Loan service fee income was $287 thousand in 2000, $291
thousand in 1999 and $283 thousand in 1998. Fluctuations of
larger degrees are reflected in the gain on sale of mortgage
loans. For 2000, the gain was $133 thousand compared to
$351 thousand in 1999 and $440 thousand in 1998.
The Bank has sold various loans to the Federal Home Loan
Mortgage Corporation (FHLMC) while retaining the servicing
rights. Gains and losses on loan sales are recorded at the
time of the cash sale, which represents the premium or
discount paid by the FHLMC. The Bank receives a servicing
fee from the FHLMC on each loan sold. Servicing rights are
capitalized based on the relative fair value of the rights
and the loan and are included in intangible assets on the
balance sheet and expensed in proportion to, and over the
period of, estimated net servicing revenues. Mortgage
servicing rights were $521 thousand at December 31, 2000,
$606 thousand at December 31, 1999 and $534 thousand at
December 31, 1998. Amortization of mortgage servicing
rights was $155 thousand, $155 thousand and $112 thousand
for the years ended December 31, 2000, 1999 and 1998,
respectively. See Note 4 in the notes to consolidated
financial statements included as Exhibit 13 for additional
information.
Deposits
For 2000, total deposits increased $26 million to $301
million. Noninterest bearing deposits increased $6
million, while time deposits of $100 thousand and over
increased $6 million, and other interest bearing deposits
increased $15 million. Public funds totaled $39 million at
the end of 2000 ($38 million was interest bearing).
Total deposits increased to $275 million in 1999, up $16
million from 1998. Noninterest bearing deposits increased
$3 million, while time deposits of $100 thousand and over,
and other interest bearing deposits both increased $7
million. Public funds totaled $34 million at the end of
1999 ($33 million was interest bearing).
The tables below provide information on the maturities of
time deposits of $100,000 or more at December 31, 2000 and
detail of short-term borrowing for the past three years.
Maturity of Time Deposits of $100,000 or More
At December 31, 2000
(in thousands)
Maturing 3 Months or Less $14,383
Maturing over 3 Months through 6 Months 11,024
Maturing over 6 Months through 12 Months 9,992
Maturing over 12 Months 4,907
Total $40,306
Borrowing
The Company utilizes both long and short term borrowing.
Long term borrowing is mainly from the Federal Home Loan
Bank (FHLB). As of December 31, 2000, $21.6 million was
borrowed from FHLB, a decrease of $5 million from 1999.
Advances are either paid monthly or at maturity. This
borrowing is mainly used to fund long term, fixed rate
mortgages and to assist in asset/liability management. In
2000, $11.3 million of FHLB advances were paid, and advances
were made for an additional $6.3 million. Nearly $361
thousand of FHLB borrowing was paid in 1999, and advances
were made for an additional $20 million. For potential Y2K
problems, $10 million in advances were received in late 1999
and repaid in early 2000. The following table depicts
relevant information concerning our short term borrowings.
Short Term Borrowings
At of for the year ended
December 31 (in thousands)
2000 1999 1998
Federal Funds Purchased:
Balance at Year end $ 0 $ 0 $ 3,750
Average Balance During the Year 373 2,196 446
Maximum Month End Balance 2,300 11,925 4,550
Repurchase Agreements:
Balance at Year end 8,189 10,330 6,713
Average Balance During the Year 8,726 5,683 4,329
Maximum Month End Balance 12,310 10,330 6,713
Other Borrowed Funds:
Balance at Year end 1,257 1,528 785
Average Balance During the Year 1,216 1,203 1,198
Maximum Month End Balance $ 1,766 $ 1,759 $ 1,761
Asset Quality
With respect to asset quality, management considers three
categories of assets to merit close scrutiny. These
categories include: loans that are currently nonperforming,
other real estate, and loans that are currently performing
but which management believes require special attention.
During periods of economic slowdown, the Company may
experience an increase in nonperforming loans.
The Company discontinues the accrual of interest on loans
that become 90 days past due as to principal or interest
unless reasons are documented such as the loan being in the
process of collection. Uncollected interest generally
remains in earned income until collected and removed from
earnings if the loan is charged-off. A loan remains in a
non-accrual status until factors indicating doubtful
collection no longer exist. A loan is classified as a
restructured loan when the interest rate is materially
reduced or the term is extended beyond the original maturity
date because of the inability of the borrower to service the
interest payments at market rates. Other real estate is
recorded at the lower of cost or fair market value less
estimated costs to sell. A summary of the components of
nonperforming assets, including several rates using period-
end data, is shown below.
Nonperforming Assets
At December 31 (dollars in thousands)
2000 1999 1998 1997 1996
Non-accrual Loans $ 307 $ 63 $ 136 $ 173 $ 33
Accruing Loans which are
Contractually past due
90 days or more 1,365 549 790 154 562
Restructured Loans 130 131 147 160 180
Total Nonperforming Loans 1,802 743 1,073 487 775
Other Real Estate 165 371 70 0 79
Total Nonperforming Assets $1,967 $1,114 $1,143 $ 487 $ 854
Total Nonperforming Loans as a
Percentage of Net Loans
(including loans held
for sale) (1) 0.66% 0.31% 0.50% 0.26% 0.49%
Total Nonperforming Assets
as a Percentage of Total Assets 0.53% 0.32% 0.37% 0.17% 0.31%
(1) Net of deferred loan fees
Total nonperforming assets at December 31, 2000 were $2.0
million compared to $1.1 million at December 31, 1999 and
$1.1 million at December 31, 1998. Total nonperforming
loans were $1.8 million, $743 thousand and $1.1 million at
December 31, 2000, 1999 and 1998, respectively. The
increase in loans that are 90 days or more is mainly
attributable to one Small Business Administration loan of
$790 thousand. The Company does not expect to incur a loss
on this loan. The amount of lost interest on our non-
accrual loans is immaterial. At December 31, 2000, loans
currently performing but which management believes require
special attention were not significant. The Company
continues to follow its long-standing policy of not engaging
in international lending and not concentrating lending
activity in any one industry.
Impaired loans as of December 31, 2000 were $395 thousand
compared to $201 thousand in 1999 and $286 thousand in 1998.
These amounts are included in the total nonperforming and
restructured loans presented in the table above. See Note 4
in the notes to consolidated financial statements included
as Exhibit 13.
A loan is considered impaired when it is probable that all
principal and interest amounts will not be collected
according to the loan contract. The allowance for loan
losses on impaired loans is determined using the present
value of estimated future cash flows of the loan, discounted
at the loan's effective interest rate or the fair value of
the underlying collateral. The entire change in present
value of expected cash flows is reported as a provision for
loan losses in the same manner in which impairment initially
was recognized or as a reduction in the amount of provision
for loan losses that otherwise would be reported. The total
allowance for loan losses related to these loans was $117
thousand, $10 thousand and $85 thousand on December 31,
2000, 1999 and 1998, respectively.
Loan Losses
The following table is a summary of the Company's loan loss
experience for each of the past five years.
For the Year Ended December 31 (in thousands)
2000 1999 1998 1997 1996
Balance at Beginning of Year $ 3,103 $ 2,735 $ 2,322 $ 2,101 $ 1,860
Amounts Charged-off:
Commercial 14 0 13 5 55
Real Estate Construction 0 0 0 0 0
Real Estate Mortgage 115 50 36 25 4
Agricultural 30 72 19 52 12
Consumer 400 289 300 273 142
Total Charged-off Loans 559 411 368 355 213
Recoveries on Amounts
Previously Charged-off:
Commercial 14 5 4 3 12
Real Estate Construction 0 0 0 0 0
Real Estate Mortgage 7 1 9 1 8
Agricultural 8 32 2 25 1
Consumer 65 41 66 54 31
Total Recoveries 94 79 81 83 52
Net Charge-offs 465 332 287 272 161
Provision for Loan Losses 750 700 700 493 402
Balance at End of Year $ 3,388 $ 3,103 $ 2,735 $ 2,322 $ 2,101
Total Loans, Net of Deferred
Loan Fees
Average $257,711 $221,309 $193,182 $171,128 $155,735
At December 31 $273,145 $242,101 $212,843 $185,161 $159,665
As a Percentage of
Average Loans:
Net Charge-offs 0.18% 0.15% 0.15% 0.16% 0.10%
Provision for Loan Losses 0.29% 0.32% 0.36% 0.29% 0.26%
Allowance as a Percentage of
Year-end Net Loans (1) 1.24% 1.28% 1.28% 1.25% 1.32%
Beginning Allowance as a
Multiple Of Net Charge-offs 6.7 8.2 8.1 7.7 11.6
Ending Allowance as a Multiple
of Nonperforming Assets 1.72 2.79 2.39 4.77 2.46
(1) Net of deferred loan fees
Loans are typically charged-off after being 120 days
delinquent. Limited exceptions for not charging-off a loan
would be well documented and approved by the appropriate
responsible party or committee. The provision for loan
losses for 2000 was $750 thousand compared to $700 thousand
in 1999 and $700 thousand in 1998. Net charge-offs were
$465 thousand in 2000, $332 thousand in 1999 and $287
thousand in 1998. Net charge-offs to average loans were
0.18%, 0.15% and 0.15% in 2000, 1999 and 1998, respectively.
With the current quality of the loan portfolio, the loan
loss provision stayed constant from 1998 to 1999, and
increased $50 thousand in 2000. The trend in the loan loss
provision increasing for 2000 is a result of considering our
probable losses and risk analysis of our loan portfolio. In
evaluating the allowance for loan losses, management
considers the composition of the loan portfolio, historical
loan loss experience, the overall quality of the loans and
an assessment of current economic conditions. At December
31, 2000, the allowance for loan losses was 1.24% of loans
outstanding compared to 1.28% at year-end 1999 and 1.28% in
1998. Management believes the allowance for loan losses at
the end of 2000 is adequate to cover probable credit losses
within the portfolio.
The following tables set forth an allocation for the
allowance for loan losses and loans by category and a
percentage distribution of the allowance allocation. In
making the allocation, management evaluates the risk in each
category, current economic conditions and charge-off
experience. An allocation for the allowance for loan losses
is an estimate of the portion of the allowance that will be
used to cover future charge-offs in each loan category, but
it does not preclude any portion of the allowance allocated
to one type of loan being used to absorb losses of another
loan type.
Allowance for Loan Losses
At December 31 (in thousands)
2000 1999 1998 1997 1996
Dollars Percentage Dollars Percentage Dollars Percentage Dollars Percentage Dollars Percentage
Commercial $ 275 8.12% $ 275 8.86% $ 262 9.58% $ 191 8.23% $ 168 8.00%
Real Estate Construction 244 7.20% 294 9.47% 168 6.14% 118 5.08% 77 3.66%
Real Estate Mortgage 1,563 46.13% 1,471 47.41% 1,480 54.11% 1,327 57.15% 1,252 59.59%
Agricultural 668 19.72% 565 18.21% 473 17.29% 393 16.93% 353 16.80%
Consumer 638 18.83% 498 16.05% 352 12.87% 293 12.62% 251 11.95%
Total $3,388 100.00% $3,103 100.00% $2,735 100.00% $2,322 100.00% $2,101 100.00%
Loans
At December 31 (in thousands)
2000 1999 1998 1997 1996
Dollars Percentage Dollars Percentage Dollars Percentage Dollars Percentage Dollars Percentage
Commercial $ 17,452 6.39% $ 17,713 7.32% $ 15,177 7.13% $ 10,644 5.75% $ 10,216 6.40%
Real Estate Construction 15,270 5.59% 17,003 7.02% 11,055 5.19% 7,657 4.14% 4,200 2.63%
Real Estate Mortgage 163,174 59.74% 138,304 57.13% 124,645 58.56% 113,467 61.28% 99,139 62.09%
Agricultural 52,008 19.04% 46,443 19.18% 44,199 20.77% 37,924 20.48% 30,947 19.38%
Consumer 24,807 9.08% 22,358 9.23% 17,608 8.27% 15,182 8.20% 14,789 9.26%
Total, Net (1) $273,145 100.00% $242,101 100.00% $212,843 100.00% $185,161 100.00% $159,665 100.00%
(1) Net of deferred loan fees
Capital
As displayed by the following table, the Company's Tier I
capital (as defined by the Federal Reserve Board under the
Board's risk-based guidelines) at December 31, 2000
increased $3.9 million to $34.5 million. Total
stockholders' equity, excluding accumulated other
comprehensive income was $35.9 million at December 31, 2000.
The Company's risk-based capital and leverage ratios, as
shown in the following table, exceeded the levels required
to be considered "well capitalized". The leverage ratio
compares Tier I capital to total average assets less
disallowed amounts of goodwill.
At December 31 (dollars in thousands)
2000 1999 Change
Stockholders' Equity (1) $ 35,868 $ 32,269 $ 3,599
Less Disallowed Amount (1,380) (1,685) 305
Tier I Capital 34,488 30,584 3,904
Allowance for Loan Losses 3,296 2,926 370
Tier II Capital 3,296 2,926 370
Total Capital 37,784 33,510 4,274
Total Risk Weighted Assets $263,660 $233,929 $29,731
Ratios:
Tier I Capital to Risk-weighted Assets 13.08% 13.07% 0.01%
Total Capital to Risk-weighted Assets 14.33% 14.32% 0.01%
Leverage 9.29% 9.59% -0.30%
(1) Excluding accumulated other comprehensive income.
The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") established five capital categories for
insured depository institutions under its Prompt Corrective
Action Provisions. The bank regulatory agencies adopted
regulations, which became effective in 1992, defining these
five capital categories for banks they regulate. The
categories vary from "well capitalized" to "critically
undercapitalized". A "well capitalized" bank is defined as
one with a total risk-based capital ratio of 10% or more, a
Tier I risk-based capital ratio of 6% or more, a leverage
ratio of 5% or more, and one not subject to any order,
written agreement, capital directive, or prompt corrective
action directive to meet or maintain a specific capital
level. At December 31, 2000, the bank had ratios that
exceeded the minimum requirements established for the "well
capitalized" category.
In management's opinion, there are no known trends, events
or uncertainties that will have or that are reasonably
likely to have a material effect on the Company's liquidity,
capital resources or operations.
Securities and Federal Funds Sold
Securities, including those classified as held to maturity
and available for sale, decreased from $70.6 million at
December 31, 1999 to $68.1 million at December 31, 2000.
The decrease is mainly attributable to the increased loan
demand. Federal funds sold totaled $3.7 million at December
31, 2000 and $675 thousand at December 31, 1999. As allowed
in conjunction with the adoption of the new "derivative"
standard, the Company transferred its entire securities held
to maturity portfolio to available for sale on January 1,
2001.
Per Company policy, fixed rate asset backed securities will
not have an average life exceeding seven years, but final
maturity may be longer. Adjustable rate securities shall
adjust within three years per Company policy. Of the $12.4
million of adjustable asset backed securities held on
December 31, 2000, $3.3 million are repriceable monthly and
the remaining $9.1 million are repriceable annually. Of the
$14.6 million of adjustable asset backed securities held on
December 31, 1999, $3.4 million are repriceable monthly and
the remaining $11.2 million are repriceable annually.
Unrealized gains (losses) on investment securities are
temporary and change inversely with movements in interest
rates. In addition, some prepayment risk exist on Mortgage-
backed securities and prepayments are likely to increase
with decreases in interest rates. The following tables
present the investment securities for each of the past three
years and the maturity and yield characteristics of
securities as of December 31, 2000.
Investment Securities (Held to maturity at amortized cost,
available for sale at market value)
At December 31 (in thousands)
2000 1999 1998
Available for Sale
U.S. treasury $14,992 $17,954 $16,087
U.S. government agencies 5,028 5,902 5,979
States and political subdivisions 3,366 3,681 3,804
Mortgage-backed
Fixed -
GNMA, FNMA, FHLMC Passthroughs 5,580 5,998 2,352
GNMA, FNMA, FHLMC CMO's 4,941 5,191 7,570
Total 10,521 11,189 9,922
Variable -
GNMA, FNMA, FHLMC Passthroughs 9,374 11,539 12,529
GNMA, FNMA, FHLMC CMO's 2,983 3,045 3,173
Total 12,357 14,584 15,702
Total mortgage-backed 22,878 25,773 25,624
Other 6,559 1,620 3,926
Total 52,823 54,930 55,420
Held to Maturity
States and political subdivisions 15,231 15,693 16,933
Total $68,054 $70,623 $72,353
Maturity Distribution of Securities
At December 31, 2000 (in thousands)
Over Over
One Five
Year Years Asset
One Through Through Over Backed
Year Five Ten Ten & Equity Market
or Less Years Years Years Securities Total Value
Available for Sale
U.S. treasury $14,992 $ 0 $ 0 $ 0 $ 0 $14,992 $14,992
U.S. government agencies 0 5,028 0 0 0 5,028 5,028
States and political
subdivisions 311 833 905 1,317 0 3,366 3,366
Mortgage-backed 0 0 0 0 22,878 22,878 22,878
Equity Securities 0 0 0 0 2,070 2,070 2,070
Other 4,489 0 0 0 0 4,489 4,489
Total 19,792 5,861 905 1,317 24,948 52,823 52,823
Held to Maturity
States and political
Subdivisions 3,287 4,025 4,408 3,511 0 15,231 15,638
Total $23,079 $ 9,886 $ 5,313 $ 4,828 $24,948 $68,054 $68,461
Percent of Total 33.91% 14.53% 7.81% 7.09% 36.66% 100.00%
Weighted Average Yield(1) 6.60% 7.30% 8.38% 7.41% 6.65% 6.92%
(1) Tax Equivalent Yield
Impact of Inflation and Changing Prices
The majority of Bourbon's assets and liabilities are
monetary in nature. Therefore, Bourbon differs greatly from
most commercial and industrial companies that have
significant investments in nonmonetary assets and
inventories. However, inflation does have an important
impact on the growing of assets in the banking industry and
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 inflation.
Other Accounting Issues
Beginning January 1, 2001, a new accounting standard
requires all derivatives to be recorded at fair value.
Unless designated as hedges, changes in these fair values
will be recorded in the income statement. Fair value
changes involving hedges will generally be recorded by
offsetting gains and losses on the hedge and on the hedged
item, even if the fair value of the hedged item is not
otherwise recorded. The Company periodically enters into
non-exchange traded mandatory forward sales contracts in
conjunction with its mortgage banking operation. These
contracts, considered derivatives, typically last 90 days
and are used to hedge the risk of interest rate changes
between the time of the commitment to make a loan to a
borrower at a stated rate and when the loan is sold. The
Company did not have any mandatory forward sales contracts
at December 31, 2000. As allowed in conjunction with the
adoption of this standard, the Company transferred its
entire securities held to maturity portfolio to available
for sale. As a result of this transfer and the
corresponding adjustment to fair value, on January 1, 2001
securities increased $407,000, other assets decreased
$138,000, and accumulated other comprehensive income
increased $269,000.
Item 7A. Asset/Liability Management, Interest Rate
Sensitivity, Market Risk and Liquidity
Asset/Liability management control is designed to ensure
safety and soundness, maintain liquidity and regulatory
capital standards, and achieve acceptable net interest
income. Management considers interest rate risk to be the
most significant market risk. The Company's exposure to
market risk is reviewed on a regular basis by the
Asset/Liability Committee. Interest rate risk is the
potential of economic losses due to future interest rate
changes. These economic losses can be reflected as a loss
of future net interest income and/or a loss of current fair
market values. The objective is to measure the effect on
net interest income and to adjust the balance sheet to
minimize the inherent risk while at the same time maximize
income. Management realizes certain risks are inherent and
that the goal is to identify and minimize the risks. The
primary tool used by management is an interest rate shock
simulation model. Certain assumptions, such as prepayment
risks, are included in the model. However, actual
prepayments may differ from those assumptions. In addition,
immediate withdrawal of interest checking and other savings
accounts may have an effect on the results of the model.
The Bank has no market risk sensitive instruments held for
trading purposes. The following table depicts the change in
net interest income resulting from 100 and 300 basis point
changes in rates. The projections are based on balance
sheet growth assumptions and repricing opportunities for
new, maturing and adjustable rate amounts. In addition, the
projected percentage changes from level rates are outlined
below along with the Board of Directors approved limits. As
of December 31, 2000 the projected percentage changes are
within the Board of Directors limits and the Company's
interest rate risk is also within Board of Directors limits.
The projected net interest income report summarizing the
Company's interest rate sensitivity as of December 31, 2000
and December 31, 1999 is as follows:
Projected Net Interest Income (December 31, 2000)
Level
Rate Change: - 300 - 100 Rates + 100 + 300
Year One (1/1/01 - 12/31/01)
Interest Income $26,736 $29,116 $30,306 $31,495 $33,875
Interest Expense 11,428 13,841 15,048 16,255 18,669
Net Interest Income 15,308 15,275 15,258 15,240 15,206
Net interest income dollar change $ 50 $ 17 N/A $ (18) $ (52)
Net interest income
percentage change 0.3% 0.1% N/A -0.1% -0.3%
Board of Director
Limitation on % Change >-10.0% >-4.0% N/A >-4.0% >-10.0%
Projected Net Interest Income (December 31, 1999)
Level
Rate Change: - 300 - 100 Rates + 100 + 300
Year One (1/1/00 - 12/31/2000)
Interest Income $23,593 $25,822 $26,942 $28,063 $30,303
Interest Expense 9,785 11,818 12,834 13,850 15,882
Net Interest Income 13,808 14,004 14,108 14,213 14,421
Net interest income dollar $ (300) $ (104) N/A $ 105 $ 313
Net interest income
percentage change -2.1% -0.7% N/A 0.7% 2.2%
Board of Director
Limitation on % Change >-10.0% >-4.0% N/A >-4.0% >-10.0%
These numbers in 2000 show less fluctuation when compared to
1999. In 2000, year one reflected a slight increase in net
interest income of 0.3% compared to 2.1% decrease with a 300
basis point decline. The 300 basis point increase in rates
reflected a 0.3% decrease in net interest income in 2000
compared to a 2.2% increase in 1999. The risk is less in
2000 due to an improved "match" of rate sensitive assets and
rate sensitive liabilities.
Management measures the Company's interest rate risk by
computing estimated changes in net interest income in the
event of a range of assumed changes in market interest
rates. The Company's exposure to interest rates is reviewed
on a monthly basis by senior management and quarterly with
the Board of Directors. Exposure to interest rate risk is
measured with the use of interest rate sensitivity analysis
to determine the change in net interest income in the event
of hypothetical changes in interest rates, while interest
rate sensitivity gap analysis is used to determine the
repricing characteristics of the Company's assets and
liabilities. If estimated changes to net interest income
are not within the limits established by the Board, the
Board may direct management to adjust the Company's asset
and liability mix to bring interest rate risk within Board
approved limits.
Liquidity risk is the possibility that the Company may not
be able to meet its cash requirements. Management of
liquidity risk includes maintenance of adequate cash and
sources of cash to fund operations and meeting the needs of
borrowers, depositors and creditors. Excess liquidity has a
negative impact on earnings resulting from the lower yields
on short-term assets.
In addition to cash and cash equivalents, the securities
portfolio provides an important source of liquidity. Total
securities (including held to maturity) maturing within one
year along with cash and cash equivalents totaled $38.4
million at December 31, 2000. Additionally, securities
available-for-sale with maturities greater than one year
totaled $33.0 million at December 31, 2000. As part of the
new accounting pronouncement mentioned in Note 1 of the
Notes to Consolidated Financial Statements included in
Exhibit 13 the Company transferred its entire securities
held to maturity portfolio to available for sale on January
1, 2001. This added an additional $15.6 million in
securities to the available for sale portfolio. The
available for sale securities are available to meet
liquidity needs on a continuing basis.
Bourbon maintains a relatively stable base of customer
deposits and its steady growth is expected to be adequate to
meet its funding demands. In addition, management believes
the majority of its $100,000 or more certificates of deposit
are no more volatile than its core deposits. At December
31, 2000 these balances totaled $40 million, approximately
13.4% of total deposits.
The Company also relies on FHLB advances for both liquidity
and asset/liability management purposes. These advances are
used primarily to fund long-term fixed rate residential
mortgage loans. We have sufficient collateral to borrow an
additional $22 million from the FHLB at December 31, 2000.
Generally, Bourbon relies upon net cash inflows from
financing activities, supplemented by net cash inflows from
operating activities, to provide cash used in its investing
activities. As is typical of many financial institutions,
significant financing activities include deposit gathering,
and the use of short-term borrowings, such as federal funds
purchased and securities sold under repurchase agreements
along with long-term debt. The Company's primary investing
activities include purchasing investment securities and loan
originations. Management believes there is sufficient cash
flows from operations to meet investing and liquidity needs
related to reasonable borrower, depositor and creditor needs
in the present economic environment.
The cash flow statements for the periods presented provide
an indication of the Company's sources and uses of cash as
well as an indication of the ability of the Company to maintain
an adequate level of liquidity.
A number of other techniques are used to measure the
liquidity position, including the ratios presented below.
These ratios are calculated based on annual averages for
each year.
Liquidity Ratios
December 31
2000 1999 1998
Average Loans (including loans held
for sale)/Average Deposits 89.9% 83.9% 78.7%
Average Securities sold under
Agreements to repurchase and other
Borrowings/Average Assets 2.9% 2.6% 1.8%
This chart shows that the loan to deposit ratio increased in
2000 and 1999. Loan growth of 15% and deposit growth of 7%
in 2000, coupled with loan growth of 15% and deposit growth
of 6% in 1999 have been contributing factors to the change
in this ratio over the past two years.
Item 8. Financial Statements
The consolidated financial statements of the Company
together with the notes thereto and report of independent
auditors are contained in the Company's 2000 Annual Report
to Stockholders included as Exhibit 13, and are incorporated
herein by reference. No other portion of the 2000 Annual
Report to Stockholders is to be deemed "filed" as part of
this filing.
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure
Not Applicable
PART III
Item 10. Directors and Executive Officers of the Registrant
Under the Company's Articles of Incorporation, the Board of
Directors consists of three different classes, each to
serve, subject to the provisions of the Articles of
Incorporation and Bylaws for a three year term and until his
successor is duly elected and qualified. The names of the
directors and their terms are set forth below.
Terms expiring in 2001:
William Arvin, age 60, is an attorney. He has been a
director of Kentucky Bank and the Company since December 19,
1995.
James L. Ferrell, M.D., age 66, is a Physician. He has been
a director of Kentucky Bank since 1980 and the Company since
inception.
Terms expiring in 2002:
Henry Hinkle, age 49, is President of Hinkle Construction
Company. He has been a director of Kentucky Bank and the
Company since 1989.
Theodore Kuster, age 57, is a farmer and thoroughbred horse
breeder. He has been a director of Kentucky Bank since 1979
and the Company since 1985.
Robert G. Thompson, age 51, is Executive Director of the
Paris Bourbon County YMCA, a farmer and thoroughbred horse
breeder. He has been a director of Kentucky Bank and the
Company since 1991.
Terms expiring in 2003:
William R. Stamler, age 66, is Chairman of Signal
Investments, Inc. He has been a director of Kentucky Bank
since 1984 and the Company since 1988.
Buckner Woodford, age 56, is President and Chief Executive
Officer of Bourbon Bancshares, Inc. and Kentucky Bank. He
has been a director of the Kentucky Bank since 1971 and the
Company since inception.
The Company's other executive officer is Gregory J. Dawson,
age 40. He is the Chief Financial Officer and has been with
the Company since 1985 and serves at the pleasure of the
Board of Directors.
Item 11. Executive Compensation
The following table sets forth information with respect to
the compensation of the President and Chief Executive
Officer of the Company. No other executive officer earned
total salary and bonus in excess of $100,000.
Summary Compensation Table
Annual Compensation
Other Annual Options
Name Year Salary Bonus Compensation Granted
Buckner Woodford 2000 $168,500 $ 47,952 (1) 500
Buckner Woodford 1999 162,000 1,467 (1) 3,600
Buckner Woodford 1998 156,000 3,161 (1) 3,800
(1) Less than the lesser of $50,000 or 10% of annual salary
and bonuses
The following table contains information regarding the grant
of stock options under the Company's stock option plan to
the Chief Executive Officer during the year ended December
31, 2000. In addition, in accordance with rules of the
Securities and Exchange Commission, the following table sets
forth the hypothetical grant date present value with respect
to the referenced options, using the Black-Scholes Option
Pricing Model.
Option Grants in the Last Fiscal Year
% of Total
Options Grant
Shares Granted to Exercise Date
Granted Employees Price Expiration Present
Name (#) in 2000 ($/Sh) Date Value($)
Buckner Woodford 500 14.9% $24.00 1/3/10 $3,280
The following table sets forth certain information regarding
options exercised by the Chief Executive Officer during
calendar year 2000 and unexercised stock options held by him
as of December 31, 2000.
Aggregated Option Exercises in Calendar 2000
and Year-end Stock Option Values
Shares Number of Securities Value of Unexercised
Acquired Value Underlying Unexercised In-the-Money
on Exercise Realized Options at 12/31/00 Options at 12/31/00
Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
Buckner Woodford None N/A 15,640/8,140 $173,838/$52,886
no SAR's exist for the Company.
Compensation of Directors
Directors are paid $400 for each board meeting attended and
$100 for each committee meeting attended. Directors are
also granted a 10-year option to purchase 50 shares of the
Company's common stock following each year in which Kentucky
Bank has a return on assets of 1 percent or greater. The
option's exercise price is the fair market value per share
on the date of grant.
Pension Plan
The following table sets forth the annual benefits which an
eligible employee would receive under the Company's
qualified defined benefit pension plan based on remuneration
that is covered under the plan and years of service with the
Company and its subsidiaries.
Years of Service
Remuneration 15 20 25 30 35
$ 25,000 $ 3,750 $ 5,000 $ 6,250 $ 7,500 $8,750
50,000 7,500 10,000 12,500 15,000 17,500
75,000 11,250 15,000 18,750 22,500 26,250
100,000 15,000 20,000 25,000 30,000 35,000
125,000 18,750 25,000 31,250 37,500 43,750
150,000 22,500 30,000 37,500 45,000 52,500
175,000 26,250 35,000 43,750 52,500 61,250
200,000 30,000 40,000 50,000 60,000 70,000
200,000 33,750 45,000 56,250 67,500 78,750
In general, a participant's remuneration covered by the
Company's pension plan is his or her average annual cash
compensation (W-2 earnings) for the last 5 years. The years
of service for Mr. Woodford are 29 years.
Item 12. Security Ownership of Certain Beneficial Owners
and Management
Set forth below are the number of shares of the Company's
common stock beneficially owned by each director and
executive officer, and all current directors and executive
officers as a group as of December 31, 2000.
Name Shares Beneficially Owned(1)
Number Percentage
William Arvin (2) 33,309 1.2%
Gregory J. Dawson (3) 8,845 *
James L. Ferrell, M.D. (4) 30,250 1.1%
Henry Hinkle (5) 27,855 1.0%
Theodore Kuster (6) 17,360 *
William R. Stamler (7) 31,270 1.1%
Robert G. Thompson (8) 7,750 *
Buckner Woodford (9) 262,348 8.8%
All directors and officers
(8 persons) as a group
(consisting of those
persons named above)(10) 418,987 16.4%
* Less than 1%
1) Beneficial ownership as reported in the
above table has been determined in accordance
with Rule 13d-3 under the Exchange Act.
Unless otherwise indicated, beneficial
ownership includes both sole or shared voting
and sole or shared investment power.
2) Includes 11,858 shares held in a
retirement account, 13,695 shares held of
record by Mr. Arvin's wife, as to which Mr.
Arvin disclaims beneficial ownership, 7,276
held jointly with his wife and 350 shares
that Mr. Arvin may acquire upon exercise of
outstanding stock options.
3) Includes 8,140 shares that Mr. Dawson
may acquire upon exercise of outstanding
stock options.
4) Includes 5,400 shares held in a
retirement account and 750 shares that Mr.
Ferrell may acquire upon exercise of
outstanding stock options. Also, includes
3,000 shares held by Dr. Ferrell's wife, as
to which Dr. Ferrell disclaims beneficial
ownership.
5) Includes 1,000 shares held by his wife and
640 shares held by three sons, as to which
Mr. Hinkle disclaims beneficial ownership.
Includes 24,000 shares held of record by
Hinkle Contracting Company, as to which Mr.
Hinkle, as president, has shared voting
power. Also includes 750 shares that Mr.
Hinkle may acquire upon exercise of
outstanding stock options.
6) Includes 6,270 share held of record by
Mr. Kuster's wife, as to which Mr. Kuster
disclaims beneficial ownership. Also
includes 5,180 shares held in a retirement
account and 550 shares that Mr. Kuster may
acquire upon exercise of outstanding stock
options.
7) Includes 4,000 shares held by Signal
Investments Corporation, as to which Mr.
Stamler, as the chief executive officer and
majority Stockholder of such corporation, has
sole voting and investment power. Also
includes 330 shares that Mr. Stamler may
acquire upon exercise of outstanding stock
options.
8) Includes 1,550 shares that Mr. Thompson
may acquire upon exercise of outstanding
stock options.
9) Includes 8,000 shares held by his wife
and 11,332 shares held by two sons, as to
which Mr. Woodford disclaims beneficial
ownership. Also includes 208 shares held in
a retirement account and 15,640 shares that
Mr. Woodford may acquire upon exercise of
outstanding stock options.
10) Includes 28,060 shares that may be
acquired upon exercise of outstanding stock
options.
The following table sets forth as of December 31, 2000 the
persons known by the Company to own beneficially (as
determined in accordance with the rules and regulations of
the Commission) more than 5% of the outstanding common
stock. See note 9 in the preceding table for further
information.
Name and Address Shares Beneficially
of Beneficial Owner Owned Percentage
Buckner Woodford 262,348 8.8%
340 Stoner Avenue
Paris, Kentucky 40361
Item 13. Certain Relationships and Related Transactions
Directors and officers of the Company and their associates
were customers of and had transactions with the Company's
subsidiary bank in the ordinary course of business during
the year ended December 31, 2000. Similar transactions may
be expected to take place with the Company's subsidiary bank
in the future. Outstanding loans and commitments made by
such subsidiary bank in transactions with the Company's
directors and officers and their associates were made on
substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with other persons and did not involve more
than a normal risk of collectibility or present other
unfavorable features. Certain directors and executive
officers were loan customers of Kentucky Bank and
outstanding loans were $1.5 million and $1.2 million as of
December 31, 2000 and 1999, respectively. See Note 4 in the
notes to consolidated financial statements included as
Exhibit 13.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K
(a) The following exhibits are incorporated
by reference herein or made a part of this
Form 10-K:
3.1 Articles of Incorporation of the Registrant are
incorporated by reference to Exhibit 3.1 of the
Registrant's Quarterly Report on Form 10-Q for the
quarterly period ending March 31, 2000 (File No.
33-96358).
3.2 Bylaws of the Registrant are incorporated by
reference to Exhibit 3.1 of the Registrant's
Quarterly Report on Form 10-Q for the quarterly
period ending June 30, 2000 (File No. 33-96358).
10.1 Bourbon's 1993 Employee Stock Ownership Incentive
Plan is incorporated by reference to Exhibit 10.2 of
the Registrant's Registration Statement on Form S-4
(File No. 33-96358).*
10.2 Bourbon's 1993 Non-Employee Directors
Stock Ownership Incentive Plan is
incorporated by reference to Exhibit 10.3 of
the Registrant's Registration Statement on
Form S-4 (File No. 33-96358).*
10.3 Bourbon Bancshares, Inc. 1999 Employee
Stock Option Plan is incorporated by
reference to Exhibit 99.1 of the Registrant's
Form 10-K for the fiscal year ended December
31, 1998.*
11 Computation of earnings per share - See Note 10 in
the notes to consolidated financial statements
included as Exhibit 13.
13 Financial Statements:
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in
Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Auditors
21 Subsidiaries of Registrant
23 Consent of Crowe, Chizek and Company LLP
99.1 Proxy statement dated March 15, 2001, sent to the
Registrant's security holders in connection with the
2001 Annual Meeting of Shareholders and
supplementally furnished to the Commission for its
information as required by Form 10-K for registrants
which have not registered securities pursuant to
Section 12 of the Securities Exchange Act of 1934.
This material is not otherwise to be deemed filed
with the Commission.
* Denotes a management contract or compensatory plan or
arrangement of the Registrant required to be filed as an
exhibit pursuant to Item 601(10) (iii) of Regulation S-K.
(b) Current Reports on Form 8-K during the quarter ended
December 31, 2000
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.
Bourbon Bancshares, Inc.
By: ________________________
Buckner Woodford, President and Chief Executive Officer,
Director
March 29, 2001
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.
_____________________________ March 29, 2001
Buckner Woodford, President and Chief Executive Officer, Director
_____________________________ March 29, 2001
Gregory J. Dawson, Chief Financial and Accounting Officer
_____________________________ March 29, 2001
James L. Ferrell, M.D., Chairman of the Board, Director
_____________________________ March 29, 2001
William Arvin, Director
_____________________________ March 29, 2001
Henry Hinkle, Director
_____________________________ March 29, 2001
Theodore Kuster, Director
_____________________________ March 29, 2001
William R. Stamler, Director
_____________________________ March 29, 2001
Robert G. Thompson, Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRANTS WHICH
HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE
ACT.
The Registrant refers to Exhibits 13 and 99.1 to the Form 10-
K.
INDEX TO EXHIBITS
Exhibit
Number Description of Document
3.1 Articles of Incorporation of the Registrant are
incorporated by reference to Exhibit 3.1 of the
Registrant's Quarterly Report on Form 10-Q for the
quarterly period ending March 31, 2000 (File No.
33-96358).
3.2 Bylaws of the Registrant are incorporated by
reference to Exhibit 3.1 of the Registrant's
Quarterly Report on Form 10-Q for the quarterly
period ending June 30, 2000 (File No. 33-96358).
10.1 Bourbon's 1993 Employee Stock Ownership Incentive Plan is
incorporated by reference to Exhibit 10.2 of the Registrant's
Registration Statement on Form S-4 (File No. 33-96358).*
10.3 Bourbon's 1993 Non-Employee Directors Stock Ownership
Incentive Plan is incorporated by reference to Exhibit 10.3 of
the Registrant's Registration Statement on Form S-4 (File No.
33-96358).*
10.3 Bourbon Bancshares, Inc. 1999 Employee Stock Option Plan is
incorporated by reference to Exhibit 99.1 of the Registrant's
Form 10-K for the fiscal year ended December 31, 1998.*
11 Computation of earnings per share - See Note 10 in
the notes to consolidated financial statements
included as Exhibit 13.
13 Bourbon Bancshares, Inc. 1999 Annual Report
21 Subsidiaries of Registrant
23 Consent of Crowe, Chizek and Company LLP
99.1 Proxy statement dated March 15, 2001, sent to the
Registrant's security holders in connection with
the 2001 Annual Meeting of Shareholders and
supplementally furnished to the Commission for its
information as required by Form 10-K for
registrants which have not registered securities
pursuant to Section 12 of the Securities Exchange
Act of 1934. This material is not otherwise to be
deemed filed with the Commission.
* Denotes a management contract or compensatory plan or
arrangement of the Registrant required to be filed as an
exhibit pursuant to Item 601(10) (iii) of Regulation S-K.
Exhibit 13
BOURBON BANCSHARES, INC.
ANNUAL REPORT 2000
Letter to the Shareholders.
Dear Shareholders,
It gives me great pleasure to present the information contained
in this year's annual report. We have just enjoyed our best year
ever. The economy in central Kentucky has been healthy for
several years. This has helped our management and employees
achieve very good results.
Earnings continue to grow strongly. Earnings per share (assuming
dilution) were $1.83 in 2000. This compares with $1.55 in 1999
and $1.33 in 1998. Several years ago some investments were made
to expand our franchise. We are now achieving returns on those
investments.
Our business continued to grow last year. We ended the year with
$372 million in assets, up from $347 million a year ago. During
the year we attracted new customers at a steady pace.
We are using a portion of our earnings to further improve
facilities and strengthen our business. In Winchester we have
made major improvements to our Colby Road office. At this
strategically located branch we have expanded our drive in
facility from three lanes to six. In addition, we have enlarged
the building and updated its appearance. At our downtown Paris
headquarters we are currently in the midst of an historic
renovation of our headquarters building. We have also completed
our plans and awarded a contract to build a new full service
branch office in Cynthiana. That office should be opened during
the second half of this year.
One concern heading into this year is the apparent softening of
the national economy. This has potential to cause problems with
loan quality. In this environment we feel it is prudent to
tighten up on our collection procedures and use extra caution
when looking at new loans. A few other banks have made
announcements that their numbers of loan problems are growing.
We think it's only good judgement at this time to give extra
focus to our loan quality.
During 2001 Kentucky Bank will celebrate its 150th anniversary.
There are a number of bank charters that have been merged into
what is now Kentucky Bank. The oldest of those charters, Deposit
Bank, dates back to 1851. This summer we hope to complete the
historic renovation of our headquarters building in downtown
Paris. At that time we will celebrate our 150th anniversary. I
hope you can join us.
/s/Buckner Woodford
Buckner Woodford
FINANCIAL HIGHLIGHTS...
BOURBON BANCSHARES, INC. 2000 1999 1998
Assets ($ millions) $ 372 $ 347 $ 309
Net Income ($ thousands) $ 5,253 $ 4,450 $ 3,804
Per Share Results
Diluted Earnings $ 1.83 $ 1.55 $ 1.33
Dividends $ .52 $ .44 $ .40
Shareholder Information
CORPORATE HEADQUARTERS
Bourbon Bancshares, Inc.
4th and Main Street
Paris, Kentucky 40361
859-987-1795
ANNUAL MEETING
The annual meeting of Shareholders of Bourbon Bancshares, Inc.
will be held Wednesday, May 2, 2001 at 11:00 a.m. in the
corporate headquarters.
TRANSFER AGENT, REGISTRAR AND DIVIDEND DISBURSING AGENT
Kentucky Bank
Wealth Management Department
859-987-1795, ext. 316
MARKET MAKERS
Morgan Keegan & Co.
489 East Main Street
Lexington, Kentucky 40507
1-800-937-0161
Hilliard Lyons
West Vine Street, Suite 400
Lexington, Kentucky 40507
1-800-944-2663
OTC Bulletin Board
Symbol: BBON.OB
INVESTOR INFORMATION
Any individual requesting general information or a copy of
the Corporation's 2000 Form 10-K Report may obtain these by
writing Investor Relations at the Corporate Headquarters.
CONSOLIDATED BALANCE SHEETS
December 31
2000 1999
ASSETS
Cash and due from banks $ 11,595,878 $ 20,041,648
Federal funds sold 3,749,000 675,000
Cash and cash equivalents 15,344,878 20,716,648
Investment securities:
Available for sale 52,822,939 54,930,326
Held to maturity (fair value 2000 -
$15,638,185 and 1999 - $15,916,799) 15,231,406 15,692,975
Mortgage loans held for sale 867,804 3,493,765
Loan 272,277,776 238,606,545
Allowance for loan losses (3,388,380) (3,102,800)
Net loans 268,889,396 235,503,745
Federal Home Loan Bank stock 3,597,900 3,345,500
Bank premises and equipment, net 8,298,504 7,081,860
Interest receivable 4,262,243 3,454,218
Intangible assets 1,743,786 2,108,274
Other assets 788,407 1,151,471
Total assets $371,847,263 $347,478,782
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-interest bearing $ 48,438,750 $ 42,931,235
Time deposits, $100,000 and over 40,305,827 34,714,390
Other interest bearing 212,071,008 196,920,315
Total deposits 300,815,585 274,565,940
Securities sold under agreements to
repurchase and other borrowings 9,446,393 11,858,464
Federal Home Loan Bank advances 21,644,278 26,592,305
Interest payable 3,427,489 2,141,754
Other liabilities 653,537 600,746
Total liabilities 335,987,282 315,759,209
Stockholders' equity
Preferred stock, 300,000 shares
authorized and unissued - -
Common stock, no par value; 10,000,000
shares authorized; 2,808,067 and
2,802,471 shares issued and outstanding
in 2000 and 1999 6,627,255 6,491,373
Retained earnings 29,241,091 25,777,789
Accumulated other comprehensive income (8,365) (549,589)
Total stockholders' equity 35,859,981 31,719,573
Total liabilities and stockholders' equity $371,847,263 $347,478,782
See accompanying notes.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31
2000 1999 1998
Interest income
Loans, including fees $23,681,081 $19,167,985 $17,211,687
Investment securities
Taxable 2,818,906 2,761,337 3,141,285
Tax exempt 1,059,658 1,115,480 1,168,049
Other 647,597 408,077 462,117
28,207,242 23,452,879 21,983,138
Interest expense
Deposits 11,807,823 9,300,244 9,787,511
Securities sold under agreements
to repurchase and other
short-term borrowings 541,550 386,607 269,135
Federal Home Loan Bank advances 1,158,250 767,779 517,105
Other 90,000 92,440 92,717
13,597,623 10,547,070 10,666,468
Net interest income 14,609,619 12,905,809 11,316,670
Provision for loan losses 750,000 699,600 700,400
Net interest income after provision
for loan losses 13,859,619 12,206,209 10,616,270
Other income
Service charges 2,650,310 2,074,999 1,810,756
Loan service fee income 286,704 290,622 282,879
Trust department income 419,728 397,416 300,342
Investment securities gains
(losses), net (88,169) 906 40,955
Gain on sale of mortgage loans 132,559 351,192 439,927
Other 397,131 270,416 198,116
3,798,263 3,385,551 3,072,975
Other expenses
Salaries and employee benefits 5,538,589 5,054,249 4,526,735
Occupancy expenses 1,538,037 1,361,025 1,163,872
Amortization 434,373 441,286 400,147
Advertising and marketing 362,958 323,726 340,664
Taxes other than payroll,
property and income 363,957 234,818 307,146
Other 2,135,581 2,006,858 1,775,563
10,373,495 9,421,962 8,514,127
Income before income taxes 7,284,387 6,169,798 5,175,118
Provision for income taxes 2,031,445 1,719,685 1,371,602
Net income $ 5,252,942 $ 4,450,113 $ 3,803,516
Earnings per share:
Basic $ 1.87 $ 1.59 $ 1.36
Diluted 1.83 1.55 1.33
See accompanying notes.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years Ended December 31
2000 1999 1998
Net income $ 5,252,942 $ 4,450,113 $ 3,803,516
Other comprehensive income (loss),
net of tax:
Unrealized gains (losses) on
securities arising during
the period 483,032 (615,012) (139,837)
Reclassification of realized amount 58,192 (598) (27,030)
Net change in unrealized gain
(loss) on securities 541,224 (615,610) (166,867)
Comprehensive income $ 5,794,166 $ 3,834,503 $ 3,636,649
See accompanying notes.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 2000, 1999 and 1998
Accumulated
Other Total
Common Stock Retained Comprehensive Stockholders'
Shares Amount Earnings Income Equity
Balances, January 1, 1998 2,789,124 $ 6,332,861 $20,150,369 $ 232,888 $ 26,716,118
Common stock issued (including
employee gifts of 52 shares) 20,132 141,380 - - 141,380
Net change in unrealized gain (loss)
on securities available for sale, net
of tax - - - (166,867) (166,867)
Net income - - 3,803,516 - 3,803,516
Dividends declared - $.40 per share - - (1,121,842) - (1,121,842)
Balances, December 31, 1998 2,809,256 6,474,241 22,832,043 66,021 29,372,305
Common stock issued (including
employee gifts of 95 shares) 7,695 54,187 - - 54,187
Common stock purchased (14,480) (37,055) (271,071) - (308,126)
Net change in unrealized gain (loss)
on securities available for sale, net
of tax - - - (615,610) (615,610)
Net income - - 4,450,113 - 4,450,113
Dividends declared - $.44 per share - - (1,233,296) - (1,233,296)
Balances, December 31, 1999 2,802,471 6,491,373 25,777,789 (549,589) 31,719,573
Common stock issued (including
employee gifts of 48 shares) 21,208 172,580 - - 172,580
Common stock purchased (15,612) (36,698) (327,012) - (363,710)
Net change in unrealized gain (loss)
on securities available for sale, net
of tax - - - 541,224 541,224
Net income - - 5,252,942 - 5,252,942
Dividends declared - $.52 per share - - (1,462,628) - (1,462,628)
Balances, December 31, 2000 2,808,067 $ 6,627,255 $29,241,091 $ (8,365) $ 35,859,981
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
2000 1999 1998
Cash flows from operating activities
Net income $ 5,252,942 $ 4,450,113 $ 3,803,516
Adjustments to reconcile net income
to net cash from operating
activities
Depreciation and amortization 1,246,826 1,207,402 1,007,948
Provision for loan losses 750,000 699,600 700,400
Investment securities amortization
(accretion), net (52,915) 5,293 (42,854)
Investment securities gains
(losses), net 88,169 (906) (40,955)
Originations of loans held for sale (12,588,461) (22,264,141) (35,798,502)
Proceeds from sale of loans 15,292,943 24,802,228 35,417,148
Gain on sale of mortgage loans (132,559) (351,192) (439,927)
Federal Home Loan Bank stock
dividends (252,400) (226,000) (214,300)
Changes in:
Interest receivable (808,025) (289,108) (309,545)
Other assets 289,452 (33,731) (10,827)
Interest payable 1,285,735 332,017 (121,840)
Other liabilities 52,791 (50,333) (406,176)
Net cash from operating activities 10,424,498 8,281,242 3,544,086
Cash flows from investing activities
Purchases of securities available
for sale (24,858,046) (38,694,863) (29,252,389)
Proceeds from sales of securities
available for sale 17,045,613 17,828,018 6,548,219
Proceeds from principal payments
and maturities of securities
available for sale 10,685,161 20,393,126 33,189,842
Purchases of investment securities
held to maturity (632,490) (349,522) (2,374,891)
Proceeds from maturities of
investment securities
held to maturity 1,113,500 1,616,300 1,070,150
Net change in loans (34,356,698) (32,401,646) (27,549,007)
Purchases of bank premises and
equipment, net (2,029,097) (701,261) (1,636,487)
Net cash acquired in branch
acquisition - 8,387,089 -
Net cash from investing activities (33,032,057) (23,922,759) (20,004,563)
Cash flows from financing activities
Net change in deposits 26,249,645 6,840,197 17,414,395
Net change in securities sold
under agreements to repurchase
and other borrowings (2,412,071) 610,187 1,790,671
Advances from Federal Home Loan Bank 6,317,000 20,000,000 4,000,000
Payments on Federal Home
Loan Bank advances (11,265,027) (361,197) (7,282,789)
Proceeds from issuance of common stock 172,580 50,135 141,380
Purchase of common stock (363,710) (304,074) -
Dividends paid (1,462,628) (1,233,296) (1,121,842)
Net cash from financing activities 17,235,789 25,601,952 14,941,815
Continued
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31
2000 1999 1998
Net change in cash and
cash equivalents $ (5,371,770) $ 9,960,435 $ (1,518,662)
Cash and cash equivalents at
beginning of year 20,716,648 10,756,213 12,274,875
Cash and cash equivalents at
end of year $ 15,344,878 $ 20,716,648 $ 10,756,213
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest expense $ 12,311,888 $ 10,184,300 $ 10,788,308
Income taxes 2,060,803 1,849,988 1,370,000
Supplemental schedules of non-cash investing
activities:
Real estate acquired through
foreclosure $ 205,200 $ 426,205 $ 69,676
See accompanying notes.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The consolidated financial statements
include the accounts of Bourbon Bancshares, Inc. (the Company)
and its wholly-owned subsidiary, Kentucky Bank (the Bank).
Intercompany transactions and balances have been eliminated in
consolidation.
Nature of Operations: The Bank operates under a state bank
charter and provides full banking services, including trust
services, to customers located in Bourbon, Clark, Harrison,
Jessamine, Scott, Woodford and adjoining counties in Kentucky.
As a state bank, the Bank is subject to regulation by the
Kentucky Department of Financial Institutions and the Federal
Deposit Insurance Corporation (FDIC). The Company, a bank holding
company, is regulated by the Federal Reserve.
Branch Acquisition: On August 13, 1999, the Bank acquired the
Wilmore, Kentucky branch of National City Bank. Included in the
purchase were $9.0 million in net deposits and $353,000 in fixed
assets. The net deposits assumed exceeded the cash received by
$287,000.
Estimates in the Financial Statements: 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. Actual
results could differ from those estimates. The allowance for
loan losses and fair value of financial instruments are
particularly subject to change.
Cash Flows: For purposes of reporting cash flows, cash and cash
equivalents include cash on hand, amounts due from banks, federal
funds sold, and certain short-term investments with maturities of
less than three months. Generally, federal funds are sold for one-
day periods. Net cash flows are reported for loan and deposit
transactions.
Investment Securities: The Company is required to classify its
investment securities portfolio into three categories: trading
securities, securities available for sale and securities held to
maturity. Fair value adjustments are made to the securities based
on their classification with the exception of the held to
maturity category. The Company has no investments classified as
trading.
Investment securities available for sale are carried at fair
value. The difference between amortized cost and fair value is
recorded in stockholders' equity, net of related income tax,
under accumulated other comprehensive income. Changes in this
difference are recorded as a component of comprehensive income.
Amortization of premiums and accretion of discounts are recorded
as adjustments to interest income using the constant yield
method.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment securities for which the Company has the positive
intent and ability to hold to maturity are stated at cost,
adjusted for amortization of premiums and accretion of discounts
which are recorded as adjustments to interest income using the
constant yield method.
Gains or losses on dispositions are based on the net proceeds and
the adjusted carrying amount of the securities sold, using the
specific identification method.
Loans Held for Sale: Loans held for sale are valued at the lower
of cost or market as determined by outstanding commitments from
investors or current secondary market prices, calculated on the
aggregate loan basis.
Loans: Loans are stated at the amount of unpaid principal,
reduced by an allowance for loan losses. Interest income on
loans is recognized on the accrual basis except for those loans
on a nonaccrual status. The accrual of interest on impaired loans
is discontinued when management believes, after consideration of
economic and business conditions and collection efforts, that the
borrowers' financial condition is such that collection of
interest is doubtful. When interest accrual is discontinued,
interest income is subsequently recognized only to the extent
cash payments are received.
Loan origination fees and certain direct origination costs are
capitalized and recognized as an adjustment of the yield on the
related loan.
Allowance for Loan Losses: The allowance for loan losses is a
valuation allowance for probable incurred credit losses,
increased by the provision for loan losses and decreased by
charge-offs less recoveries. Management estimates the allowance
balance required using past loan loss experience, the nature and
volume of the portfolio, information about specific borrower
situations and estimated collateral values, economic conditions,
and other factors. Allocations of the allowance may be made for
specific loans, but the entire allowance is available for any
loan that, in management's judgment, should be charged-off. Loan
losses are charged against the allowance when management believes
the uncollectibility of a loan balance is confirmed.
A loan is impaired when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance
loans of similar nature such as residential mortgage, consumer,
and credit card loans, and on an individual loan basis for other
loans. If a loan is impaired, a portion of the allowance is
allocated so that the loan is reported, net, at the present value
of estimated future cash flows using the loan's existing rate or
at the fair value of collateral if repayment is expected solely
from the collateral.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Mortgage Servicing Rights: The Bank has sold various loans to
the Federal Home Loan Mortgage Corporation (FHLMC) while
retaining the servicing rights. Gains and losses on loan sales
are recorded at the time of the cash sale, which represents the
premium or discount paid by the FHLMC. The Bank receives a
servicing fee from the FHLMC on each loan sold. Servicing rights
are capitalized based on the relative fair value of the rights
and the loan and are included in intangible assets on the balance
sheet and expensed in proportion to, and over the period of,
estimated net servicing revenues.
Bank Premises and Equipment: Bank premises and equipment are
stated at cost less accumulated depreciation. Depreciation is
recorded principally by the straight-line method over the
estimated useful lives of the bank premises and equipment.
Real Estate Acquired Through Foreclosure: Real estate acquired
through foreclosure is carried at the lower of the recorded
investment in the property or its fair value. The value of the
underlying loan is written down to the fair value of the real
estate to be acquired by a charge to the allowance for loan
losses, if necessary. Any subsequent write-downs are charged to
operating expenses. Operating expenses of such properties, net of
related income, and gains and losses on their disposition are
included in other expenses.
Repurchase Agreements: Substantially all repurchase agreement
liabilities represent amounts advanced by various customers.
Securities are pledged to cover these liabilities, which are not
covered by federal deposit insurance.
Income Taxes: Income tax expense is the total of the current
year income tax due or refundable and the change in deferred tax
assets and liabilities. The Company uses the liability method
for computing deferred income taxes. Under the liability method,
deferred income taxes are based on the change during the year in
the deferred tax liability or asset established for the expected
future tax consequences of differences in the financial reporting
and tax bases of assets and liabilities.
Intangible Assets: Intangible assets include a premium on
deposits paid in connection with the acquisition of branches
which is being amortized on a straight-line basis over ten or
fifteen years and capitalized mortgage servicing rights which are
being amortized over the life of the related loans.
Earnings Per Common Share: Basic earnings per common share is
net income divided by the weighted average number of common
shares outstanding during the period. Diluted earnings per
common share includes the dilutive effect of additional potential
common shares issuable under stock options. Earnings and
dividends per share are restated for all stock splits and
dividends through the date of issuance of the financial
statements.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Comprehensive Income: Comprehensive income consists of net
income and other comprehensive income. Other comprehensive
income includes unrealized gains and losses on securities
available for sale which are also recognized as a separate
component of equity.
New Accounting Pronouncements: Beginning January 1, 2001, a new
accounting standard requires all derivatives to be recorded at
fair value. Unless designated as hedges, changes in these fair
values will be recorded in the income statement. Fair value
changes involving hedges will generally be recorded by offsetting
gains and losses on the hedge and on the hedged item, even if the
fair value of the hedged item is not otherwise recorded. The
Company periodically enters into non-exchange traded mandatory
forward sales contracts in conjunction with its mortgage banking
operation. These contracts, considered derivatives, typically
last 90 days and are used to hedge the risk of interest rate
changes between the time of the commitment to make a loan to a
borrower at a stated rate and when the loan is sold. The Company
did not have any mandatory forward sales contracts at December
31, 2000. As allowed in conjunction with the adoption of this
standard, the Company transferred its entire securities held to
maturity portfolio to available for sale. As a result of this
transfer and the corresponding adjustment to fair value, on
January 1, 2001 securities increased $407,000, other assets
decreased $138,000, and accumulated other comprehensive income
increased $269,000.
Industry Segments: While the Company's chief decision makers
monitor the revenue streams of the various Company products and
services, operations are managed and financial performance is
evaluated on a Company-wide basis. Accordingly, all of the
Company's operations are considered by management to be
aggregated into one reportable operating segment.
Reclassifications: Certain reclassification have been made in
the 1998 and 1999 consolidated financial statements to conform to
the 2000 presentation.
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS
Included in cash and due from banks are certain non-interest
bearing deposits that are held at the Federal Reserve or
maintained in vault cash in accordance with average balance
requirements specified by the Federal Reserve Board of Governors.
The reserve requirement at December 31, 2000 and 1999 was
$191,000 and $7,544,000.
NOTE 3 - INVESTMENT SECURITIES
Year-end securities are as follows:
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Available for Sale
2000
U. S. Treasury $14,969,462 $ 24,045 $ (1,632) $14,991,875
U. S. government agencies 4,999,043 40,332 (10,835) 5,028,540
States and political subdivisions 3,271,701 94,396 - 3,366,097
Mortgage-backed 22,876,407 140,385 (139,105) 22,877,687
Equity securities 2,230,037 96,117 (256,038) 2,070,116
Other 4,488,966 - (342) 4,488,624
Total $52,835,616 $395,275 $(407,952) $52,822,939
1999
U. S. Treasury $18,012,932 $ - $ (58,683) $17,954,249
U. S. government agencies 5,983,561 - (81,261) 5,902,300
States and political subdivisions 3,642,574 44,699 (6,121) 3,681,152
Mortgage-backed 26,317,036 5,812 (550,487) 25,772,361
Equity securities 1,563,910 13,113 (197,923) 1,379,100
Other 243,023 1,617 (3,476) 241,164
Total $55,763,036 $ 65,241 $(897,951) $54,930,326
Held to Maturity
2000
States and political subdivisions $15,231,406 $416,441 $ (9,662) $15,638,185
1999
States and political subdivisions $15,692,975 $361,580 $(137,756) $15,916,799
NOTE 3 - INVESTMENT SECURITIES (Continued)
The amortized cost and fair value of investment securities at
December 31, 2000, by category and contractual maturity, are
shown below. 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.
Securities not due at a single maturity are shown separately.
Amortized Fair
Cost Value
Available for Sale
Due in one year or less $19,757,892 $19,792,273
Due after one year through five years 5,808,961 5,860,798
Due after five years through ten years 877,587 904,682
Due after ten years 1,284,732 1,317,383
27,729,172 27,875,136
Mortgage-backed 22,876,407 22,877,687
Equity 2,230,037 2,070,116
Total $52,835,616 $52,822,939
Held to Maturity
Due in one year or less $ 3,287,329 $ 3,386,485
Due after one year through five years 4,024,819 4,128,886
Due after five years through ten years 4,408,178 4,551,688
Due after ten years 3,511,080 3,571,126
Total $15,231,406 $15,638,185
Proceeds from sales of investment securities during 2000, 1999
and 1998 were $17,045,613, $17,828,018 and $6,548,219. Gross
gains of $42,704, $29,674 and $40,955 and gross losses of
$130,873, $28,768 and $0, were realized on those sales.
Investment securities with an approximate carrying value of
$54,829,000 and $61,321,000 at December 31, 2000 and 1999, were
pledged to secure public deposits, trust funds, securities sold
under agreements to repurchase and for other purposes as required
or permitted by law.
NOTE 4 - LOANS
Loans at year-end were as follows:
2000 1999
Commercial $ 17,452,151 $ 17,713,094
Real estate construction 15,269,683 17,003,060
Real estate mortgage 162,305,751 134,809,876
Agricultural 52,008,373 46,442,610
Consumer 24,807,486 22,357,830
Other 434,332 280,075
$272,277,776 $238,606,545
Activity in the allowance for loan losses was as follows:
2000 1999 1998
Beginning balance $3,102,800 $2,734,589 $2,321,536
Charge-offs (558,552) (410,245) (368,017)
Recoveries 94,132 78,856 80,670
Provision for loan losses 750,000 699,600 700,400
Ending balance $3,388,380 $3,102,800 $2,734,589
Impaired loans totaled $395,469 and $201,085 at December 31, 2000
and 1999. The average recorded investment in impaired loans
during 2000, 1999 and 1998 was $224,000, $244,000 and $310,000.
The total allowance for loan losses related to these loans was
$117,000 and $10,000 at December 31, 2000 and 1999. Interest
income on impaired loans of $11,000, $18,000 and $22,000 was
recognized for cash payments received in 2000, 1999 and 1998.
Nonperforming loans were as follows:
2000 1999 1998
Loans past due over 90 days
still on accrual $1,364,741 $ 549,000 $ 790,000
Nonaccrual loans 307,221 63,000 136,000
Nonperforming loans include impaired loans and smaller balance
homogeneous loans, such as residential mortgage and consumer
loans, that are collectively evaluated for impairment.
NOTE 4 - LOANS (Continued)
Mortgage loans serviced for others are not included in the
accompanying consolidated balance sheets. The unpaid principal
balances of mortgage loans serviced for others was approximately
$101,893,000 and $108,480,000 at December 31, 2000 and 1999.
Custodial escrow balances maintained in connection with the
foregoing loan servicing, and included in demand deposits, were
approximately $682,000 and $646,000 at December 31, 2000 and
1999.
Changes in mortgage servicing rights were as follows:
2000 1999 1998
Beginning balance $ 606,487 $ 533,822 $ 314,877
Additions 69,885 228,016 330,902
Amortization (154,905) (155,351) (111,957)
Ending balance $ 521,467 $ 606,487 $ 533,822
Certain directors and executive officers of the Company and
companies in which they have beneficiary ownership were loan
customers of the Bank during 2000 and 1999. Such loans were made
in the ordinary course of business at the Bank's normal credit
terms and interest rates. An analysis of the activity with
respect to all director and executive officer loans is as
follows:
2000 1999
Balance, beginning of year $1,174,000 $1,216,000
Additions, including loans now meeting
disclosure requirements 893,000 615,000
Amounts collected, including loans no
longer meeting disclosure requirements (589,000) (657,000)
Balance, end of year $1,478,000 $1,174,000
NOTE 5 - PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows:
2000 1999
Land and buildings $ 8,588,831 $ 7,717,995
Furniture and equipment 6,958,501 5,800,240
15,547,332 13,518,235
Less accumulated depreciation (7,248,828) (6,436,375)
$ 8,298,504 $ 7,081,860
Depreciation expense was $812,453, $766,117 and $667,799 in 2000,
1999, and 1998.
NOTE 6 - DEPOSITS
At December 31, 2000, the scheduled maturities of time deposits
are as follows:
2001 $136,165,679
2002 21,221,775
2003 2,075,811
2004 606,986
2005 and thereafter 816,565
$160,886,816
Certain directors and executive officers of the Company and
companies in which they have beneficiary ownership, are deposit
customers of the Bank. The amount of these deposits was
approximately $812,000 and $838,000 at December 31, 2000 and
1999.
NOTE 7 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase generally mature
within one to 35 days from the transaction date. The securities
underlying the agreements are maintained in a third-party
custodian's account under a written custodial agreement.
Information concerning securities sold under agreements to
repurchase for 2000 and 1999 is summarized as follows:
2000 1999
Average daily balance during the year $ 8,726,000 $ 5,683,000
Average interest rate during the year 5.53% 4.37%
Maximum month-end balance during the year $12,310,000 $10,333,000
NOTE 8 - FEDERAL HOME LOAN BANK ADVANCES
The Bank owns stock of the Federal Home Loan Bank (FHLB) of
Cincinnati, Ohio. This stock allows the Bank to borrow advances
from the FHLB. At December 31, 2000 and 1999, $21,644,278 and
$26,592,305 represented the balance due on advances from the
FHLB. All advances are paid either on a monthly basis or at
maturity, over remaining terms of two to fifteen years, with
fixed interest rates ranging from 5.25% to 7.23%. The Bank also
has letters of credit from the FHLB totaling $22,050,000 at
December 31, 2000 for the purpose of securing public deposits.
Advances and letters of credit are secured by the FHLB stock and
substantially all first mortgage loans.
Scheduled principal payments due on advances during the years
subsequent to December 31, 2000 are as follows:
2001 $ 235,791
2002 249,383
2003 4,828,052
2004 10,033,503
2005 5,035,928
Thereafter 1,261,621
$21,644,278
NOTE 9 - INCOME TAXES
Income tax expense was as follows:
2000 1999 1998
Current payable $ 1,782,641 $ 1,697,291 $ 1,306,758
Deferred 248,804 22,394 64,844
$ 2,031,445 $ 1,719,685 $ 1,371,602
Year-end deferred tax assets and liabilities were due to the
following. No valuation allowance for the realization of
deferred tax assets is considered necessary.
2000 1999
Deferred tax assets
Allowance for loan losses $958,814 $861,717
Unrealized loss on investment securities 4,310 283,121
Core deposit intangibles 186,149 156,646
Other 11,704 31,042
Deferred tax liabilities
Bank premises and equipment (146,734) (142,812)
FHLB stock (541,807) (455,991)
Mortgage servicing rights (177,299) (206,206)
Other (54,464) (54,278)
Net deferred tax asset $ 240,673 $ 473,239
Effective tax rates differ from federal statutory rates applied to financial
statement income due to the following:
2000 1999 1998
U. S. federal income tax rate 34.0% 34.0% 34.0%
Changes from the statutory rate
Tax-exempt investment income (5.9) (7.2) (8.7)
Non-deductible interest expense related to
carrying tax-exempt investments .8 .8 1.1
Other (1.0) .3 .1
27.9% 27.9% 26.5%
NOTE 10 - EARNINGS PER SHARE
The factors used in the earnings per share computation follow:
2000 1999 1998
Basic Earnings Per Share
Net income $ 5,252,942 $ 4,450,113 $ 3,803,516
Weighted average common shares
outstanding 2,811,565 2,803,276 2,801,320
Basic earnings per share $ 1.87 $ 1.59 $ 1.36
Diluted Earnings Per Share
Net income $ 5,252,942 $ 4,450,113 $ 3,803,516
Weighted average common shares
outstanding 2,811,565 2,803,276 2,801,320
Add dilutive effects of assumed
exercise of stock options 56,600 64,667 59,974
Weighted average common and
dilutive potential common
shares outstanding 2,868,165 2,867,943 2,861,294
Diluted earnings per share $ 1.83 $ 1.55 $ 1.33
Stock options for 96,000 shares common stock were excluded from
2000 diluted earnings per share because their impact was
antidilutive.
NOTE 11 - RETIREMENT PLANS
The Company has a defined benefit pension plan covering
substantially all of its employees. The Company's funding policy
is to contribute annually the maximum amount that can be deducted
for federal income tax purposes. Benefits are based on one
percent of employee average earnings for the previous five years
times years of credited service.
NOTE 11 - RETIREMENT PLANS (Continued)
Information about the pension plan was as follows:
2000 1999
Change in benefit obligation:
Beginning benefit obligation $2,732,093 $2,032,917
Service cost 221,305 188,925
Interest cost 191,676 169,649
Actuarial adjustment 42,126 420,482
Benefits paid (56,374) (79,880)
Ending benefit obligation 3,130,826 2,732,093
Change in plan assets, at fair value:
Beginning plan assets 2,953,831 2,500,009
Actual return (40,539) 272,728
Employer contribution 261,219 234,801
Benefits paid (56,374) (53,707)
Ending plan assets 3,118,137 2,953,831
Funded status (12,689) 221,738
Unrecognized net actuarial (gain) loss 120,465 (195,185)
Unrecognized prior transition asset (2,973) (3,345)
Prepaid benefit cost $ 104,803 $ 23,208
Net periodic pension cost includes the following components:
2000 1999 1998
Service cost $ 221,305 $ 188,925 $ 143,717
Interest cost 191,676 169,649 143,564
Expected return on plan assets (233,428) (198,239) (179,940)
Amortization of transition asset (372) (372) (372)
Net periodic cost $ 179,181 $ 159,963 $ 106,969
Discount rate on benefit obligation 7% 7% 8%
Long-term expected rate of return on
plan assets 8% 8% 8%
Rate of compensation increase 5% 5% 5%
NOTE 11 - RETIREMENT PLANS (Continued)
The Company also has a qualified profit sharing plan which covers
substantially all employees and includes a 401(k) provision.
Profit sharing contributions, excluding the 401(k) provision, are
at the discretion of the Company's Board of Directors. Expense
recognized in connection with the plan was $224,106, $165,087 and
$181,743 in 2000, 1999 and 1998.
NOTE 12 - STOCK OPTION PLAN
The Company has stock option plans, which are accounted for in
accordance with Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees", and related
interpretations. Under the plans, the Company grants certain
officers and key employees stock option awards which vest and
become fully exercisable at the end of five years. The Company
also grants certain directors stock option awards which vest and
become fully exercisable immediately. The exercise price of each
option, which has a ten year life, was equal to the market price
of the Company's stock on the date of grant; therefore, no
compensation expense was recognized.
Although the Company has elected to follow APB No. 25, Statement
of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation", requires pro forma disclosures of net
income and earnings per share as if the Company had accounted for
its employee stock options under that Statement. The fair value
of each option grant was estimated on the grant date using an
option-pricing model.
Summary of stock option transactions are as follows:
2000 1999 1998
Weighted Weighted Weighted
Option Option Option
Options Price Options Price Options Price
Outstanding, beginning
of year 148,940 $13.17 130,760 $11.36 125,640 $ 9.74
Granted 3,950 24.30 25,780 20.62 27,200 15.88
Canceled - - - - (2,000) 14.55
Exercised (21,160) 8.11 (7,600) 7.13 (20,080) 7.04
Outstanding, end of year 131,730 $14.32 148,940 $13.17 130,760 $11.36
Weighted remaining
contractual life 66.4 months 70.6 months 72.0 months
NOTE 12 - STOCK OPTION PLAN (Continued)
2000 1999 1998
Options outstanding
From $4.25 to $6.38 per share 5,800 19,600 24,720
From $8.63 to $11.14 per share 26,980 30,480 32,640
From $12.00 to $15.50 per share 66,540 69,900 70,200
From $18.00 to $26.00 per share 32,410 28,960 3,200
131,730 148,940 130,760
Eligible for exercise
From $4.25 to $6.38 per share 5,800 19,600 24,720
From $8.63 to $11.14 per share 26,980 30,480 29,360
From $12.00 to $15.50 per share 41,140 31,740 18,600
From $18.00 to $26.00 per share 8,116 2,680 1,200
82,036 84,500 73,880
Under SFAS No. 123, compensation cost is recognized in the amount
of the estimated fair value of the options and amortized to
expense over the options' vesting periods. The pro forma effect
on net income and earnings per share of this statement are as
follows:
2000 1999 1998
Net income
As reported $ 5,252,942 $ 4,450,113 $ 3,803,516
Pro forma 5,162,251 4,368,134 3,747,871
Basic earnings per share
As reported $ 1.87 $ 1.59 $ 1.36
Pro forma 1.84 1.56 1.34
Diluted earnings per share
As reported $ 1.83 $ 1.55 $ 1.33
Pro forma 1.80 1.53 1.32
Weighted averages
Fair value of options granted $ 6.56 $ 5.14 $ 4.52
Risk free interest rate 6.62% 4.82% 5.20%
Expected life 8 years 8 years 8 years
Expected volatility 11.61% 18.17% 23.40%
Expected dividend yield 2.14% 2.13% 2.53%
NOTE 13 - LIMITATION ON BANK DIVIDENDS
The Company's principal source of funds is dividends received
from the Bank. Banking regulations limit the amount of dividends
that may be paid by the Bank without prior approval of regulatory
agencies. Under these regulations, the amount of dividends that
may be paid in any calendar year is limited to the current year's
net profits, as defined, combined with the retained net profits
of the preceding two years. During 2001 the Bank could, without
prior approval, declare dividends of approximately $3,809,000
plus any 2001 net profits retained to the date of the dividend
declaration.
NOTE 14 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of the Company's financial instruments at
December 31, 2000 and 1999 are as follows:
2000 1999
Carrying Fair Carrying Fair
Amount Value Amount Value
(In Thousands)
Financial assets
Cash and cash equivalents $ 15,345 $ 15,345 $ 20,717 $ 20,717
Investment securities 68,054 68,461 70,623 70,847
Mortgage loans held for sale 868 890 3,494 3,494
Loans, net 268,889 267,801 235,504 234,778
FHLB stock 3,598 3,598 3,346 3,346
Interest receivable 4,262 4,262 3,454 3,454
Financial liabilities
Deposits $ 300,816 $ 302,423 $ 274,566 $ 275,192
Securities sold under
agreements to repurchase
and other borrowed funds 9,446 9,446 11,858 11,858
FHLB advances 21,644 21,847 26,592 25,892
Interest payable 3,427 3,427 2,142 2,142
NOTE 14 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
(Continued)
Carrying amount is the estimated fair value for cash and cash
equivalents, short-term borrowings, Federal Home Loan Bank stock,
accrued interest receivable and payable, demand deposits, short-
term debt, and variable rate loans or deposits that reprice
frequently and fully. Security fair values are based on market
prices or dealer quotes, and if no such information is available,
on the rate and term of the security and information about the
issuer. For fixed rate loans or deposits and for variable rate
loans or deposits with infrequent repricing or repricing limits,
fair value is based on discounted cash flows using current market
rates applied to the estimated life and credit risk. Fair values
for impaired loans are estimated using discounted cash flow
analysis or underlying collateral values. Fair value of debt is
based on current rates for similar financing. The fair value of
commitments to extend credit and standby letters of credit is not
considered material.
NOTE 15 - OFF-BALANCE SHEET ACTIVITIES
Some financial instruments, such as loan commitments, credit
lines, letters of credit, and overdraft protection, are issued to
meet customer financing needs. These are agreements to provide
credit or to support the credit of others, as long as conditions
established in the contract are met, and usually have expiration
dates. Commitments may expire without being used. Off-balance
sheet risk to credit loss exists up to the face amount of these
instruments, although material losses are not anticipated. The
same credit policies are used to make such commitments as are
used for loans, including obtaining collateral at exercise of the
commitment.
Financial instruments with off-balance sheet risk were as follows
at year-end:
2000 1999
Unused lines of credit $ 33,901,000 $ 37,976,000
Commitments to make loans 1,137,000 3,800,000
Letters of credit 856,000 453,000
Unused lines of credit are substantially all at variable rates.
Commitments to make loans are generally made for a period of 60
days or less and are primarily fixed at current market rates
ranging from 6.75% to 7.375% with maturities ranging from 15 to
30 years and are intended to be sold.
NOTE 16 - CONTINGENT LIABILITIES
The Bank is a defendant in legal actions arising from normal
business activities. Management believes these actions are
without merit or that the ultimate liability, if any, resulting
from them will not materially affect the Company's consolidated
financial position or results of operations.
NOTE 17 - STOCKHOLDER'S EQUITY
Stock Split: On March 9, 1999, the stockholders approved an
amendment to Bourbon Bancshares, Inc.'s Articles of Incorporation
to increase the authorized common stock to 10,000,000 shares. On
June 8, 1999, the stockholders approved a two-for-one common
stock split. All shares and per share amounts have been
retroactively restated to reflect the split.
Regulatory Matters: The Company and the Bank are subject to
various regulatory capital requirements administered by the
federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possible
additional discretionary actions by regulators that, if
undertaken, could have a direct material effect on the Company's
financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Company
and the Bank must meet specific capital guidelines that involve
quantitative measures of the Company's and the Bank's assets,
liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. The Company and Bank
capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company and the Bank to maintain minimum
amounts and ratios (set forth in the table below) of Total and
Tier I capital (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier I capital to average assets (as
defined). Management believes, as of December 31, 2000 and 1999,
that the Company and the Bank meet all capital adequacy
requirements to which they are subject.
NOTE 17 - STOCKHOLDER'S EQUITY (Continued)
The most recent notification from the Federal Deposit Insurance
Corporation categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be
categorized as well capitalized, the Bank must maintain minimum
Total risk-based, Tier I risk-based and Tier I leverage ratios as
set forth in the following table. There are no conditions or
events since that notification that management believes have
changed the institution's category.
The Company's and the Bank's actual amounts and ratios are
presented in the table below:
To Be Well
Capitalized
Under Prompt
For Capital Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
2000 (Dollars in Thousands)
Consolidated
Total Capital (to Risk-Weighted Assets) $ 37,784 14.3% $ 21,093 8% $26,366 10%
Tier I Capital (to Risk-Weighted Assets) 34,488 13.1 10,546 4 15,820 6
Tier I Capital (to Average Assets) 34,488 9.3 14,848 4 18,560 5
Bank Only
Total Capital (to Risk-Weighted Assets) $ 33,125 12.7% $ 20,908 8% $26,135 10%
Tier I Capital (to Risk-Weighted Assets) 29,858 11.4 10,454 4 15,681 6
Tier I Capital (to Average Assets) 29,858 8.1 14,752 4 18,441 5
1999
Consolidated
Total Capital (to Risk-Weighted Assets) $ 33,510 14.3% $ 18,714 8% $23,392 10%
Tier I Capital (to Risk-Weighted Assets) 30,584 13.1 9,357 4 14,035 6
Tier I Capital (to Average Assets) 30,584 9.6 12,755 4 15,944 5
Bank Only
Total Capital (to Risk-Weighted Assets) $ 30,431 13.1% $ 18,563 8% $23,204 10%
Tier I Capital (to Risk-Weigted Assets) 27,528 11.9 9,281 4 13,922 6
Tier I Capital (to Average Assets) 27,528 8.7 12,700 4 15,875 5
NOTE 18 - PARENT COMPANY FINANCIAL STATEMENTS
Condensed Balance Sheets
December 31
2000 1999
(In Thousands)
ASSETS
Cash on deposit with subsidiary $ 2,710 $ 1,606
Investment in subsidiary 31,230 28,663
Investment securities available for sale 1,820 1,379
Other assets 100 71
Total assets $35,860 $31,719
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ - $ -
Stockholders' equity
Preferred stock - -
Common stock 6,627 6,491
Retained earnings 29,241 25,778
Accumulated other comprehensive income (8) (550)
Total liabilities and stockholders' equity $35,860 $31,719
NOTE 18 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
Condensed Statements of Income and Comprehensive Income
Years Ended December 31
2000 1999 1998
(In Thousands)
Income
Dividends from subsidiary $3,160 $2,700 $2,330
Investment securities losses, net (17) - -
Interest income 61 28 5
Total income 3,204 2,728 2,335
Expenses
Other expenses 39 53 25
Income before income taxes and equity in
undistributed income of subsidiary 3,165 2,675 2,310
Applicable income tax benefits 46 9 7
Income before equity in undistributed
income of subsidiary 3,211 2,684 2,317
Equity in undistributed income of subsidiary 2,042 1,766 1,487
Net income 5,253 4,450 3,804
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities arising
during the period 483 (615) (140)
Reclassification of realized amount 58 - (27)
Net change in unrealized gain (loss) on securities 541 (615) (167)
Comprehensive income $5,794 $3,835 $3,637
NOTE 18 - PARENT COMPANY FINANCIAL STATEMENTS (Continued)
Condensed Statements of Cash Flows
Years Ended December 31
2000 1999 1998
(In Thousands)
Cash flows from operating activities
Net income $ 5,253 $ 4,450 $ 3,804
Adjustments to reconcile net income to net
cash from operating activities
Equity in undistributed earnings of
subsidiary (2,042) (1,766) (1,487)
Investment securities losses, net 17 - -
Change in other assets (37) (3) (8)
Net cash from operating activities 3,191 2,681 2,309
Cash flows from investing activities
Purchase of investment securities available
for sale (1,071) (555) (977)
Proceeds from sales of securities available
for sale 638 - -
Net cash from investing activities (433) (555) (977)
Cash flows from financing activities
Dividends paid (1,463) (1,233) (1,122)
Proceeds from issuance of common stock 173 50 141
Purchase of common stock (364) (304) -
Net cash from financing activities (1,654) (1,487) (981)
Net change in cash 1,104 639 351
Cash at beginning of year 1,606 967 616
Cash at end of year $ 2,710 $ 1,606 $ 967
NOTE 19 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Interest Net Interest Net Earnings Per Share
Income Income Income Basic Fully Diluted
2000
First quarter $6,592 $3,568 $1,308 $ .47 $ .46
Second quarter 6,875 3,685 1,312 .46 .45
Third quarter 7,229 3,647 1,297 .46 .45
Fourth quarter 7,511 3,710 1,336 .48 .47
1999
First quarter $5,572 $3,051 $1,119 $ .40 $ .39
Second quarter 5,713 3,184 1,076 .39 .37
Third quarter 5,922 3,300 1,176 .42 .42
Fourth quarter 6,246 3,371 1,079 .38 .37
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Bourbon Bancshares, Inc.
Paris, Kentucky
We have audited the accompanying consolidated balance sheets of
Bourbon Bancshares, Inc. as of December 31, 2000 and 1999, and
the related consolidated statements of income, comprehensive
income, changes in stockholders' equity and cash flows for each
of the three years in the period ended December 31, 2000. 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of Bourbon Bancshares, Inc. as of December 31, 2000 and
1999, and the results of its operations and its cash flows for
each of the three years in the period ended December 31, 2000, in
conformity with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Lexington, Kentucky
January 19, 2001
Bourbon Bancshares, Inc.
Board of Directors
Buckner Woodford
President and Chief Executive Officer;
Kentucky Bank and Bourbon Bancshares, Inc.
Class of 2003
William R. Stamler
Chairman, Signal Investments, Inc.
Class of 2003
Henry Hinkle
President; Hinkle Contracting Corporation
Class of 2002
Robert G. Thompson
Director, Paris/Bourbon County YMCA; Snow Hill Farm
Class of 2002
Theodore Kuster
Farmer and Thoroughbred Breeder; West View Farm
Class of 2002
James L. Ferrell, M.D.
Physician; Chairman, Bourbon Bancshares, Inc.
Class of 2001
William M. Arvin
Attorney
Class of 2001
Kentucky Bank - Board of Directors.
Buckner Woodford
President and Chief Executive Officer,
Bourbon Bancshares, Inc. and Kentucky Bank
Joe Allen
Retired - Executive Vice President, Kentucky Bank
William M. Arvin
Attorney, William M. Arvin and Associates
Dan Brewer
Bluegrass RECC
Loren Carl
Director, KY Attorney General's Office
James L. Ferrell, M.D.
Physician
Henry Hinkle
President; Hinkle Contracting Company
Theodore Kuster
Farmer and Thoroughbred Breeder; West View Farm
George Lusby
County Judge Executive
Joseph B. McClain
President; Hopewell Insurance Company, Inc.
John Roche
Optician
William R. Stamler
Chairman, Signal Investments, Inc.
Robert G. Thompson
Director, Paris/Bourbon County YMCA
Gerald M. Whalen
President, Whalen and Co. Insurance and Real Estate
REGIONAL BOARD OF DIRECTORS
CLARK COUNTY
Mary Beth Hendricks
Director of Clark County Child Support Services
Donald Pace
Consultant to Clark Co. Schools
Ed Saunier
President, Saunier North American, Inc.
John G. Roche
Optician
James Taulbee
Farmer
REGIONAL BOARD OF DIRECTORS
WOODFORD COUNTY
Loren Carl
Director, KY Attorney General's Office
Dr. William J. Graul
Physician
James Kay
Businessman, Farmer
Tricia N. Kittinger
Woodford Circuit Clerk
REGIONAL BOARD OF DIRECTORS
SCOTT COUNTY
Dr. Gus A. Bynum
Physician
R.C. Johnson, Jr.
Owner and President; Johnson's Funeral Home
Mike Hockensmith
Owner and President, The Hockensmith Agency, Inc.
George Lusby
County Judge Executive
Everette Varney
Mayor - Georgetown
REGIONAL BOARD OF DIRECTORS
JESSAMINE COUNTY
Eva McDaniel
Jessamine County Clerk
Bonnie Dean
Retired - Nicholasville City Clerk, Treasurer
William M. Arvin
Attorney, William M. Arvin and Associates
Dan Brewer
Bluegrass RECC
Jonah Mitchell
President, Jonah Mitchell Real Estate & Auction Co.
OFFICERS.
BOURBON COUNTY.
PARIS
Buckner Woodford - President and CEO
James P. Shipp, Jr. - Sr. Vice President, Branch Administration
Norman J. Fryman - Sr. Vice President, Director of Lending
Greg Dawson - Vice President, Chief Financial Officer
Brenda Bragonier - Vice President, Director of Marketing and Human Resources
Hugh Crombie - Vice President, Operations
Bill Reynolds - Vice President, Trust Officer
Brenda Berry - Accountant
Mary Lou Boyle - Personnel Director
Wallis Brooks - Branch Manager
Patty Carpenter - Loan Operations Officer
Nicholas Carter - Assistant Vice President, Loan Officer
R.W. Collins, Jr. - Vice President, Loan Officer
Nancye Fightmaster - Loan Officer
Janice Hash - Accountant and Purchasing Agent
Cathy Hill - Assistant Vice President, Loan Officer
Bill Leaver - Network Administrator
Michael Lovell - Vice President, Loan Officer
Jean Patton - Compliance/CRA/Quality Control
Donald Roe - Data Processing
Lydia Sosby - Corporate and Automated Products Officer
Judy Taylor - Human Resource Manager
Rick Wagner - Maintenance Supervisor
George Wilder - Vice President, Loan Officer
Martha Woodford - AVP Corporate and Automated Products Officer
Jan Worth - Trust Officer
Lexington Road Branch
Rita Bugg - Vice President, Branch Manager, Loan Officer
Paul Clift - Loan Officer
Pleasant Street Branch
Philip Hurst - Assistant Branch Manager
CLARK COUNTY.
WINCHESTER
Tim Duncan - Regional Vice President
Becky Taulbee - Assistant Vice President, Loan Officer
Darryl Terry - Vice President, Loan Officer
Carolyn Wilkins - Overdraft Management Officer
Ron Burden, Vice President, Loan Officer
Colby Road Branch
Teresa Shimfessel - Assistant Vice President, Branch Manager, Loan Officer
WOODFORD COUNTY.
VERSAILLES
Duncan Gardner - Regional Vice President
A.J. Gullett - Assistant Vice President, Loan Officer
SCOTT COUNTY.
PARIS PIKE BRANCH
Jennifer Roberts - Assistant Vice President, Branch Manager, Loan Officer
SHOWALTER DRIVE BRANCH
J. Mark Walls - Regional Vice President
Ben Sargent - Assistant Vice President, Loan Officer
JESSAMINE COUNTY.
NICHOLASVILLE
Tom Buford - Regional Vice President
Jeanie Thompson - Office Manager & CSR
Rick Walling - Assistant Vice President, Loan Officer
WILMORE
Freida Lear, Branch Manager, Loan Officer
HARRISON COUNTY.
CYNTHIANA LOAN PRODUCTION OFFICE
Ken DeVasher - Regional Vice President
Exhibit 21 Subsidiaries of Registrant
Bourbon Bancshares, Inc.'s Subsidiary
Kentucky Bank
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the Form S-
8 Registration Statement No. 333-92725 of Bourbon Bancshares,
Inc., of our report dated January 19, 2001 on the consolidated
financial statements of Bourbon Bancshares, Inc. as of December
31, 2000 and 1999 and for each of the three years in the period
ended December 31, 2000 as included in the registrant's annual
report on Form 10-K.
Crowe, Chizek and Company LLP
Lexington, Kentucky
March 29, 2001
Exhibit 99.1 Proxy Statement
BOURBON BANCSHARES, INC.
400 Main Street
Paris, Kentucky 40361
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 2, 2001
March 15, 2001
To our Shareholders:
The annual meeting of the shareholders of Bourbon Bancshares (the
"Company") will be held on Wednesday, May 2, 2001 at 11:00 a.m.
local time, at the Main Office Board Room of Kentucky Bank, Paris,
Kentucky, for the purposes of:
1. Election of directors. To elect two Class II directors.
2. Ratification of Independent Auditors. To act upon a proposal to
ratify the appointment of Crowe, Chizek and Company LLP as the
Corporation's independent auditors for the fiscal year ending December
31, 2001.
3. Other Business. To act upon such other matters as may properly be
brought before the Annual Meeting or any adjournment thereof. The Board
of Directors does not know of any other matter to come before the Annual
Meeting.
Information regarding the matters to be acted upon at the Annual
Meeting is contained in the Proxy statement accompanying this
Notice. Only those holders of record of the corporation's common
stock at the close of business on March 15, 2001, are entitled to
notice of and to vote at the Annual Meeting and any adjournment
thereof.
All Shareholders are cordially invited to attend the Annual Meeting,
but whether or not you expect to attend the Annual Meeting in
person, please sign and date the enclosed Proxy and return it
promptly so your stock may be voted.
Thank you for your time and consideration. Please feel free to
contact my office should you have any questions.
BY ORDER OF THE BOARD OF DIRECTORS
Buckner Woodford
President, Bourbon Bancshares, Inc.
YOUR VOTE IS IMPORTANT
PLEASE MARK, SIGN, DATE, AND RETURN THE ACCOMPANYING PROXY IMMEDIATELY
EVEN IF YOU PLAN TO ATTEND THE ANNUAL MEETING.
BOURBON BANCSHARES, INC.
PROXY STATEMENT
INTRODUCTION
This Proxy Statement is being furnished to shareholders of Bourbon
Bancshares, Inc., a Kentucky Corporation (the "Company"), in connection
with the solicitation of proxies by the Board of Directors of the Company
(the "Board") from holders of record of the Company's outstanding Common
Shares (the "Common Shares") as of the close of business on March 15, 2001
(the "Annual Meeting Record Date"), for use at the Annual Meeting of
Shareholders of the Company (the "Annual Meeting") to be held on
Wednesday, May 2, 2001, at 11:00 a.m. (Eastern Daylight Time) at the
Company's Main Office Board Room of Kentucky Bank, Fourth and Main
Streets, Paris, Kentucky, and at any adjournment or postponement thereof.
This Proxy Statement is first being mailed to the Company's shareholders
on or about March 15, 2001. The principal executive offices of the
Company are located at Fourth and Main Streets, Paris, Kentucky 40361.
Its telephone number is (859) 987-1795.
Purposes of the Annual Meeting
At the Annual Meeting, holders of Common Shares will be asked to
consider and to vote upon the following matters:
(1) To elect two Class II directors:
(2) To ratify the appointment of Crowe, Chizek and Company LLP
as the Company's independent auditors for the 2001 fiscal
year and
(3) To transact such other business as may properly come before
the meeting.
The Board recommends that shareholders vote FOR the election of the
Board's nominees for Class II directors and the ratification of the
Board's appointment of Crowe, Chizek and Company LLP as the Company's
independent auditors for the 2001 fiscal year. As of the date of this
Proxy Statement, the Board knows of no other business to come before the
Annual Meeting.
Voting Rights and Proxy Information
Only holders of record of Common Shares as of the close of business
on the Annual Meeting Record Date will be entitled to notice of and to
vote at the Annual Meeting or any adjournment or postponement thereof. As
of December 31, 2000, there were 2,808,067 Common Shares outstanding and
entitled to vote at the Annual Meeting. The presence either in person or
by properly executed proxy, of the holders of a majority of the
outstanding Common Shares as of the Annual Meeting Record Date is
necessary to constitute a quorum at the Annual Meeting. Holders of Common
Shares are entitled to one vote per share on any matter, other than the
election of directors, that may properly come before the Annual Meeting.
In the election of directors, holders of Common Shares have cumulative
voting rights whereby each holder is entitled to vote the number of Common
Shares owned multiplied by two (the number of directors to be elected at
the Annual Meeting), and each holder may cast the whole number of votes
for one candidate or distribute such votes among two or more candidates.
The Board of Directors is soliciting discretionary authority for the
individuals appointed in the proxies to cumulate votes represented by
properly executed proxies and to vote for less than all the Company's
nominees to the Board if deemed appropriate to ensure the election of as
many of the Company's nominees to the Board as possible.
Those persons receiving the two highest number of votes in the
election of directors will be elected to the Board. The appointment of
Crowe, Chizek and Company LLP as the company's independent auditors for
the 2001 year will be ratified, if the votes cast in favor of ratification
exceed the votes cast against that matter.
All Common Shares that are represented at the Annual Meeting by
properly executed proxies received prior to or at the Annual Meeting and
not revoked will be voted at the Annual Meeting in accordance with the
instructions indicated in such proxies. If no instructions are indicated,
such proxies will be voted "FOR" (1) the election of the Board's two
nominees as Class II directors of the Company (or, if deemed appropriate
by the individuals appointed in the proxies, cumulatively voted for less
than all of the Board's nominees) and (2) the ratification of Crowe,
Chizek and Company LLP as the Company's independent auditors for the 2001
year.
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before it is voted. Proxies may be revoked
by (i) filing with the Company, to the attention of William C. Reynolds,
Secretary, at or before the Annual Meeting, a written notice of revocation
bearing a later date than the proxy, (ii) duly executing a subsequent
proxy relating to the same Common Shares and delivering it to the Company
at or before the Annual Meeting or (iii) attending the Annual Meeting and
voting in person (although attendance at the Annual Meeting will not in
and of itself constitute a revocation of a proxy). Any written notice
revoking a proxy should be sent to Bourbon Bancshares, Inc., P. O. Box
157, Paris, Kentucky 40362-0157, Attention: William C. Reynolds,
Secretary.
The Company will bear the cost of the solicitation of proxies by the
Board in connection with the Annual Meeting. In addition to solicitation
by mail, the Company will request banks, brokers and other custodian
nominees and fiduciaries to supply proxy material to the beneficial owners
of Common Shares, and will reimburse them for their expenses in so doing.
Certain directors, officers and other employees of the Company, not
specially employed for this purpose, may solicit proxies without
additional remuneration therefore, by personal interview, mail, telephone,
facsimile or other electronic means.
ITEM 1 -- ELECTION OF DIRECTORS
Under the Company's Articles of Incorporation, the Board of Directors
consists of three different classes (Class I, Class II and Class III),
each to serve, subject to the provisions of the Articles of Incorporation
and Bylaws for a three year term and until his successor is duly elected
and qualified. Except as listed below, each nominee for a Class II
directorship has held the specified position for the last five years. The
names of the nominees proposed for election as Class II directors, all of
whom are presently directors of the Company, are set forth below. The
Company is not aware of any other individual who may be nominated for
election to the Board of Directors at the Annual Meeting.
William M. Arvin is an attorney. He became a director in 1996.
James L. Ferrell, M.D. is a physician and Chairman of Bourbon Bancshares,
Inc. He has been a director since 1980.
The Board of Directors does not contemplate that any of the nominees will
be unable to accept election as a director for any reason. However, in
the event that one or more of such nominees is unable or unwilling to
accept or is unavailable to serve, the persons named in the proxies or
their substitutes shall have authority, according to their judgment, to
vote or to refrain from voting for other individuals as directors.
The Board recommends that shareholders vote "FOR" each of the above
nominees for election as Class II directors of the Company.
ITEM 2 -- RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
The Company has appointed Crowe, Chizek and Company LLP, Louisville
and Lexington, Kentucky as the Company's independent auditors for the
fiscal year ending December 31, 2001. Crowe, Chizek and Company LLP has
served as the Company's independent auditors since 1982. Services
provided to the Company and its subsidiaries by Crowe, Chizek and Company
LLP with respect to the fiscal year ended December 31, 2000 included the
examination of the Company's consolidated financial statements and
consultations on various tax matters.
In the event shareholders do not ratify the appointment of Crowe,
Chizek and Company LLP as the Company's independent auditors for the 2001
year such appointment will be reconsidered by the Board.
The Board recommends that shareholders vote "FOR" ratification of the
appointment of Crowe, Chizek and Company LLP as the Company's independent
auditors for the 2001 year.
OTHER MATTERS
As of the date of this Proxy Statement, the Company knows of no
business that will be presented for consideration at the Annual Meeting
other than that referred to above. Proxies in the enclosed form will be
voted in respect of any other business that is properly brought before the
Annual Meeting in accordance with the judgment of the person or persons
voting the proxies.
By Order of the Board of Directors
/s/William C. Reynolds
William C. Reynolds, Secretary
March 15, 2001
This Proxy Form is Solicited by the Board of Directors
Bourbon Bancshares, Inc.
Paris, Kentucky
The undersigned hereby appoints Buckner Woodford and William
Reynolds, or either one of them (with full power to act alone), my proxy,
each with the power to appoint his substitute, to represent me to vote
all of the Corporation's Common Stock which I held of record or am
otherwise entitled to vote at the close of business on March 15, 2001, at
the 2001 Annual Meeting of Shareholders to be held on May 2, 2001 and at
any adjournments thereof, with all powers the undersigned would possess
if personally present, as follows:
1. ELECTION OF DIRECTORS
__ FOR all nominees listed below (except as otherwise indicated below)
__ AGAINST all nominees listed below
William M. Arvin, James L. Ferrell, M.D.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write the nominee's name on the line)
2. RATIFICATION OF CROWE, CHIZEK AND CO. LLP AS INDEPENDENT AUDITORS
______FOR ______AGAINST _____ABSTAIN
3. OTHER BUSINESS. In their discretion, the Proxies are
authorized to act upon such other matters as may properly
be brought before the Annual Meeting or any adjournment
thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" ALL OF THE NOMINEES
LISTED IN ITEM 1 AND "FOR" ITEM 2.
(PLEASE DATE, MARK, SIGN AND RETURN IMMEDIATELY)
This proxy form relates to ALL shares owned by the undersigned.
This proxy form is solicited by the Board of Directors and
will be voted as specified and in accordance with the accompanying proxy
statement. If no instruction is indicated, this proxy form will be
voted "FOR" all of the nominees listed in Item 1 and "FOR" Item 2.
Please sign exactly as name appears. When shares are held
by joint tenants, both should sign. When signing as attorney, as executor,
administrator, trustee or guardian, please give full title as such. If
a corporation, please sign full corporate name by President or other
authorized officer. If a partnership, please sign partnership name by
authorized person.
DATE___________, 2001 ______________________________________
Signature
_______________________________________
Signature if held jointly