<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) April 22, 1994
--------------------------------
Trans Financial Bancorp, Inc.
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Kentucky 0-13030 61-1048868
- - -------------------------------------------------------------------------------
(State or other (Commission (I.R.S. Employer
jurisdiction File Number) Identification No.)
of incorporation)
500 East Main Street, Bowling Green, Kentucky 42101
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (502) 781-5000
----------------------------
- - -------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
INFORMATION TO BE INCLUDED IN THE REPORT
Item 2. Acquisition or Disposition of Assets
Effective April 22, 1994, Peoples Financial Services, Inc. ("Peoples
Financial") merged with and into Trans Financial Bancorp, Inc. ("Trans
Financial") and each of the outstanding shares of common stock of Peoples
Financial were converted into 5.5 shares of common stock of Trans Financial for
an aggregate issuance of approximately 1,302,273 shares of Trans Financial
common stock. Holders of shares of Peoples Financial common stock received
cash, without interest, in lieu of fractional shares of Trans Financial common
stock.
The transaction was effected pursuant to an Agreement and Plan of
Reorganization and related Plan of Merger (collectively, the "Merger
Agreement") dated December 27, 1993, between Trans Financial and Peoples
Financial, and was approved by the shareholders of Peoples Financial at a
special meeting held on April 12, 1994. Peoples Financial is a bank holding
company headquartered in Cookville, Tennessee. Peoples Financial owned one
hundred percent (100%) of the outstanding capital stock of Peoples Bank & Trust
of the Cumberlands, Cookville, Tennessee, and Citizens Federal Savings Bank,
Rockwood, Tennessee. At December 31, 1993, Peoples Financial reported total
consolidated assets of approximately $123 million. The consideration given by
Trans Financial for the acquisition of Peoples Financial was determined in
accordance with the Merger Agreement.
The only material relationship between any of Peoples Financial or its
shareholders and Trans Financial or any of its affiliates, any director
or officer of Trans Financial or any associate of any such director or officer
was as follows: each director of Peoples Financial granted Trans Financial
concurrently with the execution of the Merger Agreement the option to purchase
the shares of Peoples Financial beneficially owned by him.
The assets acquired by Trans Financial in the transaction consisted of
Peoples Financial's two subsidiary banks, Peoples Bank & Trust of the
Cumberlands and Citizens Federal Savings Bank. It is anticipated that the
physical assets of the two banking subsidiaries of Peoples Financial will
continue to be used by them for general banking purposes.
2
<PAGE> 3
Item 7. Financial Statements and Exhibits
A. Financial Statements
The following consolidated financial statements of Peoples Financial,
notes related thereto and report of independent auditors thereon are filed as a
part of this Report:
[1] Independent Auditors' Report;
[2] Consolidated Balance Sheets as of December 31, 1993
and 1992;
[3] Consolidated Statements of Earnings for the years
ended December 31, 1993, 1992, 1991;
[4] Consolidated Statement of Changes in Stockholders'
Equity for the years ended December 31, 1993, 1992 and 1991;
[5] Consolidated Statements of Cash Flows for the Years
ended December 31, 1993, 1992, and 1991; and
[6] Notes to Consolidated Financial Statements.
B. Pro Forma Financial Statements
The following pro forma consolidated financial statements of Trans
Financial Bancorp, Inc., and notes related thereto are filed as a part of this
Report:
[1] Pro Forma Condensed Consolidated Balance Sheet as
of December 31, 1993 (unaudited);
[2] Pro Forma Condensed Income Statement for the year
ended December 31, 1993 (unaudited); and
[4] Pro Forma Condensed Income Statement for the year
ended December 31, 1992 (unaudited); and
[5] Pro Forma Condensed Income Statement for the year
ended December 31, 1991 (unaudited); and
[6] Notes to Pro Forma Financial Information
(unaudited).
C. Exhibits
The following exhibits are filed as a part of this report:
3
<PAGE> 4
2(a) Agreement and Plan of Reorganization between Trans Financial
Bancorp, Inc. and Peoples Financial Services, Inc. dated as of December 27,
1993, is incorporated by reference to Exhibit (2) of the Registration
Statement on Form S-4 (File No. 33-52365) filed by Trans Financial with the
Commission.
2(b) Plan of Merger between Trans Financial Bancorp, Inc. and Peoples
Financial Services, Inc. dated as of December 27, 1993, is incorporated by
reference to Exhibit (2) of the Registration Statement on Form S-4 (File No.
33-52365) filed by Trans Financial with the Commission.
4
<PAGE> 5
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Trans Financial Bancorp, Inc.
By: /s/ Vince Berta
-------------------------------
Vince Berta
Title: Executive Vice President and
Chief Financial Officer
Date: May 6, 1994
5
<PAGE> 6
PEOPLES FINANCIAL SERVICES, INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993
F-1
<PAGE> 7
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Peoples Financial Services, Inc.
Cookeville, Tennessee:
We have audited the consolidated balance sheet of Peoples Financial Services,
Inc. and Subsidiaries as of December 31, 1993 and the related consolidated
statements of earnings, changes in stockholders' equity, and cash flows for the
year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the 1993 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Peoples
Financial Services, Inc. and Subsidiaries as of December 31, 1993, and the
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
Separate financial statements of Peoples Financial Services, Inc. and
Subsidiary and Citizens Federal Savings Bank included in the 1992 and 1991
restated consolidated financial statements were audited and reported on
separately by other auditors prior to restatement for the 1993 pooling of
interests. The other auditors expressed unqualified opinions on the 1992 and
1991 financial statements of Peoples Financial Services, Inc. and Subsidiary
and Citizens Federal Savings Bank in reports dated February 4, 1993 and
February 26, 1993, respectively.
As discussed in note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1993.
/s/ Heathcott & Mullaly, P.C.
February 4, 1994
F-2
<PAGE> 8
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Peoples Financial Services, Inc.:
We have audited the consolidated balance sheet of Peoples Financial Services,
Inc. and subsidiary as of December 31, 1992 and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
years in the two-year period ended December 31, 1992 (not presented separately
herein). These consolidated financial statements are the responsibility of the
Company 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 Peoples Financial
Services, Inc. and subsidiary as of December 31, 1992, and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1992, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick
Nashville, Tennessee
February 4, 1993
F-3
<PAGE> 9
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Citizens Federal Savings Bank
Rockwood, Tennessee:
We have audited the consolidated balance sheet of Citizens Federal Savings Bank
and subsidiaries (the Bank) as of December 31, 1992 and the related
consolidated statements of operations, retained earnings, and cash flows for
each of the years in the two-year then ended (not presented separately herein).
These consolidated financial statements are the responsibility of the Bank'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 Citizens Federal
Savings Bank and subsidiaries as of December 31, 1992, and the results of their
operations and their cash flows for each of the years in the two-year period
then ended, in conformity with generally accepted accounting principles.
/s/ KPMG Peat Marwick
Nashville, Tennessee
February 26, 1993
F-4
<PAGE> 10
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
<TABLE>
<CAPTION>
ASSETS 1993 1992
=======================================================================================================
<S> <C> <C>
Cash and due from banks $ 6,088,123 $ 5,364,730
Interest-bearing deposits in financial institutions 2,746,422 2,993,924
Federal funds sold 5,369,060 1,350,000
Investment securities: (note 2)
Held for sale, market value $4,071,563 4,069,506 -
At amortized cost, market value $25,370,256 in 1993
and $22,128,000 in 1992 24,998,291 21,640,964
Mortgage-backed securities, market value $6,327,613
in 1993 and $10,186,000 in 1992 (note 2) 6,088,651 9,779,163
Mortgage loans held for sale, at market value
(note 3) 2,172,791 758,935
Loans (note 3) 67,545,571 66,242,898
Allowance for loan losses (note 3) (997,940) (921,853)
- - -------------------------------------------------------------------------------------------------------
LOANS, NET 68,720,422 66,079,980
- - -------------------------------------------------------------------------------------------------------
Premises and equipment (note 7) 2,158,570 2,355,461
Accrued interest receivable 955,598 923,341
Other real estate (note 6) 905,466 892,535
Federal Home Loan Bank stock 246,700 268,600
Other assets 429,527 561,160
- - -------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 122,776,336 $ 112,209,858
=======================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- - -------------------------------------------------------------------------------------------------------
LIABILITIES:
DEPOSITS (NOTE 8):
Noninterest-bearing $ 8,629,208 $ 8,372,947
Interest-bearing 101,480,266 93,751,703
- - -------------------------------------------------------------------------------------------------------
TOTAL DEPOSITS 110,109,474 102,124,650
- - -------------------------------------------------------------------------------------------------------
Advance payments by borrowers for property taxes
and insurance 193,207 107,447
Accrued interest payable 248,659 239,579
Other liabilities 336,970 592,163
- - -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 110,888,310 103,063,839
- - -------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY:
Common stock, $10 par value. Authorized
1,000,000 shares; issued 236,777 shares
in 1993 and 205,552 shares in 1992 2,367,770 2,055,520
Additional paid-in capital 3,665,315 3,083,280
Retained earnings 5,854,941 4,007,219
- - -------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 11,888,026 9,146,019
- - -------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 122,776,336 $ 112,209,858
=======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 11
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
===============================================================================================================
<S> <C> <C> <C>
INTEREST INCOME:
Loans, including fees $ 6,725,198 $ 6,759,147 $ 6,463,486
Investment securities:
Taxable 2,176,185 2,343,417 2,310,585
Exempt from federal income tax 37,970 - -
Deposits in financial institutions 33,868 48,502 120,268
Federal funds sold 156,024 99,956 122,437
- - ---------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 9,129,245 9,251,022 9,016,776
- - ---------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits (note 8) 3,899,595 4,426,150 5,352,019
Other borrowed money - 63,357 198,316
- - ---------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 3,899,595 4,489,507 5,550,335
- - ---------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 5,229,650 4,761,515 3,466,441
PROVISION FOR LOAN LOSSES 240,500 263,436 469,509
- - ---------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 4,989,150 4,498,079 2,996,932
- - ---------------------------------------------------------------------------------------------------------------
OTHER INCOME:
Service charges on deposit accounts 520,700 432,155 381,454
Loan servicing fees 70,194 66,707 53,035
Income from real estate operations, net 36,158 1,754 128,484
Other loan fees 75,402 78,267 81,000
Gain on sale of loans, net 230,906 81,371 26,349
Gain on sale of premises and equipment - 750 25,581
Gain (loss) on sale of real estate owned 4,452 - (582)
Net gain (loss) on sale and redemption of investment
securities 53,248 (23,028) 17,808
Other operating income 158,425 82,584 116,888
- - ---------------------------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 1,149,485 720,560 830,017
- - ---------------------------------------------------------------------------------------------------------------
OTHER EXPENSES:
Salaries and employee benefits 1,618,869 1,317,923 1,150,968
Occupancy 526,916 421,176 389,676
Federal deposit insurance premiums 289,833 243,985 201,645
Data processing servicing fees 312,931 285,377 270,350
Legal and professional 103,956 166,447 155,625
Stationery and supplies 211,294 147,074 111,818
Postage 103,732 88,036 69,254
Provision for losses on real estate owned - 75,000 46,191
Other operating expenses 492,964 453,375 419,426
- - ---------------------------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 3,660,495 3,198,393 2,814,953
- - ---------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 2,478,140 2,020,246 1,011,996
INCOME TAX EXPENSE (NOTE 10) 936,822 791,785 434,647
- - ---------------------------------------------------------------------------------------------------------------
EARNINGS BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGE 1,541,318 1,228,461 577,349
CUMULATIVE EFFECT OF ACCOUNTING CHANGE
(NOTES 1 AND 10) 306,404 - -
- - ---------------------------------------------------------------------------------------------------------------
NET EARNINGS $ 1,847,722 $ 1,228,461 $ 577,349
===============================================================================================================
EARNINGS PER COMMON SHARE
Before cumulative effect of accounting change $ 6.58 $ 5.41 $ 2.63
Cumulative effect of accounting change 1.31 - -
Net earnings $ 7.89 $ 5.41 $ 2.63
===============================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 234,125 205,552 205,552
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 12
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK CAPITAL EARNINGS EQUITY
===============================================================================================================
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1990 $ 2,055,520 $ 3,083,280 $ 2,201,409 $ 7,340,209
Net earnings - - 577,349 577,349
- - ---------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1991 2,055,520 3,083,280 2,778,758 7,917,558
Net earnings - - 1,228,461 1,228,461
- - ---------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992 2,055,520 3,083,280 4,007,219 9,146,019
Net earnings - - 1,847,722 1,847,722
Issuance of 31,225 shares of
common stock, net of $510,840
in offering costs 312,250 582,035 - 894,285
- - ---------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 $ 2,367,770 $ 3,665,315 $ 5,854,941 $ 11,888,026
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 13
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
================================================================================================================
<S> <C> <C> <C>
NET EARNINGS $ 1,847,722 $ 1,228,461 $ 577,349
ADJUSTMENTS TO RECONCILE NET EARNINGS
TO NET CASH PROVIDED BY OPERATING ACTIVITIES:
Provision for loan losses and losses on real
estate 240,500 338,436 515,700
Depreciation and amortization 223,777 177,568 173,575
Net (gain) loss on sale or redemption of
investment securities (53,248) 23,028 (17,808)
Cumulative effect of accounting change (306,404) - -
Deferred income taxes (16,515) 39,731 (26,295)
Amortization of deferred loan origination fees (12,131) (20,407) (21,075)
Amortization (accretion) of premiums or discounts
on loans, mortgage-backed securities and
investment securit 179,987 101,252 (221,074)
Accretion of discount on loans acquired (504,302) (476,315) (173,743)
Accretion of discount on loans to facilitate
sales of real estate owned (12,931) (15,569) (17,784)
Loans originated for sale (19,348,135) (11,849,151) (2,366,182)
Proceeds from sale of loans 18,165,186 11,171,587 2,392,531
Gain on sale of loans (230,906) (81,371) (26,349)
Dividends on Federal Home Loan Bank stock (11,130) (11,700) (16,800)
(Gain) loss on sale of real estate owned (4,452) - 582
Net (gain) loss on sale of premises and equipment 3,025 (750) (25,581)
Proceeds from sale of investment securities
and mortgage-backed securities held for sale 1,546,797 4,536,809 -
Purchases of investment and mortgage-backed
securities held for sale (5,890,908) (2,509,735) -
Decrease in accrued interest receivable (32,257) (11,212) (29,054)
(Increase) decrease in income tax refund receivable - - 20,128
Decrease in accrued interest payable and other
liabilities (246,113) (285,665) (322,437)
Decrease in funds held by trustee - 614,510 56,765
Other, net 449,964 (271,019) 66,502
- - ----------------------------------------------------------------------------------------------------------------
TOTAL ADJUSTMENTS (5,860,196) 1,470,027 (38,399)
- - ----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES (4,012,474) 2,698,488 538,950
- - ----------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of investment securities (9,333,312) (11,829,577) (7,082,891)
Proceeds from maturities and redemptions of
investment securities 5,855,250 2,800,000 2,000,000
Proceeds from sale of investment securities - 3,060,700 1,755,313
Principal payments on mortgage-backed securities 5,255,488 3,239,465 1,183,985
Proceeds from sales of mortgage-backed securities - 614,329 1,389,846
Purchases of mortgage-backed securities (1,296,375) (2,918,653) (2,441,516)
Net increase in loans (1,025,854) (3,848,932) (919,656)
Purchases of premises and equipment (132,289) (609,506) (197,626)
Proceeds from sale of premises and equipment 106,965 750 288,356
Proceeds from sales of real estate owned 79,653 - 31,985
Principal receipts on loans to facilitate sales
of real estate - 331 3,766
Redemption of Federal Home Loan Bank stock 33,030 14,300 38,000
Net cash and cash equivalents received from purchase
of assets and liabilities Tennessee Savings Bank - 2,507,853 4,798,807
- - ----------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY
INVESTING ACTIVITIES (457,444) (6,968,940) 848,369
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE> 14
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
<TABLE>
<CAPTION>
1993 1992 1991
============================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits $ 7,984,824 $ 9,247,082 $ 487,586
Net increase (decrease) in advance payments
by borrowers 85,760 48,991 (58,336)
Repayment of bonds - (1,368,000) (976,000)
Proceeds from sale of common stock 894,285 - -
- - ------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES 8,964,869 7,928,073 (546,750)
- - ------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH 4,494,951 3,657,621 840,569
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,708,654 6,051,033 5,210,464
- - ------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 14,203,605 $ 9,708,654 $ 6,051,033
============================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
- - ------------------------------------------------------------------------------------------------------------
Interest paid or added to deposit accounts $ 3,890,515 $ 4,673,483 $ 5,632,848
Income taxes paid 1,233,893 573,924 350,042
============================================================================================================
See accompanying notes to consolidated financial statements.
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
- - ------------------------------------------------------------------------------------------------------------
Foreclosures of loans during the period $ 75,201 $ - $ 70,396
Investment securities transferred to securities
held for sale - 1,386,470 1,500,000
Mortgage-backed securities transferred to
investment securities held for sale 1,291,114 588,514 -
============================================================================================================
</TABLE>
On May 31, 1991, the Company purchased certain assets of Tennessee Federal
Savings Bank. In conjunction with the purchase, liabilities were assumed as
follows (see note 6):
<TABLE>
<S> <C>
Fair value of assets acquired $ 15,885,594
Due from Resolution Trust Corporation 2,902,406
-------------
$ 18,788,000
</TABLE> =============
F-9
<PAGE> 15
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
(1) Summary of Significant Accounting Policies
GENERAL
Peoples Financial Services, Inc. (the "Company") was organized in
March, 1990 for the purpose of becoming a holding company for the
Peoples Bank and Trust of the Cumberlands (PB&T). PB&T is a state
chartered bank organized in June, 1988. In February, 1993 the
Company acquired Citizens Federal Savings Bank (CFSB) as discussed in
note 11. The accounting and reporting policies of Peoples Financial
Services, Inc. and subsidiaries conform to generally accepted
accounting principles. The following is a description of the more
significant of those policies which the Company follows in preparing
and presenting its consolidated financial statements.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the
accounts of Peoples Financial Services, Inc. and its wholly-owned
subsidiaries, Citizens Federal Savings Bank and Peoples Bank & Trust
of the Cumberlands. All significant intercompany balances are
eliminated in consolidation.
During 1992, Citizens Capital Corporation, formerly a wholly-owned
subsidiary, was merged into CFSB. Citizens Capital Corporation had
been included in the consolidated financial statements since its
incorporation, and the merger did not affect the comparability of the
accompanying consolidated financial statements.
CASH AND CASH EQUIVALENTS
For the purposes of reporting cash flows, cash and cash equivalents
include cash, interest bearing deposits in other banks with original
maturities of three months or less, and federal funds sold.
Generally, federal funds are sold for one-day periods.
Cash and due from banks include legal reserve requirements which must
be maintained on an average basis in the form of cash and balances
due from the Federal Reserve Bank and other banks in the amount of
$174,000 and $204,000 at December 31, 1993 and 1992, respectively.
INVESTMENT AND MORTGAGE-BACKED SECURITIES
Securities are classified as investment securities or securities held
for sale and primarily consist of U.S. Treasury securities,
obligations of U.S. Government agencies and mortgage-backed
securities. Mortgage-backed securities are comprised substantially
of participating interests in pools of long-term first mortgage loans
originated and serviced by the issuers of the securities.
Management determines the appropriate classification of securities at
the time of purchase. If management has the intent and the Company
has the ability at the time of purchase to hold securities until
maturity, they are carried at amortized historical cost. Securities
to be held for indefinite periods of time and not intended to be held
to maturity are classified as held for sale and carried at the lower
of cost or market Securities held for indefinite periods of time
include securities that management intends to use as part of its
asset/liability management strategy and that may be sold in response
to changes in interest rates, resultant prepayment risk and other
factors related to interest rate and resultant prepayment risk
changes. All securities held for sale including mortgage-backed
securities are included in investments held for sale on the balance
sheet.
F-10
<PAGE> 16
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
INVESTMENT AND MORTGAGE-BACKED SECURITIES
Premiums and discounts are amortized using a method, which
approximates the interest method, over the remaining period to
contractual maturity, adjusted for prepayments. Gains and losses on
the sale of securities held for sale are determined using the
specific identification method and are included in other operating
income, including adjustments to lower of aggregate cost or market.
LOANS AND LOANS HELD FOR SALE
Loans receivable are recorded at the unpaid principal balance owed by
borrowers less deferrals, unearned interest, the allowance for loan
losses and purchase discounts. Discounts on loans purchased are
accreted to interest income using the interest method over the
remaining period to contractual maturity, adjusted for prepayments.
Unearned income on consumer loans is recognized over the lives of the
loans using the interest method. Loans held for sale are carried at
the lower of cost or fair value. Management determines the
appropriate classification at the date of origination.
The allowance for loan losses is based upon analyses of the loan
portfolio and is maintained at a level considered adequate by
management to provide for probable loan losses. The analyses include
management's consideration of such factors as economic conditions,
loan portfolio characteristics, prior loan loss experience, and
results of reviews of the portfolio. allowance is increased by
provisions charged against income and reduced by net charge-offs.
While management believes it has established the allowance for
possible loan losses in accordance with generally accepted accounting
principles and has taken into account the views of its regulators and
the current economic environment, there can be no assurance that in
the future the Banks' regulators or its economic environment will not
require further increases in the allowance.
Loans which management has doubts as to the borrower's ability to
repay principal or interest are placed on nonaccrual status.
Interest payments received on nonaccrual loans are recognized as
income on a cash basis.
LOAN ORIGINATION FEES AND RELATED COSTS
Loan origination fees and certain direct loan origination costs are
deferred, and the net fee or cost is recognized in income using the
interest method over the contractual lives of the loans, adjusted for
expected prepayments and loan sales. If deferred fees are associated
with a loan placed on nonaccrual status, amortization of the fees is
ceased.
LOAN SERVICING FEES
Fees arising from servicing loans for others are recognized as earned.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on straight-line and
accelerated methods based on the estimated useful lives of the
related assets. Costs of replacing structural parts and major units
are considered individually and are expensed or capitalized as the
facts dictate.
F-11
<PAGE> 17
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
REAL ESTATE OWNED
Real estate acquired either through loan foreclosure or in substance
foreclosure is initially recorded at the lower of the related loan
balance, less any specific allowance for loss, or fair value at the
date of foreclosure. Costs relating to developing and improving
property are capitalized, whereas costs relating to holding property
are expensed.
Valuations are periodically performed by management. If the carrying
value of a property exceeds its fair value, an allowance is
established through a provision for losses charged to earnings.
INVESTMENTS REQUIRED BY LAW
CFSB, as a member of the Federal Home Loan Bank system, is required
to acquire and hold shares of stock in the Federal Home Loan Bank,
subject to certain minimum levels. The stock is carried at cost and
dividends are recognized as income when received.
INCOME TAXES
Deferred income taxes are provided on items which are reported in
different years for tax purposes than for financial statement
purposes.
Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). This statement requires the use of the
asset and liability approach for financial accounting and reporting
for income taxes.
In accordance with SFAS 109, the Company has recorded deferred tax
assets to reflect the tax benefits of accumulated temporary
differences between financial and tax reporting. Financial
statements for prior periods have not been restated. The cumulative
effect of the accounting change as of January 1, 1993 resulted in an
increase in net earnings of $306,404.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) has issued Statement
No. 114, "Accounting by Creditors for Impairment of a Loan", which
becomes effective for years beginning after December 15, 1994. The
statement generally requires impaired loans to be measured based on
the present value of expected future cash flows, or at the loan's
observable market value or the fair value of the collateral if
the loan is collateral dependent. The Company has not addressed the
potential future impact of this statement.
The Financial Accounting Standards Board has also issued Statement
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", which becomes effective for years beginning after
December 31, 1993. The statement generally requires securities to be
categorized as held-to-maturity (HTM), available-for-sale (AFS) or
trading. HTM securities will be carried at amortized cost. AFS
securities will be carried at fair value with unrealized gains or
losses included as a separate component of equity. Trading
securities will be carried at fair value with unrealized gains or
losses included in current earnings. The Company has not determined
the effect of implementing this statement.
F-12
<PAGE> 18
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) INVESTMENT AND MORTGAGE-BACKED SECURITIES
The carrying values and estimated market values of investment and
mortgage-backed securities held for sale are as follows:
<TABLE>
<CAPTION>
1993
------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 1,812,605 7,318 - 1,819,923
Mortgage-backed securities 2,256,901 - 5,261 2,251,640
----------- ----------- ----------- -----------
$ 4,069,506 7,318 5,261 4,071,563
=========== =========== =========== ===========
</TABLE>
The amortized cost and estimated market value of investment and
mortgage-backed securities held for sale at December 31, 1993, by
contractual maturity, are shown below.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET
----------- -----------
<S> <C> <C>
Due in one year or less $ 251,024 251,563
Due after one through five years 1,561,581 1,568,360
----------- -----------
1,812,605 1,819,923
Mortgage-backed securities 2,256,901 2,251,640
----------- -----------
$ 4,069,506 4,071,563
=========== ===========
</TABLE>
The following table reflects the amortized cost and estimated market
values of investment and mortgage-backed securities at December 31,
1993 and 1992 not classified as held for sale.
<TABLE>
<CAPTION>
1993
-------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 7,911,028 198,925 - 8,109,953
U.S. Government agencies 15,470,754 200,800 63,425 15,608,129
Obligations of states and
political subdivisions 1,526,509 29,990 4,900 1,551,599
Other securities 90,000 10,575 - 100,575
----------- ---------- ---------- -----------
Total investment securities 24,998,291 440,290 68,325 25,370,256
Mortgage-backed securities 6,088,651 239,345 383 6,327,613
----------- ---------- ---------- -----------
$ 31,086,942 679,635 68,708 31,697,869
=========== ========== ========== ===========
</TABLE>
F-13
<PAGE> 19
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) INVESTMENT AND MORTGAGE-BACKED SECURITIES, CONTINUED
<TABLE>
<CAPTION>
1992
--------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 9,205,775 174,358 19,133 9,361,000
U.S Government agencies 12,345,189 416,527 95,716 12,666,000
Other securities 90,000 11,000 - 101,000
----------- ---------- ---------- -----------
Total investment securities 21,640,964 601,885 114,849 22,128,000
Mortgage-backed securities 9,779,163 416,560 9,723 10,186,000
----------- ---------- ---------- -----------
$31,420,127 1,018,445 124,572 32,314,000
=========== ========== ========== ===========
</TABLE>
The amortized cost and estimated market value of investment and
mortgage-backed securities not classified as held for sale at
December 31, 1993, by 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.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST MARKET
----------- ----------
<S> <C> <C>
Due in one year or less $ 3,184,682 3,214,791
Due after one through five years 10,396,429 10,608,594
Due after five through ten years 10,115,671 10,220,236
Over ten years 1,301,509 1,326,635
----------- ----------
24,998,291 25,370,256
Mortgage-backed securities 6,088,651 6,327,613
----------- ----------
$31,086,942 31,697,869
=========== ==========
</TABLE>
At December 31, 1993 and 1992, certain investment securities with
carrying values totaling $4,031,392 and $2,776,017, respectively,
were pledged to secure savings deposits. In addition, certain
investments with carrying values totaling $1,003,847 at December 31,
1993, and $1,526,552 at December 31, 1992, were pledged to secure a
commitment of funds from the Federal Home Loan Bank.
F-14
<PAGE> 20
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) INVESTMENT SECURITIES, CONTINUED
Proceeds from sales of debt securities during 1993 were $1,546,797.
Gross gains of $1,186 and gross losses of $2,526 were realized on
these sales. Gross gains of $76,082 and gross losses of $21,494 were
realized on redemptions of investment securities in 1993. Proceeds
from sales of debt securities during 1992 were $8,211,838. Gross
gains of $65,944 and gross losses of $88,972 were realized on these
sales. Proceeds from sales of debt securities during 1991 were
$3,145,159. Gross gains of $18,793 and gross losses of $985 were
realized on those sales.
(3) LOANS AND LOANS HELD FOR SALE
Loans at December 31, are summarized as follows:
<TABLE>
<CAPTION>
1993 1992
------------ -----------
<S> <C> <C>
Commercial $ 21,501,475 21,766,086
Real estate mortgage 28,116,083 27,683,277
Consumer 23,058,017 20,193,636
------------ -----------
72,675,575 69,642,999
Less:
Discount on loans purchased (921,606) (1,425,908)
Loans held for sale (2,172,791) (758,935)
Loans in process (1,700,672) (811,850)
Unearned discounts (297,669) (372,629)
Net deferred loan origination fees (37,266) (30,779)
------------ -----------
$ 67,545,571 66,242,898
============ ===========
</TABLE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of period $ 921,853 835,597 554,846
Provisions charged against income 240,500 263,436 469,509
Loans charged off (198,867) (226,389) (266,667)
Recoveries 34,454 49,209 77,909
---------- ---------- ----------
Balance at end of period $ 997,940 921,853 835,597
========== ========== ==========
</TABLE>
F-15
<PAGE> 21
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) LOANS AND LOANS HELD FOR SALE, CONTINUED
At December 31, 1993 and 1992, loans on which the accrual of interest
had been discontinued totaled $217,058 and $293,000, respectively.
During the years ended December 31, 1993 and 1992, gross interest
income that would have been recorded on loans accounted for on a
nonaccrual basis if the loans had been current throughout the
periods, and the amount of interest income that was recorded for such
loans during these periods was not material. There were no
commitments to lend additional funds to borrowers on nonaccrual
status.
In the ordinary course of business, the Bank makes loans to directors
and executive officers and their related interests. Such loans were
made on substantially the same terms, including interest and
collateral, as those prevailing at the time for comparable
transactions with other borrowers and did not involve more than the
normal risk of collectibility or present other unfavorable features.
Loans to directors and executive officers and their related interests
are as follows:
<TABLE>
<S> <C>
Balance at December 31, 1991 $ 1,940,700
Advances 2,577,436
Repayments (2,469,144)
------------
Balance at December 31, 1992 2,048,992
Advances 3,886,055
Repayments (4,394,894)
------------
Balance at December 31, 1993 $ 1,540,153
============
</TABLE>
(4) LOAN SERVICING
Mortgage loans serviced for others are not included in the
accompanying consolidated balance sheets. The unpaid principal
balances of these loans are $28,360,643 and $17,242,761 at December
31, 1993 and 1992, respectively.
(5) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
AND SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK
The Company is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers and to reduce its own exposure to
fluctuations in interest rates. These financial instruments include
commitments to extend credit and standby letters of credit. Those
instruments involve, to varying degrees, elements of credit and
interest rate risk in excess of the amount recognized in the
consolidated balance sheets. The contractual notional amounts of
those instruments reflect the extent of involvement the Company has
in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual notional amount of those instruments. The Company uses
the same credit policies in making these commitments and conditional
obligations as it does for on-balance-sheet instruments.
F-16
<PAGE> 22
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) FINANCIAL INSTRUMENTAL WITH OFF-BALANCE-SHEET RISK
AND SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK, CONTINUED
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since some
commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Company upon extension of credit
is based on management's credit evaluation of the borrower.
Collateral held varies but may include property, plant, and equipment
and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the
Company to guarantee the performance of a customer to a third party.
The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities customers.
Outstanding letters of credit as of December 31, 1993 and 1992,
amounted to $380,000 and $142,000, respectively. Outstanding
commitments as of December 31, 1993 and 1992, amounted to $3,213,000
and $1,163,000, respectively. Undisbursed advances on customer lines
of credit were $6,064,000 at December 31, 1993 and $4,869,000 at
December 31, 1992. The outstanding standby letters of credit
generally have terms of one year or less. The Company does not
anticipate any losses as a result of these transactions.
Most of the Company's business activity is with customers located
within the state of Tennessee. A majority of the loans are secured
by residential or commercial real estate or other personal property.
The loans are expected to be repaid from cash flows or proceeds from
the sale of selected assets of the borrowers.
The Company has four loans with an aggregate net carrying value of
$2,125,773 at December 31, 1993, that are secured by commercial real
estate located in Texas, Mississippi, Virginia, and Florida.
(6) REAL ESTATE OWNED
Real estate owned at December 31, consists of the following:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Foreclosed real estate $ 638,704 638,704
Loans to facilitate the sale of foreclosed real estate 563,762 550,831
Less allowance for losses (297,000) (297,000)
---------- ----------
$ 905,466 892,535
========== ==========
</TABLE>
Loans to facilitate the sale of foreclosed real estate are accounted
for under the deposit method, as these sales did not meet the minimum
down payment requirements necessary for sales recognition.
F-17
<PAGE> 23
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(6) REAL ESTATE OWNED, CONTINUED
The activity in the allowance for estimated losses on real estate
owned consists of the following:
<TABLE>
<CAPTION>
1993 1992 1991
---------- --------- ---------
<S> <C> <C> <C>
Allowance at beginning of year $ 297,000 222,000 175,809
Provision for estimated losses - 75,000 46,191
---------- --------- ---------
Allowance at end of year $ 297,000 297,000 222,000
---------- --------- ---------
</TABLE>
(7) BANK PREMISES AND EQUIPMENT
Bank premises and equipment, less accumulated depreciation, consists
of the following:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
Land $ 587,743 697,733
Buildings and improvements 1,856,358 1,842,347
Land Improvements 58,836 58,836
Furniture and equipment 1,219,699 1,102,305
Automobiles 15,184 15,184
----------- -----------
3,737,820 3,716,405
Less allowance for depreciation and amortization 1,579,250 1,360,944
----------- -----------
$ 2,158,570 2,355,461
=========== ===========
</TABLE>
Depreciation expense amounted to $219,190, 172,981, and 168,988 in
1993, 1992 and 1991, respectively.
(8) DEPOSITS
A summary of deposits at December 31, 1993 and 1992 follows:
<TABLE>
<CAPTION>
1993 1992
------------ -----------
<S> <C> <C>
Noninterest bearing demand $ 8,629,208 8,372,947
NOW Accounts 11,169,425 10,203,336
Money Market Accounts 6,643,115 3,417,311
Savings 18,304,304 17,977,415
Certificates of deposit of $100,000 or more 10,970,878 9,342,549
Other certificates 53,393,544 52,811,092
------------ -----------
$109,110,474 102,124,650
============ ===========
</TABLE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
N.O.W. accounts and
money market accounts $ 447,422 449,504 373,730
Savings 461,059 697,174 622,448
Certificates of deposit 2,991,114 3,279,472 4,355,841
---------- ---------- ----------
$3,899,595 4,426,150 5,352,019
========== ========== ==========
</TABLE>
F-18
<PAGE> 24
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) BONDS PAYABLE
During 1985, CFSB initiated a long-range restructuring program which
resulted in the formation of Citizens Capital Corporation, a
wholly-owned subsidiary. In conjunction with the restructuring, CFSB
exchanged approximately $12.8 million in first mortgage loans for
guaranteed mortgage pass-through certificates issued by the Federal
National Mortgage Association (FNMA certificates) with an effective
yield of approximately 8.8 percent. The FNMA certificates were
transferred to Citizens Capital Corporation, which issued
approximately $9.6 million in bonds payable, secured by the FNMA
certificates. The bonds bore interest at 11.375 percent, and were
scheduled to mature on February 1, 2003.
During 1992, CFSB paid in full its obligation under the bonds prior
to the merger of Citizens Capital Corporation into the Bank. The
FNMA certificates held by Citizens Capital Corporation were
transferred to CFSB.
(10) INCOME TAXES
The components of income tax expense (benefits) are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- --------- ---------
<S> <C> <C> <C>
Federal:
Current $ 837,289 640,611 402,521
Deferred (37,621) 39,731 (26,295)
---------- --------- ---------
799,668 680,342 376,226
---------- --------- ---------
State:
Current 116,048 111,443 58,421
Deferred 21,106 - -
---------- --------- ---------
137,154 111,443 58,421
---------- --------- ---------
$ 936,822 791,785 434,647
========== ========= =========
</TABLE>
Deferred income taxes result from temporary differences in the
recognition of income and expense for tax and financial reporting.
The sources of temporary differences and their tax effect are as
follows:
<TABLE>
<CAPTION>
1993 1992 1991
---------- --------- ---------
<S> <C> <C> <C>
FHLB Stock dividends $ - 2,958 6,600
Gain on FHLB stock redeemed - (1,780) (4,805)
Deferred compensation - 55,018 (18,572)
Depreciation 9,159 -
Deferred loan fees (8,423) 736 1,369
Allowance for loan losses (22,510) (22,109) (13,151)
Accrued sick leave (22,284) - -
Realization of state loss carryforward 25,488 - -
Other 2,055 4,908 2,264
---------- --------- ---------
$ (16,515) 39,731 (26,295)
========== ========= =========
</TABLE>
F-19
<PAGE> 25
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) INCOME TAXES, CONTINUED
Deferred income taxes included in other assets amounted to $329,219
in 1993 and $312,704 in 1992. Significant temporary differences
between tax and financial reporting that give rise to net deferred tax
assets (liabilities) are as follows at December 31, 1993:
<TABLE>
<CAPTION>
DEFERRED
TEMPORARY TAX ASSET
DIFFERENCE (LIABILITY)
----------- -----------
<S> <C> <C>
FHLB stock dividends $ (105,754) (40,144)
Depreciation (55,243) (20,970)
Deferred loan fees 37,266 14,146
Allowance for losses on loans and other real estate 1,012,974 384,525
State operating loss carryforward 294,309 11,655
Excess servicing asset 18,846 7,154
Accrued sick leave 58,704 22,284
Other 1,500 569
----------- -----------
1,262,602 379,219
Less: Valuation allowance - 50,000
----------- -----------
$ 1,262,602 329,219
=========== ===========
</TABLE>
A reconciliation of the actual income tax expense to the "expected"
tax expense (computed by applying the statutory tax rate to earnings
before income taxes) is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
--------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense $ 842,568 686,883 344,081
Increase (reduction) in taxes resulting from:
State income taxes, net of federal income
tax benefit 97,586 73,552 38,558
Provision for loan losses (7,370) 30,591 52,031
Tax exempt interest (11,422) - -
Other, net 15,460 759 (23)
--------- -------- --------
$ 936,822 791,785 434,647
========= ======== ========
</TABLE>
CFSB is allowed a special bad debt deduction for tax purposes limited
generally to the greater of 8% of otherwise taxable income or actual
loss experience. CFSB used the experience method in 1993, 1992, and
1991. If the amounts that qualify as deductions for Federal income
tax purposes under the percentage of income method are later used for
purposes other than for bad debt losses, they will be subject to
Federal income tax at the then current corporate rate. Retained
earnings at December 31, 1993 and 1992, includes approximately
$733,000 and $550,000, respectively, for which Federal income tax has
not been provided.
F-20
<PAGE> 26
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) ACQUISITIONS
On February 1, 1993, the Company sold 31,225 shares of newly-issued
common stock in connection with the the acquisition of Citizens
Federal Savings Bank, Rockwood, Tennessee, (CFSB) pursuant to a
definitive agreement entered into by the Company and CFSB in May,
1992. In connection with the acquisition, the Company and CFSB
adopted a Plan of Conversion/Acquisition (Plan) whereby CFSB was
converted from a federally-chartered mutual institution to a
federally-chartered stock institution. Pursuant to the Plan, shares
of capital stock of the Company were offered initially for
subscriptions to eligible members of CFSB and to certain other
persons as of specified dates and subject to various subscription
priorities as provided by the Plan. The capital stock was offered at
a price determined by the Company's Board of Directors based upon an
appraisal made by an independent appraisal firm. The offering raised
gross proceeds of approximately $1,405,000, all of which was used in
the acquisition of CFSB. This business combination was accounted for
as a pooling-of-interests and, accordingly, the Company's historical
consolidated financial statements were restated to include the
accounts and results of operations of CFSB.
In connection with the offering, the Company filed a registration
statement with the Securities and Exchange Commission. The Company
incurred costs of $510,840 associated with the offering. All costs
incurred associated with the sale of stock and acquisition were
deducted from the proceeds of the sale of stock.
On May 31, 1991, PB&T acquired and assumed from the Resolution Trust
Corporation (RTC) certain assets and liabilities of the former
Tennessee Federal Savings Bank, Bartlett, Tennessee (TFSB). The Bank
paid to the RTC $414,000 for the right to acquire and assume certain
assets and liabilities of TFSB. The aggregate amount of liabilities
assumed approximated $18,788,000 and the assets acquired approximated
$15,886,000, including $11,450,000 of net loans. Also acquired was
$2,829,000 in cash equivalents and $1,575,000 in federal funds sold.
As part of the purchase and assumption agreement with the RTC, PB&T's
excess in the fair value of liabilities assumed from the RTC over the
fair value of assets acquired is funded by the RTC. PB&T recorded a
receivable of $2,507,835 at December 31, 1991 due from the RTC to
recognize the net liabilities assumed and other miscellaneous items
due from the RTC. Since the RTC paid cash to PB&T for the
difference between the fair value of liabilities and assets, no
goodwill was recorded in connection with this acquisition. Discount
recorded on loans amounted to $2,053,000. The discount is being
accreted to yield a constant rate over the expected life of the
loans acquired. The amount due from the RTC was received in 1992 and
included $400,000 paid by the RTC to the bank as consideration for a
settlement and release agreement between the RTC and the PB&T with
respect to the purchase and assumption agreement.
The TFSB transaction was accounted for as a purchase whereby assets
acquired and liabilities assumed were recorded at their estimated
fair market value as of the acquisition date. Results of operations
of the acquired assets and liabilities have been included in the
Company's consolidated statements of earnings since acquisition.
F-21
<PAGE> 27
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(12) EMPLOYEE BENEFITS AND DEFERRED COMPENSATION
CFSB has a noncontributory, defined-benefit retirement plan for
substantially all eligible employees. CFSB is a member of the
Financial Institutions Retirement Fund, which is a nonprofit pension
trust through which the Federal Home Loan Bank, savings banks and
similar institutions may cooperate in providing for the retirement of
their employees. No contributions were required in 1993, 1992, and
1991. The Bank's policy is to fund pension costs as accrued.
In January 1992, the CFSB paid its deferred compensation obligation
to its directors and terminated all deferred compensation agreements.
Deferred compensation expense amounted to $61,679 for the year ended
December 31, 1991. There was no deferred compensation expense in
1993 or 1992.
The Company does not provided postretirement or postemployment
benefits other than those mentioned above.
(13) FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
The Federal Deposit Insurance Corporation Improvement Act of 1991
(FDICIA) was signed into law on December 19, 1991. FDICIA includes
provisions requiring "prompt corrective action" for insured
depository institutions that do not meet certain capitalization
criteria. Regulations implementing the prompt corrective action
provisions of FDICIA became effective on December 19, 1992. In
addition to the prompt corrective action requirements, FDICIA
includes significant changes to the legal and regulatory environment
for insured institutions, including reductions in insurance coverage
for certain kinds of deposits, increased supervision by the federal
regulatory agencies, increased reporting requirements for insured
institutions, and new regulations concerning internal controls,
accounting, and operations.
The prompt corrective action regulations define specific capital
categories based on an institution's capital ratios. The capital
categories, in declining order, are "well capitalized "adequately
capitalized", "undercapitalized", "significantly undercapitalized",
and "critically undercapitalized". To be considered "adequately
capitalized," an institution must generally have a leverage ratio of
at least 4%, a Tier 1 risk-based capital ratio of at least 4%, and a
total risk-based capital ratio of at least 8%. An institution is
deemed to be "critically under capitalized" if it has a tangible
equity ratio of 2% or less.
At December 31, 1993, PB&T and CFSB meet the criteria for "Adequately
Capitalized" institutions as defined by FDICIA.
(14) SUPERVISORY AGREEMENT
CFSB entered into a supervisory agreement with the Office of Thrift
Supervision dated September 13, 1991. CFSB complied with the
provisions of the agreement and on November 17, 1993, the Office of
Thrift Supervision released CFSB from the agreement.
F-22
<PAGE> 28
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(15) RESTRICTIONS ON DIVIDENDS
Dividends paid by the subsidiaries are the primary source of funds
available for payment of normal operating expenses of the Company.
The subsidiaries are subject to federal and state statutes and
regulations that impose restrictions on the amounts that may be
declared. Under the most restrictive of the statutes and
regulations, the subsidiaries could declare dividends up to
approximately $4,800,000 and $3,700,000 at December 31, 1993 and
1992, respectively.
In connection with the conversion of Citizens Federal Savings Bank
from a mutual savings bank to a stock savings bank, CFSB established
a liquidation account equal to its retained earnings as of the date
of the latest consolidated balance sheet (approximately $1,750,000)
used in the final conversion offering circular. In the event of
future liquidation of CFSB (and only in such event), an eligible
deposit account holder who continues to maintain his deposit account
shall be entitled to receive a distribution from the liquidation
account, in the proportionate amount of the adjusted balance from
deposit accounts held at that time, before any liquidation
distributions may be made with respect to capital stock. No
dividends may be paid to stockholders if such dividends reduce
retained earnings of CFSB below the amount required for the
liquidation account.
(16) CAPITAL REQUIREMENTS
Regulatory capital guidelines of the Federal Reserve Board for bank
holding companies which require a minimum of 4.0 percent for a Tier I
leverage capital ratio (essentially equity divided by total assets),
4.0 percent for Tier I capital to risk weighted assets ratio, and 8.0
percent total capital to risk-weighted assets. The risk-based
guideline is based on the assignment of risk weights to assets and
off-balance sheet items depending on the level of credit risk
associated with them. The Company's capital ratios were in excess of
the minimum regulatory requirements at December 31, 1993.
(17) STOCK OPTIONS
A senior officer of the Company, as part of his employment contract,
has the option to purchase 2,000 shares of common stock at the
original issue price of $25 per share. This option may be exercised
after the officer completes ten years of continuous service with the
Company. The option may not be exercised before 1998.
Two officers of CFSB have the right to receive 1,111 shares of common
stock, subject to their continued employment with CFSB through
February 1, 1995, at which time they will receive these shares.
(18) PENDING MERGER
The Company has entered into an agreement and plan of reorganization
with Trans Financial Bancorp, Inc. (TFB), whereby each outstanding
share of the Company will be exchanged for 5.5 shares of TFB common
stock. The transaction is subject to regulatory approval and is
expected to be consummated in the second quarter of 1994.
F-23
<PAGE> 29
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(19) PARENT COMPANY ONLY FINANCIAL INFORMATION
Condensed financial information of Peoples Financial Services, Inc.
is as follows:
<TABLE>
<CAPTION>
BALANCE SHEETS
ASSETS 1993 1992
------------ ----------
<S> <C> <C>
Cash $ 35,257 2,266
Investment in bank subsidiaries 11,814,555 9,133,907
Other assets 38,214 9,846
------------ -----------
TOTAL ASSETS $ 11,888,026 9,146,019
============ ===========
Stockholders' Equity
Common stock $ 2,367,770 2,055,520
Additional paid-in capital 3,665,315 3,083,280
Retained earnings 5,854,941 4,007,219
------------ -----------
TOTAL STOCKHOLDER'S EQUITY $ 11,888,026 9,146,019
============ ===========
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF EARNINGS
1993 1992 1991
---------- ---------- ---------
<S> <C> <C> <C>
INCOME:
Dividends from subsidiary $ 125,000 - 10,000
EXPENSES:
Salaries and employee benefits 45,392 - -
Stationery and supplies 45,595 - -
Miscellaneous operating expenses 11,595 13,809 5,984
---------- ---------- ---------
INCOME (LOSS) BEFORE EQUITY IN
UNDISTRIBUTED EARNINGS OF
SUBSIDIARIEs 22,418 (13,809) 4,016
EQUITY IN UNDISTRIBUTED EARNINGS
OF SUBSIDIARY 1,786,364 1,242,270 573,333
---------- ---------- ---------
INCOME BEFORE INCOME TAXES (BENEFITS) 1,808,782 1,228,461 577,349
---------- ---------- ---------
REDUCTION OF CONSOLIDATED INCOME TAXES
ARISING FROM PARENT COMPANY
TAXABLE LOSS (38,940) - -
---------- ---------- ---------
NET EARNINGS $1,847,722 1,228,461 577,349
========== ========== =========
</TABLE>
F-24
<PAGE> 30
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(19) PARENT COMPANY ONLY FINANCIAL INFORMATION, CONTINUED
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
1993 1992 1991
----------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings $ 1,847,722 1,228,461 577,349
Adjustments to reconcile net earnings to
net cash provided (used) by operating
activities
Undistributed earnings of
subsidiaries (1,786,364) (1,242,270) (573,333)
(Increase) decrease in other assets (32,954) - 1,238
Amortization of deferred organization
cost 4,587 4,587 4,587
----------- ---------- ----------
NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES 32,991 (9,222) 9,841
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of 31,255 shares of common stock 894,285 - -
Capital contribution to subsidiary (894,285) - -
----------- ---------- ----------
NET CASH PROVIDED (USED) BY
FINANCING ACTIVITIES - - -
----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 32,991 (9,222) 9,841
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 2,266 11,488 1,647
----------- ---------- ----------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $ 35,257 2,266 11,488
=========== ========== ==========
</TABLE>
F-25
<PAGE> 31
TRANS FINANCIAL BANCORP, INC.
PRO FORMA FINANCIAL INFORMATION
F-26
<PAGE> 32
TRANS FINANCIAL BANCORP, INC.
Pro Forma Condensed Consolidated Balance Sheet
December 31, 1993
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
PRO
TRANS KENTUCKY PRO FORMA PEOPLES
FINANCIAL COMMUNITY FORMA EXCLUDING FINANCIAL
BANCORP (a) BANCORP (a) ADJUSTMENTS PEOPLES & FGC SERVICES (a)
------------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Assets
Cash and due form banks 49,009 5,435 54,444 6,088
Interest bearing deposits with banks 347 100 447 2,746
Federal funds sold and resale agreements 12,175 9,234 21,409 5,369
Mortgage loans held for sale 43,005 0 43,005 2,173
Securities available for sale 194,736 40,853 235,589 10,405
Investment Securities 54,286 12,061 66,347 24,998
Loans, net of unearned income 769,182 105,186 874,368 67,546
Less allowance for loan losses (8,301) (1,826) (10,127) (998)
Net loans 760,881 103,360 0 864,241 66,548
Premises and equipment 27,277 2,142 29,419 2,159
Goodwill 5,234 1,687 6,921 0
Mortgage servicing rights 3,738 0 3,738 0
Other assets 18,800 2,264 21,064 2,290
------------- ----------- ----------- ------------- ------------
Total assets 1,169,488 177,136 0 1,346,624 122,776
============= =========== =========== ============= ============
Liabilities and Shareholders' Equity
Deposits 994,152 159,443 1,153,595 110,109
Federal funds purchased and resale agreements 29,704 0 29,704 0
Other liabilities 7,472 1,591 9,063 779
Long-term debt and other notes payable: 0
TF Bancorp 7.25% Subordinated Notes 33,000 33,000 0
ESOP note payable 3,861 3,861 0
FHLBB Advance to TFB, N.A. 10,000 10,000 0
FHLBB Advance to TFB of TN, F.S.B 15,000 15,000 0
KC Bancorp 6.7% long term notes 2,818 2,818 0
6.625% Kentucky Housing Notes 42 42 0
------------- ----------- ----------- ------------- ------------
Total liabilities 1,093,189 163,894 0 1,257,083 110,888
Preferred stock 0 0 0 0
Common stock 13,922 1,305 1,264 (b) 16,491 2,368
Additional paid-in capital 39,490 943 (1,295)(b) 39,138 3,665
Retained earnings 26,523 10,532 37,055 5,855
Treasury stock 0 (31) 31 (b) 0 0
Unrealized net gain/(loss) on securities available
for sale, net of tax 225 493 718 0
Unrealized net gain/(loss) on marketable equity
securities 0 0 0 0
Employee Stock Ownership Plan borrowings (3,861) 0 (3,861) 0
------------- ----------- ----------- ------------- ------------
Total shareholders' equity 76,299 13,242 0 89,541 11,888
Total liabilities and shareholders' equity 1,169,488 177,136 0 1,346,624 122,776
============= =========== =========== ============= ============
<CAPTION>
PRO PRO
PRO FORMA FGC PRO FORMA
FORMA EXCLUDING HOLDING FORMA INCLUDING
ADJUSTMENTS FGC COMPANY (a) ADJUSTMENTS FGC
----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Assets
Cash and due form banks 60,532 5,381 (1,010)(d) 64,903
Interest bearing deposits with banks 3,193 0 3,193
Federal funds sold and resale agreements 26,778 6,000 32,778
Mortgage loans held for sale 45,178 0 45,178
Securities available for sale 245,994 0 245,994
Investment Securities 91,345 48,057 139,402
Loans, net of unearned income 941,914 65,132 1,007,046
Less allowance for loan losses (11,125) (1,380) (12,505)
Net loans 0 930,789 63,752 0 994,541
Premises and equipment 31,578 1,815 33,393
Goodwill 6,921 1,452 8,373
Mortgage servicing rights 3,738 0 3,738
Other assets 23,354 1,718 25,072
----------- --------- ------- ----------- ---------
Total assets 0 1,469,400 128,175 (1,010) 1,596,565
=========== ========= ======= =========== =========
Liabilities and Shareholders' Equity
Deposits 1,263,704 112,220 1,375,924
Federal funds purchased and resale agreements 29,704 0 29,704
Other liabilities 9,842 5,349 15,191
Long-term debt and other notes payable: 0 0 0
TF Bancorp 7.25% Subordinated Notes 33,000 0 33,000
ESOP note payable 3,861 0 3,861
FHLBB Advance to TFB, N.A. 10,000 0 10,000
FHLBB Advance to TFB of TN, F.S.B 15,000 0 15,000
KC Bancorp 6.7% long term notes 2,818 0 2,818
6.625% Kentucky Housing Notes 42 0 42
----------- --------- ------- ----------- ---------
Total liabilities 0 1,367,971 117,569 0 1,485,540
Preferred stock 0 1,010 (1,010)(d) 0
Common stock 74 (c) 18,933 1,500 470 (d) 20,903
Additional paid-in capital (74)(c) 42,729 0 (470)(d) 42,259
Retained earnings 42,910 8,096 51,006
Treasury stock 0 0 0
Unrealized net gain/(loss) on securities available
for sale, net of tax 718 0 718
Unrealized net gain/(loss) on marketable equity
securities 0 0 0
Employee Stock Ownership Plan borrowings (3,861) 0 (3,861)
----------- --------- ------- ----------- ---------
Total shareholders' equity 0 101,429 10,606 (1,010) 111,025
Total liabilities and shareholders' equity 0 1,469,400 128,175 (1,010) 1,596,565
=========== ========= ======= =========== =========
</TABLE>
See accompanying notes to pro forma financial information.
F-27
<PAGE> 33
TRANS FINANCIAL BANCORP, INC.
Pro Forma Condensed Income Statement
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1993
--------------------------------------------------------------------------------------------
TRANS KENTUCKY PRO FORMA PEOPLES PRO FORMA FGC PRO FORMA
FINANCIAL COMMUNITY EXCLUDING FINANCIAL EXCLUDING HOLDING INCLUDING
BANCORP (a) BANCORP (a) PEOPLES & FGC (e) SERVICES (a) FGC (e) COMPANY (a) FGC (e)
----------- ----------- ----------------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans 57,210 8,609 65,819 6,725 72,544 6,268 78,812
Securities 14,853 3,121 17,974 2,214 20,188 2,723 22,911
Other 554 243 797 190 987 109 1,096
----------- ----------- ------------- --------- -------- ----------- --------
Total interest income 72,617 11,973 84,590 9,129 93,719 9,100 102,819
Interest expense:
Deposits 29,810 4,466 34,276 3,899 38,175 3,310 41,485
Short-term borrowings 911 0 911 0 911 0 911
Notes payable 1,310 267 1,577 0 1,577 277 1,854
----------- ----------- ------------- --------- -------- ----------- --------
Total interest expense 32,031 4,733 36,764 3,899 40,663 3,587 44,250
----------- ----------- ------------- --------- -------- ----------- --------
Net interest income 40,586 7,240 47,826 5,230 53,056 5,513 58,569
Provision for loan losses 1,662 441 2,103 241 2,344 450 2,794
----------- ----------- ------------- --------- -------- ----------- --------
Net interest income after provision
provision for loan losses 38,924 6,799 45,723 4,989 50,712 5,063 55,775
Non-interest income 13,759 1,652 15,411 1,149 16,560 471 17,031
Non-interest expense 39,027 7,139 46,166 3,660 49,826 3,003 52,829
----------- ----------- ------------- --------- -------- ----------- --------
Income before income taxes 13,656 1,312 14,968 2,478 17,446 2,531 19,977
Income tax expense 4,249 429 4,678 937 5,615 609 6,224
----------- ----------- ------------- --------- -------- ----------- --------
Income before cumulative effect of
change in accounting princple 9,407 883 10,290 1,541 11,831 1,922 13,753
=========== =========== ============= ========= ======== =========== ========
Cumulative effect of change in
accounting principle (91) 81 (10) 306 296 0 296
----------- ----------- ------------- --------- -------- ----------- --------
Income applicable to common stock 9,316 964 10,280 1,847 12,127 1,841 13,968
=========== =========== ============= ========= ======== =========== ========
Weighted average shares outstanding:
Primary 7,518 8,893 10,195 11,245
Fully diluted 7,518 8,893 10,195 11,245
Earnings per common share:
Primary 1.24 1.16 1.19 1.24
=========== ============= ======== ========
Fully diluted 1.24 1.16 1.19 1.24
=========== ============= ======== ========
</TABLE>
See accompanying notes to pro forma financial information.
F-28
<PAGE> 34
TRANS FINANCIAL BANCORP, INC.
Pro Forma Condensed Income Statement
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1992
----------------------------------------------------------------------------------------
TRANS KENTUCKY PRO FORMA PEOPLES PRO FORMA FGC PRO FORMA
FINANCIAL COMMUNITY EXCLUDING FINANCIAL EXCLUDING HOLDING INCLUDING
BANCORP (a) BANCORP (a) PEOPLES & FGC(e) SERVICES (a) FGC (e) COMPANY (a) FGC (e)
----------- ----------- --------------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans 46,099 9,369 55,468 6,730 62,198 6,456 68,654
Securities 16,694 3,137 19,831 2,343 22,174 3,192 25,366
Other 614 417 1,031 149 1,180 114 1,294
----------- ----------- ------------- ------------ --------- ----------- ---------
Total interest income 63,407 12,923 76,330 9,222 85,552 9,762 95,314
Interest expense:
Deposits 30,822 5,361 36,183 4,426 40,609 4,136 44,745
Short-term borrowings 902 17 919 63 982 0 982
Notes payable 287 343 630 0 630 406 1,036
----------- ----------- ------------- ------------ --------- ----------- ---------
Total interest expense 32,011 5,721 37,732 4,489 42,221 4,542 46,763
----------- ----------- ------------- ------------ --------- ----------- ---------
Net interest income 31,396 7,202 38,598 4,733 43,331 5,220 48,551
Provision for loan losses 1,216 838 2,054 263 2,317 300 2,617
----------- ----------- ------------- ------------ --------- ----------- ---------
Net interest income after provision
provision for loan losses 30,180 6,364 36,544 4,470 41,014 4,920 45,934
Non-interest income 11,064 1,514 12,578 748 13,326 495 13,821
Non-interest expense 27,498 6,157 33,655 3,198 36,853 3,038 39,891
----------- ----------- ------------- ------------ --------- ----------- ---------
Income before income taxes 13,746 1,721 15,467 2,020 17,487 2,377 19,864
Income tax expense 4,686 372 5,058 792 5,850 550 6,400
----------- ----------- ------------- ------------ --------- ----------- ---------
Income before cumulative effect of
accounting change 9,060 1,349 10,409 1,228 11,637 1,827 13,464
=========== =========== ============= ============ ========= =========== =========
Income applicable to common stock 9,004 1,349 10,353 1,228 11,581 1,746 13,327
=========== =========== ============= ============ ========= =========== =========
Weighted average shares outstanding:
Primary 6,906 8,281 9,583 10,633
Fully diluted 6,906 8,281 9,583 10,633
Earnings per common share:
Primary 1.30 1.25 1.21 1.25
=========== ============= ========= =========
Fully diluted 1.30 1.25 1.21 1.25
=========== ============= ========= =========
</TABLE>
See accompanying notes to pro forma financial information.
F-29
<PAGE> 35
TRANS FINANCIAL BANCORP, INC.
Pro Forma Condensed Income Statement
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1991
-------------------------------------------------------------------------------------------
TRANS KENTUCKY PRO FORMA PEOPLES PRO FORMA FGC PRO FORMA
FINANCIAL COMMUNITY EXCLUDING FINANCIAL EXCLUDING HOLDING INCLUDING
BANCORP (a) BANCORP (a) PEOPLES & FGC (e) SERVICES (a) FGC (e) COMPANY (a) FGC (e)
----------- ----------- ----------------- ------------ --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans 35,858 10,365 46,223 6,435 52,658 6,360 59,018
Securities 9,582 3,435 13,017 2,311 15,328 3,524 18,852
Other 523 796 1,319 242 1,561 268 1,829
----------- ----------- ----------------- ------------ --------- ----------- ---------
Total interest income 45,963 14,596 60,559 8,988 69,547 10,152 79,699
Interest expense:
Deposits 25,561 7,606 33,167 5,352 38,519 5,401 43,920
Short-term borrowings 466 56 522 198 720 100 820
Notes payable 1,203 452 1,655 0 1,655 424 2,079
----------- ----------- ----------------- ------------ --------- ----------- ---------
Total interest expense 27,230 8,114 35,344 5,550 40,894 5,925 46,819
----------- ----------- ----------------- ------------ --------- ----------- ---------
Net interest income 18,733 6,482 25,215 3,438 28,653 4,227 32,880
Provision for loan losses 750 772 1,522 470 1,992 250 2,242
----------- ----------- ----------------- ------------ --------- ----------- ---------
Net interest income after provision
provision for loan losses 17,983 5,710 23,693 2,968 26,661 3,977 30,638
Non-interest income 6,542 1,396 7,938 859 8,797 471 9,268
Non-interest expense 17,957 5,748 23,705 2,815 26,520 2,708 29,228
----------- ----------- ----------------- ------------ --------- ----------- ---------
Income before income taxes 6,568 1,358 7,926 1,012 8,938 1,740 10,678
Income tax expense 2,028 293 2,321 435 2,756 327 3,083
----------- ----------- ----------------- ------------ --------- ----------- ---------
Income before cumulative effect of
accounting change 4,540 1,065 5,605 577 6,182 1,413 7,595
=========== =========== ================= ============ ========= =========== =========
Income applicable to common stock 4,227 1,065 5,292 577 5,869 1,332 7,201
=========== =========== ================= ============ ========= =========== =========
Weighted average shares outstanding:
Primary 3,277 4,652 5,954 7,006
Fully diluted 3,921 5,296 6,598 7,648
Earnings per common share:
Primary 1.29 1.14 0.99 1.03
=========== ================ ========= =========
Fully diluted 1.17 1.07 0.94 0.99
=========== ================ ========= =========
</TABLE>
See accompanying notes to pro forma information.
F-30
<PAGE> 36
TRANS FINANCIAL BANCORP, INC.
Notes to Pro Forma Financial Information
(a) Represents historical balance sheet or income statement of respective
entities. On January 28, 1994, Trans Financial and FGC Holding Company
entered into a definitive acquisition agreement pursuant to which FGC
Holding Company will merge with and into Trans Financial, subject to
regulatory approval and other conditions.
(b) Adjustments to increase the value of Trans Financial Common Stock to
reflect the adjusted number of shares outstanding after the Merger, with
an offsetting reduction in additional paid-in capital, and to reflect
the cancellation of KCB treasury stock.
(c) Adjustments to increase the value of Trans Financial Common Stock to
reflect the adjusted number of shares outstanding after the Peoples
acquisition, with an offsetting reduction in additional paid-in capital.
(d) Adjustments to increase the value of Trans Financial Common Stock to
reflect the adjusted number of shares outstanding after the proposed FGC
acquisition, with an offsetting reduction in additional paid-in capital,
and to reflect the redemption of FGC preferred stock upon consummation
of the FGC acquisition.
(e) No adjustments to the historical statements of income are necessary in
the circumstances under the pooling of interests method of accounting.
F-31
<PAGE> 37
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit Sequentially
Numbered Page
<S> <C> <C>
2(a) Agreement and Plan of Reorganization between Trans Financial
Bancorp, Inc. and Peoples Financial Services, Inc. dated as of
December 27, 1993, is incorporated by reference to Exhibit (2) of the
Registration Statement on Form S-4 (File No. 33-52365) filed by Trans
Financial with the Commission.
2(b) Plan of Merger between Trans Financial Bancorp, Inc. and Peoples
Financial Services, Inc. dated as of December 27, 1993, is
incorporated by reference to Exhibit (2) of the Registration Statement
on Form S-4 (File No. 33-52365) filed by Trans Financial with the
Commission.
</TABLE>
