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) 3/31/02 12/31/01
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
Held to maturity -
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
Federal Funds Purchased - -
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
3/31/02 3/31/01
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.
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
<s> <c> <c> <c> <c> <c>
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
3/31/02 3/31/01
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 (18)
Provision for loan losses 201 192
Investment securities gains (losses), net (39) (19)
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 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 Construction - -
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 Construction - -
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:
(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:
(dollars 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.
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