UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
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
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 _____
Number of shares of Common Stock outstanding as of April 30, 2002:
2,766,641.
BOURBON BANCSHARES, INC.
Table of Contents
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Income and
Comprehensive Income 4
Consolidated Statements of Changes in
Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 16
Part II - Other Information 18
Signatures 18
Exhibits
11 Earnings Per Share Calculation 19
Item 1 - Financial Statements
BOURBON BANCSHARES, INC.
CONSOLIDATED BALANCE SHEETS (unaudited)
(thousands)
3/31/2002
12/31/2001
Assets
Cash and due from banks
$ 12,306
$ 15,229
Federal funds sold
3,610
14,409
Cash and cash equivalents
15,916
29,638
Investment securities:
Available for sale
87,956
75,608
Mortgage loans held for sale
1,130
2,343
Loans
272,584
273,173
Allowance for loan losses
(3,468)
(3,386)
Net loans
269,116
269,787
Federal Home Loan Bank stock
3,889
3,846
Bank premises and equipment, net
10,338
10,505
Interest receivable
3,173
3,507
Intangible assets
1,334
1,406
Other assets
848
617
Total assets
$393,700
$397,257
Liabilities and Stockholders' Equity
Deposits
Non-interest bearing
$ 49,718
$ 47,623
Time deposits, $100,000 and over
35,874
41,672
Other interest bearing
218,242
219,620
Total deposits
303,834
308,915
Securities sold under agreements to repurchase
1,402
683
Other borrowed funds
1,756
919
Federal Home Loan Bank advances
43,013
43,598
Interest payable
2,281
2,815
Other liabilities
1,531
1,227
Total liabilities
353,817
358,157
Stockholders' equity
Common stock
6,670
6,649
Retained earnings
32,453
31,703
Accumulated other comprehensive income
760
748
Total stockholders' equity
39,883
39,100
Total liabilities & stockholders' equity
$393,700
$397,257
BOURBON BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (unaudited)
(thousands, except per share amounts)
Three Months Ending
3/31/2002
3/31/2001
INTEREST INCOME:
Loans, including fees
$ 5,236
$ 6,127
Investment securities
924
987
Other
73
112
Total interest income
6,233
7,226
INTEREST EXPENSE:
Deposits
2,009
3,188
Other
598
474
Total interest expense
2,607
3,662
Net interest income
3,626
3,564
Loan loss provision
201
192
Net interest income after provision
3,425
3,372
OTHER INCOME:
Service charges
903
820
Loan service fee income
57
68
Trust department income
98
101
Investment securities gains (losses), net
39
18
Gain on sale of mortgage loans
82
75
Other
242
183
Total other income
1,421
1,265
OTHER EXPENSES:
Salaries and employee benefits
1,637
1,474
Occupancy expenses
481
453
Amortization of intangibles
101
104
Advertising and marketing
75
107
Taxes other than payroll, property and income
99
88
Other
595
600
Total other expenses
2,988
2,826
Income before taxes
1,858
1,811
Income taxes
562
530
Net income
$ 1,296
$ 1,281
Other Comprehensive Income, net of tax:
Change in Unrealized Gains on Securities
12
649
Comprehensive Income
$ 1,308
$ 1,930
Earnings per share
Basic
$ 0.47
$ 0.46
Diluted
0.46
0.45
BOURBON BANCSHARES, INC.
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
(thousands, except number of shares)
Accumulated
Other
Total
- ----Common Stock----
Retained
Comprehensive
Stockholders'
Shares
Amount
Earnings
Income
Equity
Balances, December 31, 2001
2,766,917
$ 6,649
$ 31,703
$ 748
$ 39,100
Common stock issued
4,680
29
-
-
29
Common stock purchased
(4,956)
(8)
(76)
-
(84)
Net change in unrealized gain (loss)
on securities available for sale,
net of tax
-
-
-
12
12
Net income
-
-
1,296
-
1,296
Dividends declared - $0.17 per share
-
-
(470)
-
(470)
Balances, March 31, 2002
2,766,641
$ 6,670
$ 32,453
$ 760
$ 39,883
BOURBON BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(thousands)
Three Months Ending
3/31/2002
3/31/2001
Cash Flows From Operating Activities
Net Income
$ 1,296
$ 1,281
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation
256
242
Amortization
101
104
Investment securities amortization (accretion), net
103
(19)
Provision for loan losses
201
192
Investment securities gains (losses), net
(39)
(18)
Originations of loans held for sale
(5,332)
(5,035)
Proceeds from sale of loans
6,627
5,510
Federal Home Loan Bank Stock Dividends
(43)
(64)
Gain on sale of mortgage loans
(82)
(75)
Losses (gains), including write-downs, on real
estate acquired through foreclosure, net
(5)
4
Changes in:
Interest receivable
334
320
Other assets
(328)
211
Interest payable
(534)
(252)
Other liabilities
298
(155)
Net cash from operating activities
2,853
2,246
Cash Flows From Investing Activities
Purchases of securities available for sale
(20,241)
(3,255)
Proceeds from sales of securities available for sale
2,051
108
Proceeds from principal payments, maturities and
calls of securities available for sale
5,797
8,338
Net change in loans
470
1,592
Purchases of bank premises and equipment, net
(89)
(701)
Proceeds from sales of real estate acquired through foreclosure
72
-
Net cash from investing activities
(11,940)
6,082
Cash Flows From Financing Activities:
Net change in deposits
(5,081)
(3,235)
Net change in securities sold under agreements to
repurchase and other borrowings
1,556
(5,658)
Advances from Federal Home Loan Bank
-
5,000
Payments on Federal Home Loan Bank advances
(585)
(69)
Proceeds from issuance of common stock
29
30
Purchase of common stock
(84)
(284)
Dividends paid
(470)
(421)
Net cash from financing activities
(4,635)
(4,637)
Net change in cash and cash equivalents
(13,722)
3,691
Cash and cash equivalents at beginning of period
29,638
15,345
Cash and cash equivalents at end of period
$ 15,916
$ 19,036
BOURBON BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. In Management's opinion, the financial information, which is
unaudited, reflects all adjustments, (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the
financial information as of March 31, 2002 and December 31, 2001, and
for the three month periods ended March 31, 2002 and March 31, 2001
in conformity with accounting principles generally accepted in the
United States of America. These financial statements should be read
in conjunction with Bourbon Bancshares, Inc. (Company) Annual Report
on Form 10-K.
2. INVESTMENT SECURITIES
Period-end securities are as follows:
(in thousands)
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
Available for Sale
March 31, 2002
U.S. Treasury
$ 5,047
$ 66
$ (7)
$ 5,106
U.S. government agencies
6,981
74
-
7,055
States and political subdivisions
24,469
554
(143)
24,880
Mortgage-backed
35,599
369
(83)
35,885
Equity securities
11,663
336
(6)
11,993
Other
3,045
23
(31)
3,037
Total
86,804
1,422
(270)
87,956
December 31, 2001
U.S. Treasury
7,079
139
(1)
$ 7,217
U.S. government agencies
5,999
119
-
6,118
States and political subdivisions
19,067
574
(171)
19,470
Mortgage-backed
28,818
351
(112)
29,057
Equity securities
10,463
255
(25)
10,693
Other
3,048
33
(28)
3,053
Total
74,474
1,471
(337)
75,608
3. LOANS
Loans at period-end are as follows:
(in thousands)
3/31/2002
12/31/2001
Commercial
$ 17,152
$ 18,618
Real estate construction
11,294
12,302
Real estate mortgage
171,409
166,323
Agricultural
52,487
53,640
Consumer
20,242
22,290
Total
272,584
273,173
4. 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.
The factors used in the earnings per share computation follow:
Three Months Ended
March 31,
2002 2001
(in thousands)
Basic Earnings Per Share
Net Income $1,296 $1,281
Weighted average common shares outstanding 2,767 2,803
Basic earnings per share $ 0.47 $ 0.46
Diluted Earnings Per Share
Net Income $1,296 $1,281
Weighted average common shares outstanding 2,767 2,803
Add dilutive effects of assumed exercise
of stock options 39 48
Weighted average common and dilutive
Potential common shares outstanding 2,806 2,851
Diluted earnings per share $ 0.46 $ 0.45
Stock options for 5,020 shares (for the period and quarter ended
March 31, 2002) and 4,600 shares (for the period ended March 31,
2001) of common stock were not considered in computing earnings per
share because they were antidilutive.
5. Dividends per share paid for the quarter ended March 31, 2002 were
$0.17 compared to $0.15 for March 31, 2001.
6. 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 March
31, 2002.
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.
A new accounting standard requires all business combinations to be
recorded using the purchase method of accounting for any transaction
initiated after June 30, 2001. Under the purchase method, all
identifiable tangible and intangible assets and liabilities of the
acquired company must be recorded at fair value at date of
acquisition, and the excess of cost over fair value of net assets
acquired is recorded as goodwill. Identifiable intangible assets
must be separated from goodwill. Identifiable intangible assets with
finite useful lives will be amortized under the new standard, whereas
goodwill, both amounts previously recorded and future amounts
purchased, will cease being amortized starting in 2002. Annual
impairment testing will be required for goodwill with impairment
being recorded if the carrying amount of goodwill exceeds its implied
fair value. All recorded acquistion intangibles are identified with
specific assets. There are no intangible assets identified as
goodwill. Adoption of this standard on January 1, 2002 did not have
a material effect on the Company's financial statements.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Forward-Looking Statements
This discussion contains forward-looking statements under the Private
Securities Litigation Reform Act of 1995 that involve risks and
uncertainties. Words such as "believes," "anticipates," "expects,"
"intends," "plans," "targeted," and similar expressions are intended to
identify forward-looking statements but are not the exclusive means of
identifying such statements. 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
Bourbon Bancshares, Inc. recorded net income of $1.3 million, or $0.47
basic earnings per share and $0.46 diluted earnings per share for the
first three months ended March 31, 2002 compared to $1.3 million, or
$0.46 basic earnings per share and $0.45 diluted earnings per share for
the three month period ending March 31, 2001. The first three months
reflects an increase in net income of 1.2%.
Return on average assets was 1.31% for the first three months ended
March 31, 2002 compared to 1.36% for the same time period in 2001, a
decrease of 4%. Return on average equity was 13.1% and 14.0% for the
three months ended March 31, 2002 and 2001, respectively, a decrease of
6%.
Loans decreased $589 thousand from $273.2 million on December 31, 2001
to $272.6 million on March 31, 2002. An increase of $5.1 million in
real estate mortgage loans was offset by a decrease in commercial, real
estate construction, agricultural loans and consumer loans. Management
attributes the decrease in these types of loans primarily to the
softening in the general economy. The decreased loan demand and
tightening of our net interest margin due to the rapidly falling loan
rates have contributed to smaller increases in net income.
Total deposits decreased from $308.9 million on December 31, 2001 to
$303.8 million on March 31, 2002, a decrease of $5.1 million. The
decrease is mainly attributable to time deposits of $100,000 and more
decreasing $5.8 million and other interest bearing deposits decreasing
$1.4 million. This was partially offset by an increase in non-interest
bearing deposits of $2.1 million. The decline in total deposits is
primarily attributable to our decision to be less aggressive in our
deposit gathering activities in light of a softening loan demand.
Net Interest Income
Net interest income was $3.6 million for the three months ending March
31, 2002 and $3.6 million for the three months ending March 31, 2001,
resulting in an increase of $62 thousand or 2%. The interest spread was
3.83% for the first three months of 2002 compared to 3.98% for the same
period in 2001, a decrease of 15 basis points. The Federal Reserve has
dropped the discount rate from 6% at December 31, 2000 to the current
rate of 1.25% (last changed December, 2001). These decreases have had a
short term effect on net interest income, particularly a decrease in
loan interest income. However, as our interest rate shock simulation
model that follows shows, changes in interest rates are expected to have
a minor effect on net interest income. In the short-term, increases in
rates should have a positive effect on net interest income. Therefore
the decline in net interest margin is believed to be temporary.
For the first three months, the yield on assets decreased from 8.43% in
2001 to 6.80% in 2002. The cost of liabilities decreased from 4.45% in
2001 to 2.96% in 2002. Rates have leveled during the first three months
of 2002 and have caused the yield on assets and the cost of liabilities
to also level during 2002. Year to date average loans are up $690
thousand, or 0.3% from March 31, 2001 to March 31, 2002, and loan
interest income has decreased $891 thousand for the first three months
of 2002 compared to the first three months of 2001. Year to date
average deposits also increased from March 31, 2001 to March 31, 2002,
up $10.3 million, or 3.4%. Deposit interest expense has decreased $1.2
million for the first three months of 2002 compared to the same period
in 2001. Declining rates in 2001 have resulted in tighter margins in
2002 and also net interest income being virtually unchanged for the
first three months of 2002 compared to the same period in 2001. The
banking industry continues to battle competition for loan and deposit
dollars, and this trend is expected to continue.
Non-Interest Income
Non-interest income increased $156 thousand for the three month period
ended March 31 from $1.3 million in 2001 to $1.4 million in 2002. An
increase of $83 thousand in service charges from the first three months
of 2001 to the comparable 2002 period is mainly attributable to an
increase in checking overdraft charges of $39 thousand and net proceeds
from title insurance of $44 thousand. Overdraft income increased
principally due to the implementation of a new "Kentucky Courtesy"
overdraft program and an increase in overdraft fees in the last quarter
of 2000. "Kentucky Courtesy" is available to qualified customers, and
is an overdraft protection service that pays checks up to the "Kentucky
Courtesy" limit. Investment securities net gains were $21 thousand
greater for the first three months of 2002 compared to the same period
in 2001. Title insurance sales began in April 2001. Net gains from
sale of securities were mainly attributable to municipal securities
being called at premiums before their maturity, and the sale of U.S.
Treasury Notes. U.S. Treasury Notes are sold before maturity when the
total return (gain and net interest) can be improved.
The gain on sale of mortgage loans increased $7 thousand during the
first three months of 2002 compared to the same 2001 period. Decreasing
rates result in an increase in loan originations and refinances. Volume
of loan originations and sales are inverse to rate changes. Rates fell
during 2001 and as a result, had a favorable impact on our loan sales in
2001. Due to the current rate environment, income from the sale of
loans may be lower in 2002 compared to 2001. The increase in other
income of $59 thousand in the first three months of 2002 as compared to
the same time period in 2001 is primarily a result of an increase in
brokerage fee income of $67 thousand. We continue to promote the use of
our brokerage services to better serve our customers' financial needs.
Non-Interest Expense
The increase of $162 thousand in non-interest expenses from $2.8 million
for the three months ended March 31, 2001 to $3.0 million for the same
period in 2002 was a result of several factors. Salaries and benefits
increased $163 thousand for the first three months of 2002 compared to
2001, an increase of 11%. The increase is due to annual salary
increases and increased staffing. Staffing has mainly been increased in
branches to better serve our customers, and more specifically the
opening of a full service branch in Cynthiana, Kentucky in October 2001.
Salaries, excluding bonuses and incentives, increased 9% from the first
three months of 2001 to the first three months of 2002. Employee
benefits increased $35 thousand and incentives increased $26 thousand
during these comparable periods.
Occupancy expense increased $28 thousand to $481 thousand for the first
three months of 2002 compared to first three months of 2001.
Depreciation increased $14 thousand during these comparable periods.
Renovation of existing facilities and the purchase of hardware and
software for recent technological advances have added to the
depreciation expense. The construction of a new full service facility
in Cynthiana was completed and opened for business on October 1, 2001.
These increases are a result of the Company's continued emphasis on
improving and maintaining its facilities, and to stay current with our
technology.
Advertising and marketing costs decreased $32 thousand to $75 thousand
for the first three months of 2002 as compared to the same period in
2001. Although the costs are lower this year, continued efforts have
been made by the Company to promote the name and the products of
Kentucky Bank using various forms of promotional materials and selected
types of media, including television.
Income Taxes
The tax equivalent rate for the three months ended March 31 was 30% for
2002 and 29% for 2001. These rates are less than the statutory rate as
a result of the tax-free securities and loans held by the Company.
Stock Repurchase Program
On October 25, 2000, the Company announced that its Board of Directors
approved a stock repurchase program. The Company is authorized to
purchase up to 100,000 shares of its outstanding common stock. Shares
will be purchased from time to time in the open market depending on
market prices and other considerations. Through March 31, 2002, 74,963
shares have been purchased. The repurchase program has had a positive
effect on earnings per share calculations.
Liquidity and Funding
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 as a result of the lower
yields on short-term assets.
Cash and cash equivalents were $15.9 million as of March 31, 2002
compared to $29.6 million at December 31, 2001. The decrease in cash
and cash equivalents is mainly attributable to a decrease in federal
funds sold. The balance decreased $10.8 million since the end of the
year, mainly attributable to this money being used to purchase
investment securities. In addition to cash and cash equivalents, the
securities portfolio provides an important source of liquidity. Total
investment securities available for sale totaled $88.0 million at March
31, 2002. The available for sale securities are available to meet
liquidity needs on a continuing basis.
The Company maintains a relatively stable base of customer deposits
which 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.
Generally, the Company 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 flow from operations to meet investing
and liquidity needs related to reasonable borrower, depositor and
creditor needs in the present economic environment.
Management is aware of the potential problem of funding sustained loan
growth. Therefore, in addition to deposits, other sources of funds,
such as FHLB advances may be used. The Company 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. As of March 31, 2002, we have sufficient collateral to
borrow an additional $29 million from the FHLB. In addition, as of
March 31, 2002 over $54 million is available in overnight borrowing
through various correspondent banks. In light of this, management
believes there is sufficient liquidity to meet all reasonable borrower,
depositor and creditor needs in the present economic environment.
Non-Performing Assets
As of March 31, 2002, the Company's non-performing assets totaled $2.3
million or 0.8% of loans compared to $2.2 million or 0.8% of loans at
December 31, 2001. (See table below) Real estate loans composed 77%
and 75% of the non-performing loans as of March 31, 2002 and December
31, 2001, respectively. Forgone interest income on the non-accrual
loans for both 2001 and 2000 is immaterial.
Nonperforming Assets
3/31/02
12/31/01
(in thousands)
Non-accrual Loans
$ 1,177
$ 935
Accruing Loans which are
Contractually past due
90 days or more
1,078
1,228
Restructured Loans
-
-
Total Nonperforming and Restructured
2,255
2,163
Other Real Estate
419
212
Total Nonperforming and Restructured
Loans and Other Real Estate
$ 2,674
$ 2,375
Nonperforming and Restructured Loans
as a Percentage of Loans
0.83%
0.79%
Nonperforming and Restructured Loans
and Other Real Estate as a Percentage
of Total Assets
0.68%
0.60%
Provision and Reserve for Possible Loan Losses
The first three months 2002 provision for loan losses of $201 thousand
is higher than the comparable 2001 period by $9 thousand. An increase
in charge-offs has required management to increase the provision in
order to maintain a reserve for loan losses that is representative of
the risk of loss based on the quality of loans currently in the
portfolio. Net charge-offs for the three month period ending March 31,
2002 were $119 thousand compared to $156 thousand for the same period in
2001. These losses are mainly attributable to several small consumer
loans. Future levels of charge-offs will be determined by the economic
environment surrounding individual loans. Management feels the current
loan loss reserve is sufficient to meet expected loan losses.
Loan Losses
Three Months Ended March 31
(in thousands)
2002
2001
Balance at Beginning of Period
$ 3,386
$ 3,388
Amounts Charged-off:
Commercial
23
3
Real Estate Mortgage
8
3
Agricultural
-
-
Consumer
130
168
Total Charged-off Loans
161
174
Recoveries on Amounts
Previously Charged-off:
Commercial
14
1
Real Estate Mortgage
-
1
Agricultural
7
-
Consumer
21
16
Total Recoveries
42
18
Net Charge-offs
119
156
Provision for Loan Losses
201
192
Balance at End of Period
3,468
3,424
Loans
Average
272,356
271,665
At March 31
272,584
270,529
As a Percentage of Average Loans:
Net Charge-offs
0.04%
0.06%
Provision for Loan Losses
0.07%
0.07%
Allowance as a Percentage of
Period-end Loans
1.27%
1.27%
Allowance as a Multiple of
Net Charge-offs
29.1
21.9
Allowance as a Percentage of
Non-performing and Restructured Loans
129%
287%
Item 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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. 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. As of March 31, 2002 the
projected percentage changes are within the Board approved limits and
the Company's interest rate risk is also within Board approved limits.
The projected net interest income report summarizing the Company's
interest rate sensitivity as of March 31, 2002 is as follows:
<s> <c> <c> <c> <c> <c>
(dollars in thousands)
PROJECTED NET INTEREST INCOME
Level
Change in basis points:
- - 300
- - 100
Rates
+ 100
+ 300
Year One (4/1/02 - 3/31/03)
Interest Income
$21,564
$23,938
$25,189
$26,442
$28,950
Interest Expense
6,731
8,684
9,836
10,988
13,291
Net Interest Income
14,833
15,254
15,353
15,454
15,659
PROJECTED DOLLAR INCREASE (DECREASE) FROM "LEVEL RATES"
Year One (4/1/02 - 3/31/03)
Interest Income
$(3,625)
$(1,251)
N/A
$ 1,253
$ 3,761
Interest Expense
(3,105)
(1,152)
N/A
1,152
3,455
Net Interest Income
(520)
(99)
N/A
101
306
PROJECTED PERCENTAGE INCREASE (DECREASE) FROM "LEVEL RATES"
Year One (4/1/02 - 3/31/03)
Interest Income
- -14.4%
- -5.0%
N/A
5.0%
14.9%
Interest Expense
- -31.6%
- -11.7%
N/A
11.7%
35.1%
Net Interest Income
- -3.4%
- -0.6%
N/A
0.7%
2.0%
Board approved limit
>-10.0%
>-4.0%
N/A
>-4.0%
>-10.0%
The projected net interest income report summarizing the Company's
interest rate sensitivity as of March 31, 2001 is as follows:
<s> <c> <c> <c> <c> <c>
(dolalrs in thousands)
PROJECTED NET INTEREST INCOME
Level
Change in basis points:
- - 300
- - 100
Rates
+ 100
+ 300
Year One (4/1/01 - 3/31/02)
Interest Income
$24,623
$26,946
$28,113
$29,280
$31,613
Interest Expense
9,926
12,176
13,300
14,425
16,675
Net Interest Income
14,697
14,770
14,813
14,855
14,938
PROJECTED DOLLAR INCREASE (DECREASE) FROM "LEVEL RATES"
Year One (4/1/01 - 3/31/02)
Interest Income
$(3,490)
$(1,167)
N/A
$ 1,167
$ 3,500
Interest Expense
(3,375)
(1,125)
N/A
1,125
3,375
Net Interest Income
(115)
(42)
N/A
42
125
PROJECTED PERCENTAGE INCREASE (DECREASE) FROM "LEVEL RATES"
Year One (4/1/01 - 3/31/02)
Interest Income
- -12.4%
- -4.1%
N/A
4.1%
12.4%
Interest Expense
- -25.4%
- -8.5%
N/A
8.5%
25.4%
Net Interest Income
- -0.8%
- -0.3%
N/A
0.3%
0.8%
Board approved limit
>-10.0%
>-4.0%
N/A
>-4.0%
>-10.0%
These projected changes in net interest income as of March 31, 2002 are
slightly greater when compared to the projected changes in net interest
income as of March 31, 2001. In 2002, year one reflected a decline in
net interest income of 3.4% with a 300 basis point decline compared to
the 0.8% decline in 2001. The 300 basis point increase in rates
reflected a 2.0% increase in net interest income in 2002 compared to
0.8% in 2001. Percentage changes in 2002 are greater when compared to
2001. Therefore, changes in interest rates should have a larger effect
on net interest income. With the current lower level of interest rates,
management has positioned the Company to be slightly more sensitive to
rising rates, and net interest income should increase with these rising
rates.
Part II - Other Information
Item 1. Legal Proceedings
The Company is not a party to any material legal proceedings.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
1. Exhibits as required by Item 601 of Regulation S-K.
11 Earnings Per Share Calculation
2. No reports on Form 8-K have been filed during the quarter
for which this report is filed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused the report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Bourbon Bancshares, Inc.
Date ___5/13/02_________ __/s/Buckner Woodford____________
Buckner Woodford, President and C.E.O.
Date ___5/13/02_________ __/s/Gregory J. Dawson___________
Gregory J. Dawson, Chief Financial Officer
Exhibit 11
Earnings Per Share
See Note 4 in Notes to Consolidated Financial Statements for computation
of per share earnings.
17