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, 1998
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:
(606)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 May 11, 1998: 1,400,003.
BOURBON BANCSHARES, INC.
Table of Contents
Part I - Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets 3
Consolidated Statement of Income and ComprehensiveIncome
Three Months Ending March 31, 1998 & 1997 4
Consolidated Statements of Cash Flows
Three Months Ending March 31, 1998 & 1997 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
Part II - Other Information 15
Signatures 15
Item 1 - Financial Statements
BOURBON BANCSHARES, INC.
CONSOLIDATED BALANCE SHEET (unaudited)
(thousands) 3/31/98 12/31/97
Assets
Cash & Due From Banks $ 8,929 $ 12,275
Federal Funds Sold 7,025 -
Total Cash & Cash Equivalents $ 15,954 $ 12,275
Investment Securities:
Securities Held to Maturity 15,604 15,603
Securities Available for Sale 60,998 66,101
Federal Home Loan Bank Stock 2,957 2,905
Loans $183,273 $185,161
Reserve for Loan Losses 2,437 2,322
Net Loans $180,836 $182,839
Premises and Equipment 5,755 5,765
Other Assets 4,904 5,167
Total Assets $287,008 $290,655
Liabilities & Stockholders' Equity
Deposits
Demand $ 32,907 $ 33,481
Savings & Interest Checking 87,795 87,982
Certificates of Deposit 120,572 119,862
Total Deposits $241,274 $241,325
Repurchase Agreements 4,347 6,990
Federal Home Loan Bank Advances 10,167 10,236
Other Borrowed Funds 1,234 2,468
Other Liabilities 2,584 2,920
Total Liabilities $259,606 $263,939
Stockholders' Equity
Common Stock $ 6,419 $ 6,333
Retained Earnings 20,786 20,150
Accumulated Other Comprehensive Income 197 233
Total Stockholders' Equity $ 27,402 $ 26,716
Total Liabilities & Stockholders Equity $287,008 $290,655
BOURBON BANCSHARES, INC.
CONSOLIDATED STATEMENT OF INCOME AND COMPREHENSIVE INCOME (unaudited)
(thousands, except per share amounts) Three Months Ending
3/31/98 3/31/97
INTEREST INCOME:
Loans, including fees $ 4,214 $ 3,542
Investment Securities 1,162 1,321
Other 125 112
Total Interest Income $ 5,501 $ 4,975
INTEREST EXPENSE:
Deposits $ 2,436 $ 2,229
Other 242 231
Total Interest Expense $ 2,678 $ 2,460
Net Interest Income $ 2,823 $ 2,515
Loan Loss Provision 163 106
Net Interest Income After Provision $ 2,660 $ 2,409
OTHER INCOME:
Service Charges $ 488 $ 431
Securities Gains (Losses) 8 3
Other 112 122
Total Other Income $ 608 $ 556
OTHER EXPENSES:
Salaries and Benefits $ 1,123 $ 1,043
Occupancy Expenses 270 259
Other 637 633
Total Other Expenses $ 2,030 $ 1,935
Income Before Taxes $ 1,238 $ 1,030
Income Taxes 322 241
Net Income $ 916 $ 789
Other Comprehensive Income, net of tax:
Change in Unrealized Gains on Securities (36) (152)
Comprehensive Income $ 880 $ 637
Earnings per share $ 0.66 $ 0.56
Earnings per share - assuming dilution $ 0.64 $ 0.55
BOURBON BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(thousands) Three Months Ending
3/31/98 3/31/97
Cash Flows From Operating Activities
Net Income $ 916 $ 789
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 142 126
Amortization 112 102
Investment securities (accretion) amortization, net (12) 25
Provision for loan losses 163 106
Deferred Income Taxes (40) 11
Investment securities losses (gains), net (8) (3)
Originations of loans held for sale (9,399) (1,926)
Proceeds from sale of loans 12,855 3,601
Capitalization of Mortgage Servicing Rights (108) (37)
Losses (gains) on sale of loans (21) (15)
Changes in:
Interest receivable 327 288
Income taxes refundable - 66
Other assets 1 34
Interest payable (31) 52
Income taxes payable 364 166
Other liabilities (660) (178)
Net cash provided by operating $ 4,601 $ 3,207
activities
Cash Flows From Investing Activities
Purchases of securities available for sale $(11,043) (5,035)
Proceeds from sales of securities available for sale 1,538 3,504
Proceeds from principal payments, maturities and
calls of securities available for sale 14,520 8,574
Purchase of securities held to maturity - (250)
Net change in loans (1,614) (4,540)
Purchases of bank premises and equipment (132) (482)
Net cash provided by investing activities $ 3,269 $ 1,771
Cash Flows From Financing Activities:
Net change in deposits $ (51) (3,514)
Net change in securities sold under agreements to
repurchase and federal funds purchased (2,643) 2,060
Payments on Federal Home Loan Bank advances (69) (66)
Net change in other borrowed funds (1,234) 392
Proceeds from note payable - 200
Payment on note payable - (100)
Repurchase of common stock - (290)
Proceeds from issuance of common stock 86 28
Dividends paid (280) (253)
Net cash provided by financing activities $ (4,191) (1,543)
Net increase (decrease) in cash and cash equivalents $ 3,679 $ 3,435
Cash and cash equivalents at beginning of period 12,275 9,191
Cash and cash equivalents at end of period $ 15,954 $ 12,626
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 and for the
three month periods ended March 31, 1998 and March 31, 1997
in conformity with generally accepted accounting principles.
These financial statements should be read in conjunction
with Bourbon Bancshares, Inc. (Company) Annual Report on
Form 10-K.
2. The Financial Accounting Standards Board has issued
Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income". The requirements are
disclosure related and its implementation will have no
impact on the Company's financial condition or results of
operations. Prior period financial statements have been
restated to meet this reporting format.
3. Recently, the Financial Accounting Standards Board
issued Statement 128, "Earnings Per Share", under which
basic and diluted earnings per share are computed. Prior
amounts have been restated to be comparable. Basic earnings
per share is based on net income divided by the weighted
average number of shares outstanding during the period.
Diluted earnings per share shows the dilutive effect of
additional common shares issuable under stock options.
4. Dividends per share paid for the quarter ended March
31, 1998 was $0.20 compared to $0.18 on March 31, 1997.
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Summary
Bourbon Bancshares, Inc. recorded net income of $916
thousand, or $0.66 per share and $0.64 per share assuming
dilution for the first three months ended March 31, 1998
compared to $789 thousand, or $0.56 per share and $0.55 per
share assuming dilution for March 31, 1997. The first
quarter reflects an increase in earnings of over 16%.
Return on average assets was 1.28% for the first three
months ended March 31, 1998 compared to 1.17% for the same
time period in 1997. Return on average equity was 13.5% and
12.8% for the three months ended March 31, 1998 and 1997,
respectively. The return on assets was up 9% for the first
quarter and the return on equity improved 5% for the first
quarter.
Net Interest Income
Net interest income was $2,823 thousand for the three months
ended March 31, 1998 compared to $2,515 thousand in 1997,
resulting in an increase of $308 thousand or 12.2%. Loan
volume continues to improve. Year to date average loans are
up nearly $24 million, or nearly 15% from 1997 to 1998
resulting in an improvement in interest income of $672
thousand for the quarter. Average deposits also increased
from 1997 to 1998, up over $14 million, or 6%. The
increased volume resulted in higher interest expense of $207
for the quarter.
Non-Interest Income
Non-interest income increased for the three-month period
ended March 31 from $556 thousand in 1997 to $608 thousand
in 1998. For the year, an increase of $57 thousand in
service charges from 1997 to 1998 was offset by a $10
thousand decrease in other income. Income derived from
service charges is a result of improvement in overdraft
charges of $46 thousand.
Non-Interest Expense
The explanations for the increase of $95 thousand in non-
interest expenses from $1,935 thousand for the three months
ended March 31, 1997 to $2,030 thousand for the same period
in 1998 follows. Salaries and benefits increased $80
thousand for the first quarter of 1998 compared to 1997, an
increase of 7.7%. In 1998, a first quarter bonus was earned
by employees totaling $36 thousand compared to $9 thousand
in 1997.
Occupancy expense increased $11 thousand for the first three
months of 1998 compared to 1997. Depreciation is up $16
thousand, offset by a decrease in rent expense of $7
thousand. These changes are mainly attributable to the
newly constructed Versailles location and the leased
building no longer being needed. Other expenses for the
first three months of 1998 compared to 1997 increased a
modest $4 thousand, from $633 thousand to $637 thousand.
Income Taxes
The tax equivalent rate for the quarter ended March 31 was
26% for 1998 and 23% for 1997. These rates being less than
the statutory rate is a result of the tax-free securities
and loans held by the Company.
Liquidity and Funding
The cash flow statements provide a useful analysis of
liquidity. This report reveals an increase of cash and cash
equivalents for the first three months of 1998 of $3,679
thousand and an increase of $3,435 thousand for the same
period in 1997. In 1998, proceeds from the sale of loans
were nearly $13 million compared to nearly $4 million in
1997. Originations of loans held for sale were also greater
in 1998, amounting to over $9 million compared to nearly $2
million in 1997. The lower rates have created higher volume
of loans originated and have allowed management to sale
lower coupon loans.
During 1998, proceeds from security transactions have
exceeded purchases by over $5 million compared to nearly $7
million in 1997. Of this change, principal payments on
securities have amounted to over $4 million in 1998 and over
$2 million for the same period in 1997. Management has made
a concerted effort to improve loan demand over the past two
years. In 1998, net loans have increased nearly $2 million
compared to over $4 million in 1997.
Deposits for 1998 have been virtually unchanged. However,
during 1997 deposits dropped over $3 million during the
first quarter. During 1998, other borrowing has dropped
nearly $4 million. The above-mentioned activity with
deposits, loans and securities has allowed these borrowed
funds to be paid down. In 1997, borrowed funds increased
over $2 million, mainly a result of a $2 million increase in
securities sold under agreements to repurchase.
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, 1998, the Company's non-performing assets
totaled $529 thousand or 0.3% of loans compared to $380
thousand or 0.2% of loans in 1997. (See table below) Real
estate loans composed 64% and 52% of the non-performing
loans as of March 31, 1998 and 1997, respectively. Lost
interest income on the non-accrual loans for both 1998 and
1997 is immaterial.
Nonperforming Assets
March 31
(in thousands)
1998 1997
Non-accrual Loans
196 93
Accruing Loans which are
Contractually past due
90 days or more 177 287
Restructured Loans 156 -
Total Nonperforming and Restructured 529 380
Other Real Estate - 79
Total Nonperforming and Restructured
Loans and Other Real Estate 529 459
Nonperforming and Restructured Loans
as a Percentage of Net Loans 0.29% 0.21%
Nonperforming and Restructured Loans
and Other Real Estate as a Percentage
of Total Assets 0.18% 0.16%
Provision and Reserve for Possible Loan Losses
The 1998 three-month provision for loan losses of $163
thousand compares to the 1997 number of $106. Loan growth
has required management to increase the provision in order
to maintain a reserve ratio that is adequate and indicative
of the quality of loans currently in the portfolio. The
quality of the loans, in management's opinion, is still
strong as is presented earlier in non-performing loans. As
depicted in the table below, the loan loss reserve to total
loans changed from 1.18% on March 31, 1997 to 1.33% as of
March 31, 1998. Net charge-offs for the periods mentioned
above have been relatively insignificant. Management feels
the current loan loss reserve is sufficient to meet future
loan problems.
Loan Losses
Three Months Ended March 31
(in thousands)
1998 1997
Balance at Beginning of
Period 2,322 2,101
Amounts Charged-off:
Commercial 2 -
Real Estate Construction - -
Real Estate Mortgage - -
Agricultural - -
Consumer 53 27
Total Charged-off Loans 55 27
Recoveries on Amounts
Previously Charged-off:
Commercial 1 1
Real Estate Construction - -
Real Estate Mortgage - -
Agricultural - -
Consumer 6 13
Total Recoveries 7 14
Net Charge-offs 48 13
Provision for Loan Losses 163 106
Balance at End of Period 2,437 2,194
Total Loans, Net of Unearned Income
Average 183,614 159,756
At March 31 183,273 185,161
As a Percentage of Average Loans:
Net Charge-offs 0.03% 0.01%
Provision for Loan Losses 0.09% 0.07%
Allowance as a Percentage of
Period-end Net Loans 1.33% 1.18%
Allowance as a Multiple of
Net Charge-offs 50.8 168.8
Year 2000
Management has completed its assessment phase or the Year
2000 and continues its renovation phase (replacing equipment
and upgrading software) as needed to be compliant. Current
estimates for this project are under $150 thousand, with the
majority of this being for equipment and software.
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. Tools
used by management include the standard GAP report and an
interest rate shock simulation report. 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 to 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 with
the Board of Directors specified limits. As of March 31,
1998 the projected percentage changes are within the Board
limits and the Company's interest rate risk appears
reasonable. The projected net interest income report
summarizing the Bank's interest rate sensitivity as of March
31, 1998 is as follows:
(in thousands)
PROJECTED NET INTEREST INCOME
Level
Rate Change: -300 -200 -100 Rates +100 +200 +300
Year One (4/1/98 - 3/31/99)
Interest Income 19,846 20,814 21,792 22,773 23,754 24,735 25,716
Interest Expense 8,421 9,313 10,205 11,096 11,988 12,880 13,771
Net Interest Income 11,425 11,501 11,587 11,677 11,766 11,855 11,945
Year Two (4/1/99 - 3/31/2000)
Interest Income 18,697 20,580 22,488 24,403 26,319 28,234 30,150
Interest Expense 6,826 8,475 10,125 11,774 13,424 15,073 16,723
Net Interest Income 11,871 12,105 12,363 12,629 12,895 13,161 13,427
PROJECTED DOLLAR INCREASE (DECREASE) FROM "LEVEL RATES"
Rate Change: Level
-300 -200 -100 Rates +100 +200 +300
Year One (4/1/98 - 3/31/99)
Interest Income (2,927) (1,959) (981) N/A 981 1,962 2,943
Interest Expense (2,675) (1,783) (892) N/A 892 1,783 2,675
Net Interest Income (252) (176) (89) N/A 89 179 268
Year Two (4/1/99 - 3/31/2000)
Interest Income (5,706) (3,824) (1,915) N/A 1,915 3,831 5,746
Interest Expense (4,948) (3,299) (1,649) N/A 1,649 3,299 4,948
Net Interest Income (758) (525) (266) N/A 266 532 798
PROJECTED PERCENTAGE INCREASE (DECREASE) FROM "LEVEL RATES"
Level
Rate Change: -300 -200 -100 Rates +100 +200 +300
Year One (4/1/98 - 3/31/99)
Interest Income -12.9 % -8.6 % -4.3 % N/A 4.3 % 8.6 % 12.9 %
Interest Expense -24.1 % -16.1 % -8.0 % N/A 8.0 % 16.1 % 24.1 %
Net Interest Income -2.2 % -1.5 % -0.8 % N/A 0.8 % 1.5 % 2.3 %
Limitation on % Change > -10.0 > -7.0 > -4.0 N/A > -4.0 > -7.0 > -10.0
Year Two (4/1/99 - 3/31/2000)
Interest Income -23.4 % -15.7 % -7.8 % N/A 7.8 % 15.7 % 23.5 %
Interest Expense -42.0 % -28.0 % -14.0 % N/A 14.0 % 28.0 % 42.0 %
Net Interest Income -6.0 % -4.2 % -2.1 % N/A 2.1 % 4.2 % 6.3 %
Limitation on % Change > -20.0 > -14.0 > -8.0 N/A >-8.0 >-14.0 > -20.0
Management measures the Bank'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 Bank'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 Bank's asset and
liability mix to bring interest rate risk within Board
approved limits.
In addition, the Bank uses interest rate sensitivity gap
analysis to monitor the relationship between the maturity
and repricing of its interest-earning assets and interest-
bearing liabilities, while maintaining an acceptable
interest rate spread. Interest rate sensitivity gap is
defined as the difference between the amount of interest-
earning assets maturing or repricing within a specific time
period and the amount of interest-bearing liabilities
maturing or repricing within that time period. A gap is
considered positive when the amount of interest-rate-
sensitive assets exceeds the amount of interest-sensitive-
liabilities, and is considered negative when the amount of
interest-rate-sensitive liabilities exceeds the amount of
interest-rate-sensitive assets. Generally, during a period
of rising interest rates, a negative gap would adversely
affect net interest income, while a positive gap would
result in an increase in net interest income. Conversely,
during a period of falling interest rates, a negative gap
would result in an increase in net interest income, while a
positive gap would negatively affect net interest income.
The Bank's goal is to maintain a reasonable balance between
exposure to interest rate fluctuations and earnings.
The interest rate sensitivity analysis as of March 31, 1998
shown below depicts amounts based on the earliest period in
which they can normally be expected to reprice. The chart
reveals that assets and liabilities are fairly well matched
for the early periods specified below. The decay rates used
for Demand deposits, NOW's, Savings and Money Market Savings
are 5%, 30%, 20% and 30%, respectively.
(in thousands)
Total 1 2 3 4 5 > 5
Year Years Years Years Years Years
ASSETS
Cash 8,743 - - - - - 8,743
Fed Funds & Int-Earn Due From Banks 7,211 7,211 - - - - -
Variable Rate Investment 22,513 19,556 2,957 - - - -
Fixed Rate Investment 57,046 20,008 14,988 2,630 4,876 4,191 10,353
Variable Rate Loans 67,949 61,189 2,142 1,822 1,221 1,490 85
Fixed Rate Loans 115,324 30,838 23,194 15,521 17,801 24,698 3,272
Others Assets 8,222 - - - - - 8,222
Total Assets / Repricing Assets 287,008 138,802 43,281 19,973 23,898 30,379 30,675
Repricing Assets - Accumulated 138,802 182,072 202,056 225,954 256,333 287,008
% of Current Balance 48.4% 15.1% 7.0% 8.3% 10.6% 10.7%
% of Current Balance - Accum 48.4% 63.4% 70.4% 78.7% 89.3% 100.0%
LIABILITIES
Demand Deposit Accounts 32,907 1,645 1,563 1,485 1,411 1,340 25,463
NOW Accounts 54,838 16,451 11,516 8,061 5,643 3,950 9,217
Savings Accounts 13,041 2,608 2,087 1,669 1,335 1,068 4,274
Money Market Savings 9,416 2,825 1,977 1,384 969 678 1,583
Subtotal Deposit Accounts 110,202 23,529 17,143 12,599 9,358 7,036 40,537
Other Variable Deposits 6,162 6,145 4 - - - 13
Fixed Rate Deposits 124,910 97,542 23,016 2,476 653 497 726
Variable Rate Other Liabilities 4,831 4,831 - - - - -
Fixed Rate Other Liabilities 10,917 7,287 302 1,218 237 251 1,622
Other Liabilities 2,584 - - - - - 2,584
Total Captial 27,402 - - - - - 27,402
Total Liabilities / Repricing Liab 287,008 139,334 40,465 16,293 10,248 7,784 72,884
Repricing Liabilities - Accum 139,334 179,799 196,092 206,340 214,124 287,008
% of Current Balance 48.5% 14.1% 5.7% 3.6% 2.7% 25.4%
% of Current Balance - Accum 48.5% 62.6% 68.3% 71.9% 74.6% 100.0%
SUMMARY
Total Repricing Assets 138,802 43,287 19,973 23,898 30,379 30,675
Total Repricing Liabilities 139,334 40,465 16,293 10,248 7,784 72,884
Total Repricing Gap (by Bucket) (532) 2,816 3,680 13,650 22,595 (42,209)
Total Repricing Assets - Cum 270,043 138,802 202,056 225,954 256,333 287,008
Total Repricing Liabilities- Cum 257,022 139,334 196,092 206,340 214,124 287,008
Repricing Gap - Cumulative 13,021 (532) 2,284 5,964 19,614 42,209
Gap/Total Assets (by Bucket) -0.2% 1.0% 1.3% 4.8% 7.9% -14.7%
Cumulative Gap/Total Assets - This Month -0.2% 0.8% 2.1% 6.8% 14.7% 0.0%
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-B.
27 Financial Data Schedule
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 __________________ _________________________________
Buckner Woodford, President and C.E.O.
Date __________________ _________________________________
Gregory J. Dawson, Chief Financial Officer