<PAGE> 1
As filed with the Securities and Exchange Commission
on March 14, 1994
Registration No. 33-52365
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
POST EFFECTIVE AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------
TRANS FINANCIAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
Kentucky 61-1048868
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
500 East Main Street
Bowling Green, Kentucky 42101
(Address of Principal Executive Offices)
Copy to:
Douglas M. Lester, President Stewart E. Conner, Esq.
Trans Financial Bancorp, Inc. Wyatt, Tarrant & Combs
500 East Main Street 2800 Citizens Plaza
Bowling Green, Kentucky 42101 Louisville, Kentucky 40202
(Name and address of agent for service)
(502) 781-5000
(Telephone number, including area code, of agent for service)
<PAGE> 2
TRANS FINANCIAL BANCORP, INC.
CROSS REFERENCE SHEET
PURSUANT TO REGULATION S-K, ITEM 501(B)
<TABLE>
<CAPTION>
FORM S-4 ITEM AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
------------------------- ---------------------------------
<S> <C>
A. Information About the Transaction
1. Forepart of the Registration
Statement and Outside Front Cover
Page of Prospectus . . . . . . . . . . . . . Facing page of Registration Statement; Outside
Front Cover Page of Proxy Statement-Prospectus
2. Inside Front and Outside Back Cover
Pages of Prospectus . . . . . . . . . . . . Available Information; Incorporation of Certain
Information by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other Information . . . . Summary; Selected Consolidated Financial
Information
4. Terms of the Transaction . . . . . . . . . . Summary; The Merger; Description of Trans
Financial Common Stock and Rights; Comparative
Stock Prices and Dividends; Certain Differences
in Rights of Shareholders
5. Pro Forma Financial Information . . . . . . Pro Forma Financial Information
6. Material Contacts with the Company
Being Acquired . . . . . . . . . . . . . . . Summary; The Merger
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to Be Underwriters . . . . . . . . . Not Applicable
8. Interests of Named Experts and
Counsel . . . . . . . . . . . . . . . . . . Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities . . . . . . . . . . . . . . . . Not Applicable
B. Information About the Registrant
10. Information with Respect to S-3
Registrants . . . . . . . . . . . . . . . . Incorporation of Certain Information by
Reference; Summary; Trans Financial Bancorp, Inc.;
Recent Developments; Trans Financial Preliminary Operating
Results at December 31, 1993
11. Incorporation of Certain Information
by Reference . . . . . . . . . . . . . . . . Incorporation of Certain Information
by Reference
12. Information with Respect to S-2 or
S-3 Registrants . . . . . . . . . . . . . . . Not Applicable
13. Incorporation of Certain Information
by Reference . . . . . . . . . . . . . . . . Not Applicable
14. Information with Respect to
Registrants Other Than S-3 or S-2
Registrants . . . . . . . . . . . . . . . . Not Applicable
C. Information About the Company Being Acquired
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
15. Information with Respect to S-3
Companies . . . . . . . . . . . . . . . . . Not Applicable
16. Information with Respect to S-2 or S-3
Companies . . . . . . . . . . . . . . . . Not Applicable
17. Information with Respect to Companies
Other Than S-2 or S-3 Companies . . . . . . Summary; Peoples Financial Services, Inc.;
Peoples Financial Preliminary Operating Results
at December 31, 1993; Business of Peoples
Financial; Management's Discussion and Analysis
of Financial Condition and Results of Operations
of Peoples Financial
18. Information if Proxies, Consents or
Authorizations are to be Solicited . . . . . Incorporation of Certain Information by
Reference; Summary; The Special Meeting; The
Merger; Management and Additional Information
19. Information if Proxies, Consents or
Authorizations are not to be
Solicited or in an Exchange Offer . . . . . Not Applicable
</TABLE>
-2-
<PAGE> 4
PEOPLES FINANCIAL SERVICES, INC.
TWO WEST JACKSON
P.O. BOX 130
COOKEVILLE, TENNESSEE 38501-0130
(615) 528-1768
March 9, 1994
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Peoples Financial Services, Inc., to be held on April 12, 1994, at 4:30 p.m.
local time, at Peoples Financial's offices, Two West Jackson, Cookeville,
Tennessee. At this very important meeting you will be asked to consider and
approve the proposed merger of Peoples Financial with and into Trans Financial
Bancorp, Inc., Bowling Green, Kentucky. Details of the proposed transaction
and additional related information are set forth in the attached Notice and
Proxy Statement-Prospectus. You are urged to read these materials carefully
before voting your shares at the Special Meeting.
In the merger, each outstanding share of Peoples Financial will be
converted into 5.5 shares of Trans Financial common stock, involving the
issuance by Trans Financial of up to 1,302,274 shares of its common stock.
The attached Proxy Statement-Prospectus serves as a Proxy Statement for
Peoples Financial with respect to matters to be considered at the Special
Meeting, and it also serves as a Prospectus for the shares of Trans Financial
common stock to be issued in the merger.
Your Board of Directors has unanimously approved the proposed merger
described in the attached materials and believes the proposed transaction is in
the best interests of Peoples Financial shareholders. THE BOARD THEREFORE
RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE MERGER AT THE SPECIAL MEETING.
The Board of Directors has received an opinion from Professional Bank
Services, Inc., Peoples Financial's financial advisor, that, as of February 8,
1994, the financial consideration to be paid in the merger is fair to the
shareholders of Peoples Financial from a financial point of view.
<PAGE> 5
A Proxy is enclosed. Please indicate your voting instructions and
sign, date and mail this Proxy promptly in the return envelope provided.
Whether or not you plan to attend the Special Meeting in person, it is
important that you return the enclosed Proxy so that your Peoples Financial
shares are voted.
Sincerely,
/s/ Barry Buckley
------------------
Barry Buckley
President
<PAGE> 6
PEOPLES FINANCIAL SERVICES, INC.
TWO WEST JACKSON
P.O. BOX 130
COOKEVILLE, TENNESSEE 38501-0130
(615) 528-1768
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON APRIL 12, 1994
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of
Peoples Financial Services, Inc. ("Peoples Financial") will be held at its
offices, Two West Jackson, Cookeville, Tennessee, on Tuesday, April 12, 1994,
at 4:30 p.m. local time, for the purpose of voting on the approval of the
Agreement and Plan of Reorganization and a related Plan of Merger, by and
between Peoples Financial and Trans Financial Bancorp, Inc., providing for
the merger of Peoples Financial with and into Trans Financial, as described
in the accompanying Proxy Statement-Prospectus.
Only Peoples Financial shareholders of record as of the close of
business on March 4, 1994 have the right to receive notice of and to vote at
the Special Meeting and any adjournment(s) thereof.
The accompanying document constitutes the Proxy Statement of Peoples
Financial for its Special Meeting of Shareholders and it also constitutes a
Prospectus for Trans Financial Bancorp, Inc. with respect to its issuance of
common stock in the merger. A copy of the Agreement and Plan of Reorganization
and the related Plan of Merger are attached to the accompanying Proxy Statement-
Prospectus as Appendix A-1 and A-2, respectively.
Shareholders of Peoples Financial are entitled to assert dissenters'
rights under Chapter 23 of the Tennessee Business Corporation Act, a copy of
which is attached as Appendix C to the accompanying Proxy Statement-Prospectus.
You are cordially invited to attend the Special Meeting in person.
Whether or not you plan to attend the meeting, you are urged to complete,
date, sign and return the enclosed Proxy in the envelope provided as soon as
possible.
By Order of the Board of Directors
/s/ Jimmy Dixon
---------------------------------
Jimmy Dixon
Secretary
March 9, 1994
<PAGE> 7
PROXY STATEMENT
PEOPLES FINANCIAL SERVICES, INC.
PROSPECTUS
TRANS FINANCIAL BANCORP, INC.
This Prospectus of Trans Financial Bancorp, Inc. ("Trans Financial")
relates to up to 1,302,274 shares of Common Stock of Trans Financial
("Trans Financial Common Stock") issuable to the shareholders of Peoples
Financial Services, Inc. ("Peoples Financial") upon consummation of the
proposed merger (the "Merger") herein described of Peoples Financial with and
into Trans Financial, pursuant to the terms and subject to the conditions of
the Agreement and Plan of Reorganization between Trans Financial and Peoples
Financial and the related Plan of Merger, each dated December 27, 1993
(collectively, the "Merger Agreement"). The Merger Agreement is attached as
Appendix A and is incorporated herein by reference. This Prospectus also
serves as the Proxy Statement of Peoples Financial for its special meeting of
shareholders (the "Special Meeting") to be held on April 12, 1994. At the
Special Meeting, the shareholders of Peoples Financial will be asked to
consider and vote on the Merger Agreement and the transactions contemplated
thereby. See "THE SPECIAL MEETING".
Upon consummation of the Merger, each outstanding share of Peoples
Financial will be converted into 5.5 shares (the "Exchange Ratio") of Trans
Financial Common Stock, subject to provisions for payment of cash for
fractional shares. On March 3, 1994, the closing price of Trans Financial
Common Stock, as quoted by the NASDAQ National Market, was $15.625.
This Proxy Statement-Prospectus does not cover any resales of Trans
Financial Common Stock received by affiliates of Peoples Financial.
This Proxy Statement-Prospectus, along with the form of proxy, is
first being mailed on or about March 9, 1994 to shareholders of Peoples
Financial.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS SUCH COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT-PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
____________________________________
The date of this Proxy Statement-Prospectus is March 9, 1994.
<PAGE> 8
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
TRANS FINANCIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
PEOPLES FINANCIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
VOTE REQUIRED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
VOTING OF PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
REVOCABILITY OF PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
RECOMMENDATION OF THE BOARD OF DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
OPINION OF FINANCIAL ADVISOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
EFFECTIVE TIME OF THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
CONDITIONS TO THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
REGULATORY APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
WAIVER AND AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
RESALES OF TRANS FINANCIAL COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
STOCK OPTION AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
DISSENTERS' RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
MARKETS AND MARKET PRICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
COMPARATIVE UNAUDITED PER SHARE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
TRANS FINANCIAL PRELIMINARY OPERATING RESULTS AT DECEMBER 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
PEOPLES FINANCIAL PRELIMINARY OPERATING RESULTS AT DECEMBER 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SELECTED CONSOLIDATED FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
DATE, PLACE AND TIME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
RECORD DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
VOTE REQUIRED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
VOTING AND REVOCATION OF PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SOLICITATION OF PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
PARTIES TO THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
TRANS FINANCIAL BANCORP, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
PEOPLES FINANCIAL SERVICES, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
BACKGROUND OF THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
RECOMMENDATION OF THE BOARD OF DIRECTORS AND REASONS FOR THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . 33
OPINION OF FINANCIAL ADVISOR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
TERMS OF THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
INTEREST OF CERTAIN PERSONS IN THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
EFFECTIVE TIME OF THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SURRENDER OF CERTIFICATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
CONDITIONS TO THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
</TABLE>
<PAGE> 9
<TABLE>
<CAPTION>
PAGE
<S> <C>
REGULATORY APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
BUSINESS PENDING THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
NO SOLICITATION OF TRANSACTIONS BY PEOPLES FINANCIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
WAIVER AND AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
OPERATIONS AFTER THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
STOCK OPTION AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ACCOUNTING TREATMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
CERTAIN FEDERAL INCOME TAX CONSEQUENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
RESALES OF TRANS FINANCIAL COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
DISSENTERS' RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
RECENT DEVELOPMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
DESCRIPTION OF TRANS FINANCIAL COMMON STOCK AND RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
PEOPLES FINANCIAL COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
OWNERSHIP OF PEOPLES FINANCIAL COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
COMPARATIVE STOCK PRICES AND DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
BUSINESS OF PEOPLES FINANCIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
PEOPLES FINANCIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
LEGAL OPINION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
MANAGEMENT AND ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 136
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
APPENDIX A-1 - Agreement and Plan of Reorganization
APPENDIX A-2 - Plan of Merger
APPENDIX B - Opinion of Professional Bank Services, Inc.
APPENDIX C - Title 48, Chapter 23 of Tennessee
Business Corporation Act
</TABLE>
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROXY STATEMENT-PROSPECTUS AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROXY STATEMENT-PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL, OR A SOLICITATION OF AN OFFER TO PURCHASE, THE TRANS FINANCIAL COMMON
STOCK OFFERED BY THIS PROXY STATEMENT-PROSPECTUS, NOR DOES IT CONSTITUTE THE
SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR FROM ANY PERSON TO WHOM OR
FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROXY STATEMENT-PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF TRANS FINANCIAL OR PEOPLES FINANCIAL
SINCE THE DATE HEREOF OR THAT INFORMATION IN THIS PROXY STATEMENT-PROSPECTUS OR
IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THE DATES THEREOF.
ii
<PAGE> 10
AVAILABLE INFORMATION
Trans Financial has filed with the Securities and Exchange Commission
(the "Commission") a Registration Statement ("Registration Statement") on Form
S-4 relating to the shares of Trans Financial Common Stock to be issued in the
Merger. This Proxy Statement-Prospectus does not contain all of the
information set forth in the Registration Statement and exhibits thereto
covering the securities offered hereby which Trans Financial has filed with the
Commission, certain portions of which have been omitted pursuant to the rules
and regulations of the Commission, and to which portions reference is hereby
made for further information with respect to Trans Financial and the securities
offered hereby. The information omitted may be obtained from the public
reference facilities of the Commission or inspected and copied at the principal
and regional offices of the Commission set forth below.
Trans Financial and Peoples Financial are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and, in accordance therewith, Trans Financial and Peoples Financial file
reports, other information and, in the case of Trans Financial, proxy
statements, with the Commission. Such reports, other information and proxy
statements can be inspected and copied at the Commission's public reference
room located at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and
at the public reference facilities in the Commission's regional offices located
at: 7 World Trade Center, Thirteenth Floor, New York, New York 10048; and Suite
1400, Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can be obtained at prescribed rates by writing
to the Securities and Exchange Commission, Public Reference Section, 450 Fifth
Street, N.W., Washington, D.C. 20549.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROXY STATEMENT-PROSPECTUS INCORPORATES BY REFERENCE, WITH RESPECT
TO TRANS FINANCIAL, DOCUMENTS NOT PRESENTED HEREIN OR DELIVERED HEREWITH. A
COPY OF THE DOCUMENTS INCORPORATED BY REFERENCE (EXCLUDING EXHIBITS UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO THE INFORMATION
INCORPORATED HEREIN) THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH WILL
BE PROVIDED BY FIRST CLASS MAIL WITHOUT CHARGE TO EACH PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS PROXY STATEMENT-PROSPECTUS IS DELIVERED, UPON
ORAL OR WRITTEN REQUEST OF ANY SUCH PERSON. REQUESTS SHOULD BE DIRECTED TO
VINCE BERTA, TREASURER AND CHIEF FINANCIAL OFFICER, TRANS FINANCIAL BANCORP,
INC., 500 EAST MAIN STREET, BOWLING GREEN, KENTUCKY 42101 (TELEPHONE (502)
745-7504). IN ORDER TO INSURE TIMELY DELIVERY OF THE DOCUMENTS IN ADVANCE OF
THE SPECIAL MEETING, ANY SUCH REQUEST SHOULD BE MADE BY APRIL 4, 1994.
<PAGE> 11
The following documents filed with the Commission by Trans Financial
are incorporated herein by reference: (a) Annual Report on Form 10-K for the
year ended December 31, 1992; (b) Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1993, June 30, 1993 and September 30, 1993; and (c)
Current Reports on Form 8-K dated January 15, 1993, April 6, 1993, July 21,
1993 (as amended August 16, 1993 and August 30, 1993), January 10, 1994,
February 18, 1994, and March 2, 1994, as amended March 9, 1994. All documents
subsequently filed by Trans Financial with the Commission pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the date of the Special
Meeting shall be deemed to be incorporated by reference into this Proxy
Statement-Prospectus.
Any statement contained herein or in a document incorporated or deemed
to be incorporated herein by reference shall be deemed to be modified or
superseded for purposes hereof to the extent that a statement contained herein
or in any other subsequently filed document which also is, or is deemed to be,
incorporated herein by reference modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed to constitute a
part hereof, except as so modified or superseded.
SUMMARY
The following summary is not intended to be complete and is qualified
in all respects by the more detailed information included in this Proxy
Statement-Prospectus, the Appendices hereto and the documents incorporated
herein by reference. As used in this Proxy Statement-Prospectus, the terms
"Trans Financial" and "Peoples Financial" refer to such corporations,
respectively, and where the context requires, such corporations and their
subsidiaries on a consolidated basis. All information concerning Trans
Financial included in this Proxy Statement-Prospectus has been furnished by
Trans Financial and all information concerning Peoples Financial included in
this Proxy Statement-Prospectus has been furnished by Peoples Financial.
Neither Trans Financial nor Peoples Financial warrants the accuracy or
completeness of information relating to the other party. All per share
information contained herein with respect to Trans Financial has been adjusted
for a 4-for-3 stock split effected on December 18, 1992 and a 4-for-3 stock
split effected on December 16, 1991.
TRANS FINANCIAL
Trans Financial is a bank holding company registered under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"), and a savings and loan
holding company registered under the Home Owners' Loan Act. Trans Financial's
activities are conducted through its principal subsidiary, Trans Financial
Bank, N.A., Bowling Green, Kentucky, four other wholly-owned bank subsidiaries
located in Pikeville, Maysville, Augusta and Morehead, Kentucky and two
wholly-owned
2
<PAGE> 12
thrift subsidiaries, Trans Financial Bank, Federal Savings Bank, Russellville,
Kentucky, and Trans Financial Bank of Tennessee, FSB, Tullahoma, Tennessee.
Trans Financial provides its banking related services through 45 offices of its
subsidiaries located in Kentucky and Tennessee. At September 30, 1993, Trans
Financial had consolidated total assets of approximately $1.2 billion, net
loans of approximately $753 million and total shareholders' equity of
approximately $74.3 million.
On January 28, 1994, Trans Financial entered into a definitive
Agreement and Plan of Reorganization and related Plan of Merger with FGC
Holding Company ("FGC"), a bank holding company headquartered in Martin,
Kentucky, pursuant to which FGC will merge into Trans Financial and each
outstanding share of FGC will be exchanged for 419.83 shares of Trans Financial
Common Stock, or an aggregate of approximately 1,050,000 shares of Trans
Financial Common Stock. As of September 30, 1993, FGC had total assets of
approximately $126 million. The historical consolidated financial statements
of FGC and the related notes thereto are incorporated by reference herein by
reference to Trans Financial's Current Report on Form 8-K dated February 18,
1994.
On February 15, 1994, Trans Financial consummated its acquisition of
Kentucky Community Bancorp, Inc. ("KCB") and KCB's three banking subsidiaries,
The State National Bank, Maysville, Kentucky, Peoples First Bank of Morehead,
Morehead, Kentucky and Farmers Liberty Bank, Augusta, Kentucky. Pursuant to
the Agreement and Plan of Reorganization and related Plan of Merger entered
into between KCB and Trans Financial on November 9, 1993, each as amended on
January 6, 1994, KCB merged with and into Trans Financial, and the outstanding
shares of KCB were converted into an aggregate of approximately 1,375,000
shares of Trans Financial Common Stock. At September 30, 1993, KCB had
consolidated assets of approximately $171.3 million, net loans of approximately
$102.6 million and shareholders' equity of approximately $13.2 million. See
"RECENT DEVELOPMENTS" and "PRO FORMA FINANCIAL INFORMATION."
Trans Financial's principal executive offices are located at 500 East
Main Street, Bowling Green, Kentucky 42101. Its telephone number is (502)
781-5000.
PEOPLES FINANCIAL
Peoples Financial is a bank holding company registered under the BHC
Act and a savings and loan holding company registered under the Home Owners'
Loan Act. Peoples Financial's activities are conducted through its two banking
subsidiaries, Peoples Bank & Trust of the Cumberlands, Cookeville, Tennessee
("Peoples Bank"), and Citizens Federal Savings Bank, Rockwood, Tennessee
("Citizens
3
<PAGE> 13
Federal"). At September 30, 1993, Peoples Financial had consolidated total
assets of approximately $120 million, net loans of approximately $68 million
and shareholders' equity of approximately $11.2 million.
Peoples Financial's principal executive offices are located at Two
West Jackson, Cookeville, Tennessee 38501. Its telephone number is (615)
528-1768.
THE MERGER
The Merger Agreement provides for the merger of Peoples Financial with
and into Trans Financial, under the articles of incorporation and bylaws of
Trans Financial. Upon consummation of the Merger, each outstanding share of
Peoples Financial Common Stock will be converted into 5.5 shares of Trans
Financial Common Stock. Holders of shares of Peoples Financial Common Stock
will receive cash, without interest, in lieu of fractional shares of Trans
Financial Common Stock. See "THE MERGER-Terms Of the Merger".
After the Merger, Peoples Financial will represent approximately 8% of
Trans Financial's consolidated total assets and approximately 12% of Trans
Financial's consolidated net income (based on the historical financial
statements of Trans Financial and Peoples Financial as of and for the nine
months ended September 30, 1993). Peoples Financial's former shareholders will
represent approximately 13% of Trans Financial's voting power (based on the
outstanding shares of Trans Financial Common Stock at February 15, 1994). See
"THE MERGER-Terms of the Merger" and "PRO FORMA FINANCIAL INFORMATION."
THE SPECIAL MEETING
The Special Meeting of Peoples Financial's shareholders to consider
and vote on the Merger Agreement will be held on April 12, 1994 at 4:30 p.m.
local time at Peoples Financial's offices at Two West Jackson, Cookeville,
Tennessee. Only holders of record of Peoples Financial Common Stock at the
close of business on March 4, 1994 will be entitled to vote at the Special
Meeting. At such date, there were outstanding and entitled to vote 236,777
shares of Peoples Financial Common Stock. Each share of Peoples Financial
Common Stock is entitled to one vote. For additional information relating to
the special meeting, see "THE SPECIAL MEETING."
VOTE REQUIRED
Approval of the Merger Agreement by the shareholders of Peoples
Financial requires the affirmative vote of a majority of the votes entitled to
be cast by the holders of record of Peoples Financial Common Stock. As of the
record date for the Special Meeting, Peoples Financial directors and executive
officers and
4
<PAGE> 14
their affiliates held approximately 58.7% of the outstanding Peoples Financial
Common Stock. All currently intend to vote in favor of the Merger Agreement.
See "THE SPECIAL MEETING-Vote Required" and "THE MERGER-Conditions to the
Merger."
VOTING OF PROXIES
Peoples Financial Common Stock represented by all properly executed
proxy forms received in time for the Special Meeting will be voted at such
Meeting in the manner specified by the holders thereof. Proxy forms that do
not contain voting instructions will be voted in favor of approval of the
Merger Agreement.
It is not expected that any matter other than those referred to herein
will be brought before the Special Meeting. If, however, other matters are
properly presented, the persons named as proxies will vote in accordance with
their judgment with respect to such matters. See "THE SPECIAL MEETING - Voting
and Revocation of Proxies."
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed Peoples Financial form does not
preclude a shareholder from attending the Special Meeting and voting in person.
A shareholder may revoke a proxy at any time prior to the vote on the Merger by
filing with the Secretary of Peoples Financial a duly executed revocation or
proxy form bearing a later date or by voting in person at the Special Meeting.
Attendance at the Special Meeting will not of itself constitute revocation of
proxy form. See "THE SPECIAL MEETING - Voting and Revocation of Proxies."
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors of Peoples Financial (by a unanimous vote) has
approved the Merger Agreement. The Board of Directors of Peoples Financial
believes the Merger is fair to and in the best interests of the shareholders of
Peoples Financial and recommends a vote for the matters to be voted upon by the
shareholders of Peoples Financial in connection with the Merger. See "THE
MERGER-Background Of The Merger," "-Recommendation Of The Board of Directors
and Reasons for the Merger."
The Board of Directors of Trans Financial has also unanimously
approved the Merger. The approval of the Merger by Trans Financial
shareholders is not required and will not be sought.
5
<PAGE> 15
OPINION OF FINANCIAL ADVISOR
Peoples Financial's financial advisor, Professional Bank Services,
Inc., has rendered its opinion to Peoples Financial's Board of Directors that
the Merger is fair from a financial point of view to the shareholders of
Peoples Financial. A copy of such opinion is set forth as Appendix B and
should be read in its entirety with respect to the assumptions made, other
matters considered and limitations on the reviews undertaken. See "THE
MERGER-Opinion of Financial Advisor."
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of Articles of Merger
with the Kentucky Secretary of State and the Tennessee Secretary of State or at
such later date and time specified therein. The Articles of Merger are
expected to be filed on or before the fifth day after the receipt of all
necessary approvals of the Merger and the expiration of all applicable waiting
periods, or at such other time as Trans Financial and Peoples Financial may
agree. Subject to the conditions specified in the Merger Agreement, the
parties currently expect that the Merger will become effective on or before
April 30,1994, although there can be no assurance as to whether or when the
Merger will occur. See "THE MERGER-Effective Time of the Merger";
"-Conditions to the Merger."
CONDITIONS TO THE MERGER
The respective obligations of Trans Financial and Peoples Financial to
consummate the Merger are subject to certain conditions, including (i) the
approval by the shareholders of Peoples Financial of the Merger Agreement by
the vote required under applicable law at the Special Meeting, (ii) the receipt
of all necessary regulatory approvals on terms and conditions satisfactory to
Trans Financial and (iii) certain other conditions customary in transactions of
this nature. See "THE MERGER-Conditions to the Merger."
REGULATORY APPROVALS
The Merger is subject to the approval of the Federal Reserve Board, the
Office of Thrift Supervision, the Commissioner of the Kentucky Department of
Financial Institutions and the Commissioner of the Tennessee Department of
Financial Institutions. See "THE MERGER-Regulatory Approvals."
WAIVER AND AMENDMENT
Prior to the Effective Time of the Merger, any provision of the Merger
Agreement may be waived, to the extent permitted by law, by the party entitled
to the benefits of such provision. In addition, the Merger Agreement may be
amended at any time upon the
6
<PAGE> 16
written agreement of Trans Financial and Peoples Financial without the approval
of shareholders. See "THE MERGER-Waiver and Amendment."
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any
time prior to the Merger, whether before or after any requisite shareholder
approval, (i) by mutual agreement of the Boards of Directors of Trans Financial
and Peoples Financial, or (ii) by either the Board of Directors of Trans
Financial or the Board of Directors of Peoples Financial at any time after
August 31, 1994, or (iii) by either Trans Financial or Peoples Financial in the
event of a material breach by the other party of any representation, warranty,
covenant or other agreement contained in the Merger Agreement, which breach is
not cured after 30 days written notice to the breaching party. See "THE
MERGER-Terms Of the Merger," "-Conditions to the Merger," "-Regulatory
Approvals," "-Waiver and Amendment," and "-Termination."
RESALES OF TRANS FINANCIAL COMMON STOCK
Trans Financial Common Stock received by affiliates of Peoples
Financial, generally directors and executive officers, may not be resold
without registration under the Securities Act except in compliance with Rules
144 and 145 or as otherwise permitted under the Securities Act. See "THE
MERGER-Resales of Trans Financial Common Stock."
STOCK OPTION AGREEMENTS
Prior to entering into the Merger Agreement, Trans Financial entered
into stock option agreements pursuant to which certain shareholders of Peoples
Financial granted to Trans Financial options (the "Options") to purchase
138,955 shares of Peoples Financial Common Stock, representing 58.7% of the
issued and outstanding shares of Peoples Financial Common Stock, at a price of
$85.19 per share, subject to the terms and conditions set forth in the stock
option agreements. The Options may only be exercised upon the occurrence of
certain purchase events set forth in the stock option agreements. See "THE
MERGER-Stock Option Agreements."
The Options could have the effect of discouraging persons who now or
prior to the Effective Time of the Merger might be interested in acquiring all
of or a significant interest in Peoples Financial from considering or proposing
such an acquisition, even if such persons were prepared to propose greater
consideration per share for Peoples Financial Common Stock than the
consideration per share represented by the Exchange Ratio. In addition, the
Merger Agreement provides that Peoples Financial and its respective
subsidiaries will not, directly or indirectly, solicit or encourage, or take
any other action to facilitate, any inquiries or the
7
<PAGE> 17
making of any proposal that constitutes, or may reasonably be expected to lead
to, any takeover proposal. See "The MERGER-No Solicitation of Transactions by
Peoples Financial."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, to the extent a shareholder of
Peoples Financial exchanges his or her shares of Peoples Financial Common Stock
for Trans Financial Common Stock in the Merger, (i) no gain or loss will be
recognized by a Peoples Financial shareholder who receives solely shares of
Trans Financial Common Stock pursuant to the Merger, (ii) the aggregate tax
basis of the Trans Financial Common Stock received by a Peoples Financial
shareholder will equal the aggregate tax basis of the Peoples Financial stock
surrendered therefor by such shareholder, and (iii) the holding period of the
Trans Financial Common Stock received will generally include the holding period
of the Peoples Financial Common Stock surrendered. A Peoples Financial
shareholder receiving cash in the Merger in lieu of fractional shares or upon
the exercise of dissenters' rights generally will recognize a taxable gain or
loss for federal income tax purposes equal to the difference between the amount
of cash received in the Merger and the shareholder's tax basis in the shares of
Peoples Financial Common Stock surrendered. For a more complete description of
the federal income tax consequences of the Merger, see "THE MERGER-Certain
Federal Income Tax Consequences." Due to the individual nature of the tax
consequences of the Merger, it is recommended that each Peoples Financial
shareholder consult his or her own tax advisor concerning the tax consequences
of the Merger.
DISSENTERS' RIGHTS
Any shareholder of Peoples Financial will have the right to dissent
from the Merger and to demand a determination of the fair value of the
shareholder's shares in the event the Merger is approved and the Merger
consummated. The right of any shareholder to receive the fair value of his or
her shares is contingent upon strict compliance with the provisions of Chapter
23 of the Tennessee Business Corporation Act ("TBCA"), a copy of which is
included as Appendix C to this Proxy Statement-Prospectus. See "THE
MERGER-Dissenters' Rights."
Pursuant to Chapter 23 of the TBCA, any holder of Peoples Financial
Common Stock who desires to dissent from the Merger must initially take two
actions to perfect his or her rights. First, the shareholder must deliver to
Peoples Financial, before the vote on the Merger is taken, written notice of
his or her intent to demand payment for his or her shares if the Merger is
effectuated. Merely voting against the Merger or returning a proxy indicating
a vote against the Merger will not satisfy this notice requirement. Second,
the shareholder must not vote his or her shares in favor of
8
<PAGE> 18
the Merger. A shareholder's failure to vote with respect to the Merger will
not, by itself, constitute a waiver of that shareholder's right to dissent
under the TBCA. However, if a shareholder returns a signed proxy but does not
specify a vote against approval of the Merger or a direction to abstain, the
proxy, if not revoked, will be voted for approval of the Merger, which will
have the effect of waiving that shareholder's dissenter's rights.
MARKETS AND MARKET PRICES
Trans Financial Common Stock is traded in the over-the-counter market
and quoted on the NASDAQ National Market under the symbol TRFI. Shares of
Peoples Financial Common Stock trade infrequently and therefore no meaningful
information regarding a market price of Peoples Financial Common Stock exists.
See "COMPARATIVE STOCK PRICES AND DIVIDENDS." The following table sets forth
the closing price per share of Trans Financial Common Stock as quoted on the
NASDAQ National Market and the equivalent per share price (as explained below)
of Peoples Financial Common Stock on December 23, 1993, the first trading day
immediately preceding the date the Merger was publicly announced and on
March 3, 1994.
<TABLE>
<CAPTION>
Market Price Trans Financial Equivalent
Per Share At: Common Stock Per Share Price
------------- ------------ ---------------
<S> <C> <C>
December 23, 1993 $16.00 $88.00
March 3, 1994 $15.625 $85.94
</TABLE>
The equivalent per share price of shares of Peoples Financial Common
Stock at each specified date represents the closing price of a share of Trans
Financial Common Stock on such date multiplied by the Exchange Ratio. However,
no assurance can be given as to the market price of Trans Financial Common
Stock at or after the Effective Time of the Merger and shareholders are advised
to obtain current market quotations for Trans Financial Common Stock.
COMPARATIVE UNAUDITED PER SHARE INFORMATION
The following summary presents selective comparative per share
information: /i/ for Trans Financial on an historical basis, on an historical
basis as adjusted to reflect the acquisition of KCB, and on a pro forma
combined basis assuming the Merger, including and excluding the acquisition of
FGC, had been effective during the periods presented, and /ii/ for Peoples
Financial on an historical basis and on an equivalent pro forma basis for all
periods presented (including Citizens Federal which was acquired by Peoples
Financial on February 1, 1993 in a transaction accounted for as a pooling of
interests). The equivalent pro forma per share data represents Peoples
Financial's equivalent book value, cash dividends and net income per share
based on the Exchange Ratio.
9
<PAGE> 19
The comparative per share information has been prepared giving effect to the
Merger as a pooling of interests. For a description of the effects of pooling
of interests accounting on the Merger and the historical financial statements
of Trans Financial, see "THE MERGER-Accounting Treatment." The comparative per
share information should be read in conjunction with the historical
consolidated financial statements of Trans Financial, KCB and FGC and the
related notes thereto included in documents incorporated herein by reference,
and in conjunction with the historical consolidated financial statements of
Peoples Financial and the historical financial statements of Citizens Federal
and the related notes thereto and the pro forma financial information contained
elsewhere in this Proxy Statement-Prospectus. See "INCORPORATION OF CERTAIN
INFORMATION BY REFERENCE" and "PRO FORMA FINANCIAL INFORMATION." The following
information is not necessarily indicative of the results of operations or
combined financial position that would have resulted had the Merger been
consummated at the beginning of the periods indicated, nor is it necessarily
indicative of the results of operations of future periods or future combined
financial position. All per share information for Trans Financial Common Stock
has been adjusted for a 4-for-3 stock split effected on December 18, 1992, and
a 4-for-3 stock split effected on December 16, 1991.
10
<PAGE> 20
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1993 FOR THE YEARS ENDED DECEMBER 31,
------------------------ --------------------------------
1992 1991 1990
---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME PER COMMON SHARE (BEFORE
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE) (PRIMARY):
TRANS FINANCIAL
Historical $ 0.92 $ 1.30 $1.29 $1.28
Historical including KCB
acquisition 0.93 1.25 1.14 1.00
Pro forma combined
Including FGC acquisition 0.96 1.25 1.03 0.87
Excluding FGC acquisition 0.92 1.21 0.99 0.84
PEOPLES FINANCIAL
Historical 5.01 5.41 2.63 1.89
Pro forma equivalent (1)
Including FGC acquisition 5.28 6.88 5.67 4.79
Excluding FGC acquisition 5.06 6.66 5.44 4.62
NET INCOME PER COMMON SHARE (BEFORE
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE) (FULLY DILUTED):
TRANS FINANCIAL
Historical $ 0.92 $ 1.30 $ 1.17 $ 1.14
Historical including KCB
acquisition 0.93 1.25 1.07 0.95
Pro forma combined
Including FGC acquisition 0.96 1.25 0.99 0.85
Excluding FGC acquisition 0.92 1.21 0.94 0.81
PEOPLES FINANCIAL
Historical 5.01 5.41 2.63 1.89
Pro forma equivalent (1)
Including FGC acquisition 5.28 6.88 5.45 4.68
Excluding FGC acquisition 5.06 6.66 5.17 4.46
DIVIDENDS DECLARED PER COMMON SHARE:
Trans Financial - historical $ 0.3825 $ 0.44 $0.36 $0.34
Trans Financial - pro forma
combined (2) 0.3825 0.44 0.36 0.34
Peoples Financial - historical - - - -
Peoples Financial - pro forma
equivalent (1) 2.10 2.42 1.98 1.87
STOCKHOLDERS' EQUITY PER
COMMON SHARE AT END OF PERIOD:
TRANS FINANCIAL
Historical $ 10.03 $ 9.42 - -
Historical including KCB
acquisition 9.96 9.31 - -
Pro forma combined
Including FGC acquisition 9.69 8.85
Excluding FGC acquisition 9.78 9.00 - -
PEOPLES FINANCIAL
Historical 47.45 44.49 - -
Pro forma equivalent (1)
Including FGC acquisition 53.30 48.68
Excluding FGC acquisition 53.79 49.50 - -
</TABLE>
__________________________
(1) Represents Peoples Financial's equivalent stockholder's equity,
cash dividends and net income per share based on the Exchange
Ratio.
(2) Assumes no change in cash dividends declared per share.
11
<PAGE> 21
TRANS FINANCIAL PRELIMINARY OPERATING RESULTS
AT DECEMBER 31, 1993
On January 25, 1994, Trans Financial reported unaudited preliminary
operating results for the three months and year ended December 31, 1993. For
the quarter ended December 31, 1993, Trans Financial had net earnings of $2.5
million, an increase of 5% over net earnings of $2.4 million for the fourth
quarter of 1992. Earnings per common share on a fully diluted basis were $0.33
for the fourth quarter of 1993. For the year ended December 31, 1993, Trans
Financial had net earnings of $9.3 million, or $1.24 per common share on a
fully diluted basis as compared with $9.06 million and $1.30 per common share
in 1992. Trans Financial reported at December 31, 1993 consolidated total
assets of $1.2 billion, total loans, net of unearned discount, of $769 million,
total deposits of $994 million and total stockholders' equity of $76.3 million.
At December 31, 1993, book value per common share was $10.28.
Trans Financial's operating results for the year ended December 31,
1993 will be reported in Trans Financial's Annual Report on Form 10-K expected
to be filed with the Commission on or before March 31, 1994. Trans Financial
does not believe that the final operating results for the year ended December
31, 1993 will be materially different from the preliminary operating results.
PEOPLES FINANCIAL PRELIMINARY OPERATING RESULTS
AT DECEMBER 31, 1993
Peoples Financial has also reported unaudited preliminary operating
results for the three months and year ended December 31, 1993. For the quarter
ended December 31, 1993, Peoples Financial had net earnings of $333,300,
compared to net earnings of $300,500 for the fourth quarter of 1992. Earnings
per common share on a fully diluted basis were $1.43 for the fourth quarter of
1993. For the year ended December 31, 1993, Peoples had net earnings of
$1.5 million, or $6.44 per common share on a fully diluted basis, as compared
with $1.2 million and $5.41 per common share in 1992. Peoples reported at
December 31, 1993 consolidated total assets of $122.6 million, total loans,
net of unearned discount, of $66.6 million, total deposits of $110.1 million
and total stockholders' equity of $11.6 million. At December 31, 1993, book
value per common share was $48.99.
Peoples's operating results for the year ended December 31, 1993 will
be reported in Peoples's Annual Report on Form 10-K expected to be filed with
the Commission on or before March 31, 1994. Peoples does not believe that the
final operating results for the year ended December 31, 1993 will be materially
different from the preliminary operating results.
12
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following tables set forth certain historical financial information
for Trans Financial, KCB, FGC and Peoples Financial and certain pro forma
financial information giving effect to the Merger, including and excluding the
acquisition of FGC, as if each had been effective during the periods presented.
The selected historical financial information is based on, derived from, and
should be read in conjunction with, the historical consolidated financial
statements of Trans Financial, KCB and FGC, and the related notes thereto,
included in the documents incorporated herein by reference and the historical
consolidated financial statements of Peoples Financial and Citizens Federal and
the related notes thereto appearing elsewhere in this Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
All of the following selected financial information should be read in
conjunction with the pro forma financial information including the notes
thereto, appearing elsewhere in this Proxy Statement-Prospectus. See "PRO
FORMA FINANCIAL INFORMATION." All per share information for Trans Financial
Common Stock has been adjusted for a 4-for-3 stock split effected December 18,
1992 and a 4-for-3 stock split effected December 16, 1991.
The unaudited pro forma financial information is not necessarily
indicative of the results that actually would have occurred had the Merger been
consummated on the dates indicated or that may be obtained in the future.
Interim unaudited information for Trans Financial and Peoples Financial
reflect, in the opinion of the managements of Trans Financial and Peoples
Financial, respectively, all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of such information. Interim
results are not necessarily indicative of the results which may be expected for
any other interim period or for the year as a whole.
13
<PAGE> 23
Trans Financial Bancorp, Inc.
Consolidated Selected Financial Data
<TABLE>
<CAPTION>
Nine
Months
Ended Year Ended December 31,
09/30/93 --------------------------------------------------------------------
(unaudited) 1992 1991 1990 1989 1988
----------- ---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 29,205 $ 31,396 $ 18,733 $ 16,489 $ 15,551 $ 14,539
Provision for loan losses 1,321 1,216 750 1,529 1,324 831
Net interest income
after provision for loan losses 27,884 30,180 17,983 14,960 14,227 13,708
Non-interest income 9,941 11,064 6,542 5,179 4,323 3,950
Non-interest expense 27,904 27,498 17,957 14,873 13,560 14,109
Income tax expense 2,990 4,686 2,028 1,412 1,197 752
Income before cumulative effect
of accounting change 6,931 9,060 4,540 3,854 3,793 2,797
Per common share
Income before cumulative effect
of accounting change:
Primary $ 0.92 $ 1.30 $ 1.29 $ 1.28 $ 1.27 $ 0.94
Fully diluted 0.92 1.30 1.17 1.14 1.13 0.85
Stockholders' equity at year (period)
end 10.03 9.42 8.44 7.68 6.90 5.88
Cash dividends declared 0.3825 0.44 0.36 0.34 0.31 0.26
At year (period) end:
Total assets $ 1,178,743 $ 978,481 $ 586,680 $ 485,725 $ 430,510 $ 409,945
Total loans, net of unearned income 752,466 545,758 347,055 327,879 289,023 271,026
Total deposits 1,002,462 860,338 509,301 418,048 378,391 336,063
Total stockholders' equity 74,308 69,532 40,533 28,046 22,831 19,683
Allowance for loan losses 8,288 5,537 4,192 4,106 3,389 2,878
Selected ratios:
Return on average assets 0.92 % 1.09 % 0.89 % 0.90 % 0.92 % 0.72 %
Return on average stockholders' equity 12.96 14.02 14.41 15.52 17.42 14.66
Average stockholders' equity
to average total assets 7.10 7.80 6.18 5.77 5.31 4.95
Leverage ratio 5.88 6.54 6.17 5.01 - -
Tier one risk-based capital ratio 8.66 10.50 8.42 6.41 - -
Total risk-based capital ratio 13.84 11.41 10.55 8.81 - -
Dividend payout 41.58 34.04 27.62 26.47 24.08 28.00
Allowance for loan losses as a
percentage of average net loans 1.32 1.07 1.23 1.36 1.21 1.13
Nonperforming loans as a
percentage of year end net loans 1.01 1.11 2.06 1.67 1.08 1.07
Net charge-offs as a
percentage of average net loans 0.21 0.17 0.19 0.29 0.29 0.28
Net interest margin 4.21 4.13 4.01 4.22 4.20 4.23
</TABLE>
14
<PAGE> 24
Kentucky Community Bancorp, Inc.
Consolidated Selected Financial Data
<TABLE>
<CAPTION>
Nine
Months
Ended Year Ended December 31,
09/30/93 --------------------------------------------------------------------
(unaudited) 1992 1991 1990 1989 1988
----------- ---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 5,607 $ 7,202 $ 6,482 $ 5,954 $ 5,838 $ 5,811
Provision for loan losses 338 838 772 1,052 1,486 520
Net interest income
after provision for loan losses 5,269 6,364 5,710 4,902 4,352 5,291
Non-interest income 989 1,514 1,396 1,238 1,067 1,104
Non-interest expense 4,469 6,157 5,748 5,392 5,195 5,042
Income tax expense (credit) 481 372 293 120 (193) 187
Income before cumulative effect
of accounting change 1,308 1,349 1,065 628 417 1,166
Per common share
Income before cumulative effect
of accounting change:
Primary $ 5.11 $ 5.244 $ 4.14 $ 2.44 $ 1.61 $ 4.54
Fully diluted 5.11 5.24 4.14 2.44 1.61 4.54
Stockholders' equity at year (period) end 51.17 46.50 41.60 37.79 35.82 34.82
Cash dividends declared 0.65 0.53 0.05 0.50 0.50 0.50
At year (period) end:
Total assets $171,296 $167,491 $166,138 $161,019 $158,434 $153,375
Total loans, net of unearned income 104,565 102,448 98,570 96,773 97,865 102,749
Total deposits 154,388 150,889 148,228 143,483 140,663 134,865
Total stockholders' equity 13,220 11,963 10,702 9,722 9,212 8,994
Allowance for loan losses 1,963 1,980 1,791 1,641 1,476 934
Selected ratios:
Return on average assets 1.02 % 0.82 % 0.65 % 0.39 % 0.27 % 0.77 %
Return on average stockholders' equity 13.40 11.76 10.43 6.56 4.54 13.85
Average stockholders' equity
to average total assets 7.49 6.95 6.18 6.01 5.93 5.55
Leverage ratio 6.78 6.12 5.46 5.32 - -
Tier one risk-based capital ratio 11.18 10.12 8.71 8.55 - -
Total risk-based capital ratio 12.43 13.71 12.30 11.29 - -
Dividend payout 12.10 10.02 12.08 20.47 30.93 10.51
Allowance for loan losses as a
percentage of average net loans 1.88 1.94 1.84 1.70 1.47 0.93
Nonperforming loans as a
percentage of year end loans 1.00 0.74 2.02 1.32 2.01 0.76
Net charge-offs as a
percentage of average net loans 0.35 0.63 0.64 0.92 0.94 0.36
Net interest margin 4.79 4.84 4.45 4.41 4.38 4.47
</TABLE>
15
<PAGE> 25
Peoples Financial Services, Inc.
Consolidated Selected Financial Data
<TABLE>
<CAPTION>
Nine
Months
Ended
09/30/93 Year Ended December 31,
------------- -----------------------------------------------------------------------
(unaudited) 1992 1991 1990 1989 1988
------------- ---------- ------------ ----------- ---------- ----------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 3,864 $ 4,733 $ 3,438 $ 2,424 $ 1,937 $ 1,503
Provision for loan losses 157 263 470 274 618 426
Net interest income
after provision for loan losses 3,707 4,470 2,968 2,150 1,319 1,077
Non-interest income 859 748 859 749 398 263
Non-interest expense 2,618 3,198 2,815 2,317 2,089 1,644
Income tax expense (credit) 780 792 435 172 (48) (84)
Income before cumulative effect
of accounting change $ 1,168 $ 1,228 $ 577 $ 410 ($ 324) ($ 220)
Per common share
Income before cumulative effect
of accounting change:
Primary $ 5.01 $ 5.41 $ 2.63 $ 1.89 $ 0.80 $ (0.52)
Fully diluted 5.01 5.41 2.63 1.89 0.80 (0.52)
Stockholders' equity at year (period) end 47.45 44.49 38.52 35.71 33.72 35.29
Cash dividends declared 0.00 0.00 0.00 0.00 0.00 0.00
At year (period) end:
Total assets $ 119,918 $112,210 $103,282 $ 84,786 $77,342 $67,285
Total loans, net of unearned income 67,161 65,484 62,075 49,699 41,844 33,739
Total deposits 107,924 102,232 92,936 74,192 66,220 54,911
Total stockholders' equity 11,236 9,146 7,918 7,341 6,931 7,254
Allowance for loan losses 1,075 922 836 555 481 263
Selected ratios:
Return on average assets 1.33 % 1.14 % 0.62 % 0.51 % (0.46)% (0.36)%
Return on average stockholders' equity 14.91 14.41 7.63 5.77 (4.49) (4.18)
Average stockholders' equity
to average total assets 8.94 7.93 8.12 8.90 10.26 8.58
Leverage ratio 9.37 8.15 7.67 8.66 8.96 10.78
Tier one risk-based capital ratio 9.29 8.08 7.60 8.60 8.91 10.74
Total risk-based capital ratio 10.17 8.90 8.41 9.25 9.52 11.13
Dividend payout - - - - - -
Allowance for loan losses as a
percentage of average net loans 1.57 1.46 1.48 1.20 1.25 0.86
Nonperforming loans as a
percentage of year end loans 0.58 1.93 2.02 2.80 6.72 2.57
Net charge-offs as a
percentage of average net loans 0.01 0.28 0.33 0.43 1.04 1.12
Net interest margin 4.78 4.70 3.94 3.29 3.06 2.65
</TABLE>
16
<PAGE> 26
FGC Holding Company
Consolidated Selected Financial Data
<TABLE>
<CAPTION>
Nine
Months
Ended Year Ended December 31,
09/30/93 -------------------------------------------------------
(unaudited) 1992 1991(a) 1990(a) 1989(a) 1988(a)
----------- ---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Net interest income $4,197 $5,220 $4,227 $3,944 $3,411 $3,568
Provision for loan losses 390 300 250 560 300 685
Net interest income
after provision for loan losses 3,807 4,920 3,977 3,384 3,111 2,883
Non-interest income 332 495 471 351 399 348
Non-interest expense 2,169 3,038 2,708 2,248 2,104 2,020
Income tax expense (credit) 478 550 327 299 188 96
Income before cumulative effect
of accounting change $1,492 $1,827 $1,413 $1,188 $1,218 $1,115
Per common share
Income before cumulative effect
of accounting change:
Primary $572.33 $698.11 $532.67 $442.70 $454.70 $415.20
Fully diluted $572.33 $698.11 $532.67 $442.70 $454.70 $415.20
Stockholders' equity at year (period) end 3,672.93 3,180.73 2,402.64 1,870.05 1,469.41 1,014.79
Cash dividends declared - - - - - -
At year (period) end:
Total assets $126,284 $122,444 $120,305 $112,084 $109,590 $97,224
Total loans, net of unearned income 65,836 66,397 60,255 55,547 58,388 57,627
Total deposits 110,880 108,698 107,198 97,000 96,751 84,725
Total stockholders' equity 10,196 8,765 7,019 5,687 4,685 3,548
Allowance for loan losses 1,371 1,157 881 881 966 906
Selected ratios:
Return on average assets 1.62 % 1.51 % 1.25 % 0.99 % 1.25 % 1.18 %
Return on average stockholders' equity 19.70 20.84 20.13 18.89 26.00 31.43
Average stockholders' equity
to average total assets 8.17 7.24 6.19 5.27 4.79 3.77
Leverage ratio 6.92 5.99 4.56 3.63 - -
Tier one risk-based capital ratio 12.17 10.81 8.94 7.46 - -
Total risk-based capital ratio 13.42 12.06 10.19 8.71 - -
Dividend payout - - - - - -
Allowance for loan losses as a
percentage of average net loans 2.07 1.82 1.52 1.51 1.67 1.56
Nonperforming loans as a
percentage of year end loans 1.73 2.34 1.92 1.92 3.38 1.95
Net charge-offs as a
percentage of average net loans 0.35 0.04 0.43 1.10 0.42 0.83
Net interest margin 4.55 4.37 3.78 3.71 3.57 3.85
</TABLE>
(a) Financial data for the years ended December 31, 1988, 1989, 1990 and 1991
is unaudited.
17
<PAGE> 27
TRANS FINANCIAL BANCORP, INC.
Pro Forma Consolidated Selected Financial Data
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1993
-----------------------------------------------------------------
TRANS KENTUCKY PRO FORMA PEOPLES
FINANCIAL COMMUNITY EXCLUDING FINANCIAL
BANCORP BANCORP PEOPLES & FGC SERVICES
---------- --------- ------------- --------
<S> <C> <C> <C> <C>
Net interest income $ 29,205 $ 5,607 $ 34,812 $ 3,864
Provision for loan losses 1,321 338 1,659 157
Net interest income after
provision for loan losses 27,884 5,269 33,153 3,707
Non-interest income 9,941 989 10,930 859
Non-interest expenses 27,904 4,469 32,373 2,618
Income tax expense 2,990 481 3,471 780
Income before cumulative effect
of accounting change $ 6,931 $ 1,308 $ 8,239 $ 1,168
Per common share:
Income before cumulative effect
of accounting change:
Primary $ 0.92 $ 5.11 $ 0.93 $ 5.01
Fully diluted 0.92 5.11 0.93 5.01
Stockholders' equity at year (period) end 10.03 51.17 9.96 47.45
Cash dividends declared 0.3825 0.65 0.3825 -
At year (period) end:
Total assets $ 1,178,743 $ 171,296 $ 1,350,039 $ 119,918
Total loans, net of unearned income 752,466 104,565 857,031 67,161
Total deposits 1,002,462 154,388 1,156,850 107,924
Total stockholders' equity 74,308 13,220 87,528 11,236
Allowance for loan losses 8,288 1,963 10,251 1,075
Selected ratios:
Return on average assets 0.92 % 1.02 % 0.93 % 1.33 %
Return on average stockholders' equity 12.96 13.40 13.03 14.91
Average stockholders' equity
to average total assets 7.10 7.49 7.17 8.94
Leverage ratio 5.88 6.78 5.99 9.37
Tier one risk-based capital ratio 8.66 11.18 8.83 9.29
Total risk-based capital ratio 13.84 12.43 13.57 10.17
Dividend payout 41.58 12.10 41.13 -
Allowance for loan losses as a
percentage of average net loans 1.32 1.88 1.40 1.57
Nonperforming loans as a
percentage of year end loans 1.01 1.00 1.01 0.58
Net charge-offs as a
percentage of average net loans 0.21 0.35 0.25 0.01
Net interest margin 4.21 4.79 4.28 4.78
<CAPTION>
Nine Months Ended September 30, 1993
--------------------------------------------
PRO FORMA FGC PRO FORMA
EXCLUDING HOLDING INCLUDING
FGC COMPANY FGC
---------- ------- ----------
<S> <C> <C> <C>
Net interest income $ 38,676 $ 4,197 $ 42,873
Provision for loan losses 1,816 390 2,206
Net interest income after
provision for loan losses 36,860 3,807 40,667
Non-interest income 11,789 332 12,121
Non-interest expenses 34,991 2,169 37,160
Income tax expense 4,251 478 4,729
Income before cumulative effect
of accounting change $ 9,407 $ 1,492 $ 10,899
Per common share:
Income before cumulative effect
of accounting change:
Primary $ 0.92 $ 572.33 $ 0.96
Fully diluted 0.92 572.33 0.96
Stockholders' equity at year (period) end 9.78 3,672.93 9.69
Cash dividends declared 0.3825 - 0.3825
At year (period) end:
Total assets $ 1,469,957 $ 126,284 $ 1,596,241
Total loans, net of unearned income 924,192 65,836 990,028
Total deposits 1,264,774 110,880 1,375,654
Total stockholders' equity 98,764 10,196 108,960
Allowance for loan losses 11,326 1,371 12,697
Selected ratios:
Return on average assets 0.97% 1.62% 1.03%
Return on average stockholders' equity 13.23 19.70 3.85
Average stockholders' equity
to average total assets 7.33 8.17 7.41
Leverage ratio 6.27 6.92 6.32
Tier one risk-based capital ratio 8.88 12.17 9.09
Total risk-based capital ratio 13.17 13.42 13.23
Dividend payout 41.58 - 39.84
Allowance for loan losses as a
percentage of average net loans 1.42 2.07 1.47
Nonperforming loans as a
percentage of year end loans 0.98 1.73 1.03
Net charge-offs as a
percentage of average net loans 0.23 0.35 0.24
Net interest margin 4.32 4.55 4.34
</TABLE>
18
<PAGE> 28
TRANS FINANCIAL BANCORP, INC.
Pro Forma Consolidated Selected Financial Data
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1992
-------------------------------------------------------------------------
TRANS KENTUCKY PRO FORMA PEOPLES PRO FORMA
FINANCIAL COMMUNITY EXCLUDING FINANCIAL EXCLUDING
BANCORP BANCORP PEOPLES & FGC SERVICES FGC
--------- --------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net interest income $ 31,396 7,202 38,598 4,733 43,331
Provision for loan losses 1,216 838 2,054 263 2,317
Net interest income after
provision for loan losses 30,180 6,364 36,544 4,470 41,014
Non-interest income 11,064 1,514 12,578 748 13,326
Non-interest expenses 27,498 6,157 33,655 3,198 36,853
Income tax expense 4,686 372 5,058 792 5,850
Income before cumulative effect
of accounting change $ 9,060 $ 1,349 $ 10,409 $ 1,228 $ 11,637
Per common share:
Income before cumulative effect
of accounting change:
Primary $ 1.30 $ 5.24 $ 1.25 $ 5.41 $ 1.21
Fully diluted 1.30 5.24 1.25 5.41 1.21
Stockholders' equity at year (period) end 9.42 46.50 9.31 44.49 9.00
Cash dividends declared 0.44 0.53 0.44 - 0.44
At year (period) end:
Total assets $ 978,481 $ 167,491 $ 1,145,972 $ 112,210 $ 1,258,182
Total loans, net of unearned income 545,758 102,488 648,246 65,484 713,730
Total deposits 860,338 150,889 1,011,227 102,232 1,113,459
Total stockholders' equity 69,532 11,963 81,495 9,146 90,641
Allowance for loan losses 5,537 1,980 7,517 922 8,439
Selected ratios:
Return on average assets 1.09 % 0.82 % 1.05 % 1.14 % 1.06 %
Return on average stockholders' equity 14.02 11.76 13.68 14.41 13.75
Average stockholders' equity
to average total assets 7.80 6.95 7.66 7.93 7.69
Leverage ratio 6.54 6.12 6.48 8.15 6.63
Tier one risk-based capital ratio 10.50 10.12 10.44 8.08 10.12
Total risk-based capital ratio 11.41 13.71 11.84 8.90 11.44
Dividend payout 34.04 10.02 35.40 - 36.57
Allowance for loan losses as a
percentage of average net loans 1.07 1.94 1.22 1.46 1.24
Nonperforming loans as a
percentage of year end loans 1.11 0.74 1.05 1.93 1.13
Net charge-offs as a
percentage of average net loans 0.17 0.63 0.25 0.28 0.25
Net interest margin 4.13 4.84 4.25 4.70 4.30
<CAPTION>
Year Ended December 31, 1992
----------------------------
FGC PRO FORMA
HOLDING INCLUDING
COMPANY FGC
------- ---------
<S> <C> <C>
Net interest income 5,220 48,551
Provision for loan losses 300 2,617
Net interest income after
provision for loan losses 4,920 45,934
Non-interest income 495 13,821
Non-interest expenses 3,038 39,891
Income tax expense 550 6,400
Income before cumulative effect
of accounting change $ 1,827 $ 13,464
Per common share:
Income before cumulative effect
of accounting change:
Primary $ 698.11 $ 1.25
Fully diluted 698.11 1.25
Stockholders' equity at year (period) end 3,180.73 8.85
Cash dividends declared - 0.44
At year (period) end:
Total assets $ 122,444 $ 1,380,626
Total loans, net of unearned income 66,397 780,127
Total deposits 108,698 1,222,157
Total stockholders' equity 8,765 99,406
Allowance for loan losses 1,157 9,596
Selected ratios:
Return on average assets 1.51 % 1.10 %
Return on average stockholders' equity 20.84 14.42
Average stockholders' equity
to average total assets 7.24 7.64
Leverage ratio 5.99 6.57
Tier one risk-based capital ratio 10.81 10.17
Total risk-based capital ratio 12.06 11.52
Dividend payout - 35.20
Allowance for loan losses as a
percentage of average net loans 1.82 1.29
Nonperforming loans as a
percentage of year end loans 2.34 1.23
Net charge-offs as a
percentage of average net loans 0.04 0.23
Net interest margin 4.37 4.30
</TABLE>
19
<PAGE> 29
TRANS FINANCIAL BANCORP, INC.
Pro Forma Consolidated Selected Financial Data
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1991
------------------------------------------------------------------------
TRANS KENTUCKY PRO FORMA PEOPLES PRO FORMA
FINANCIAL COMMUNITY EXCLUDING FINANCIAL EXCLUDING
BANCORP BANCORP PEOPLES & FGC SERVICES FGC
---------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Net interest income 18,733 6,482 25,215 3,438 28,653
Provision for loan losses 750 772 1,522 470 1,992
Net interest income after
provision for loan losses 17,983 5,710 23,693 2,968 26,661
Non-interest income 6,542 1,396 7,938 859 8,797
Non-interest expenses 17,957 5,748 23,705 2,815 26,520
Income tax expense 2,028 293 2,321 435 2,756
Income before cumulative effect
of accounting change $ 4,540 $ 1,065 $ 5,605 $ 577 $ 6,182
Per common share:
Income before cumulative effect
of accounting change:
Primary $ 1.29 $ 4.14 $ 1.14 $ 2.63 $ 0.99
Fully diluted 1.17 4.14 1.07 2.63 0.94
Stockholders' equity at year (period) end 8.44 41.60 8.28 38.52 7.87
Cash dividends declared 0.36 0.50 0.36 - 0.36
At year (period) end:
Total assets $ 586,680 $ 166,138 $ 752,818 $ 103,282 $ 856,100
Total loans, net of unearned income 347,055 98,570 445,625 62,075 507,700
Total deposits 509,301 148,228 657,529 92,936 750,465
Total stockholders' equity 40,533 10,702 51,235 7,918 59,153
Allowance for loan losses 4,192 1,791 5,983 836 6,819
Selected ratios:
Return on average assets 0.89 % 0.65 % 0.83 % 0.62 % 0.80 %
Return on average stockholders' equity 14.41 10.43 13.44 7.63 12.55
Average stockholders' equity
to average total assets 6.18 6.18 6.18 8.12 6.41
Leverage ratio 6.17 5.46 5.99 7.67 6.19
Tier one risk-based capital ratio 8.42 8.71 8.48 7.60 8.33
Total risk-based capital ratio 10.55 12.30 10.98 8.41 10.56
Dividend payout 27.62 12.08 31.25 - 36.36
Allowance for loan losses as a
percentage of average net loans 1.23 1.84 1.36 1.48 1.38
Nonperforming loans as a
percentage of year end loans 2.06 2.02 2.05 2.02 2.05
Net charge-offs as a
percentage of average net loans 0.19 0.64 0.29 0.33 0.30
Net interest margin 4.01 4.45 4.12 3.94 4.10
<CAPTION>
Year Ended December 31, 1991
----------------------------
FGC PRO FORMA
HOLDING INCLUDING
COMPANY FGC
--------- ---------
<S> <C> <C>
Net interest income 4,227 32,880
Provision for loan losses 250 2,242
Net interest income after
provision for loan losses 3,977 30,638
Non-interest income 471 9,268
Non-interest expenses 2,708 29,228
Income tax expense 327 3,083
Income before cumulative effect
of accounting change $ 1,413 $ 7,595
Per common share:
Income before cumulative effect
of accounting change:
Primary $ 561.74 $ 1.03
Fully diluted 561.74 0.99
Stockholders' equity at year (period) end 2402.64 7.60
Cash dividends declared - 0.36
At year (period) end:
Total assets $ 120,305 $976,405
Total loans, net of unearned income 60,255 567,955
Total deposits 107,198 857,663
Total stockholders' equity 7,019 66,172
Allowance for loan losses 881 7,700
Selected ratios:
Return on average assets 1.25% 0.86%
Return on average stockholders' equity 20.13 13.49
Average stockholders' equity
to average total assets 6.19 6.38
Leverage ratio 4.56 5.99
Tier one risk-based capital ratio 8.94 8.39
Total risk-based capital ratio 10.19 10.54
Dividend payout - 34.95
Allowance for loan losses as a
percentage of average net loans 1.52 1.39
Nonperforming loans as a
percentage of year end loans 1.92 2.04
Net charge-offs as a
percentage of average net loans 0.43 0.31
Net interest margin 3.78 4.05
</TABLE>
20
<PAGE> 30
TRANS FINANCIAL BANCORP, INC.
Pro Forma Consolidated Selected Financial Data
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1990
--------------------------------------------------------------------------
TRANS KENTUCKY PRO FORMA PEOPLES PRO FORMA
FINANCIAL COMMUNITY EXCLUDING FINANCIAL EXCLUDING
BANCORP BANCORP PEOPLES & FGC SERVICES FGC
---------- ----------- ------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Net interest income $ 16,489 $ 5,954 $ 22,443 $ 2,424 $ 24,867
Provision for loan losses 1,529 1,052 2,581 274 2,855
Net interest income after
provision for loan losses 14,960 4,902 19,862 2,150 22,012
Non-interest income 5,179 1,238 6,417 749 7,166
Non-interest expenses 14,873 5,392 20,265 2,317 22,582
Income tax expense 1,412 120 1,532 172 1,704
Income before cumulative effect
of accounting change: $ 3,854 $ 628 $ 4,482 $ 410 $ 4,892
Per common share:
Income before cumulative effect
of accounting change:
Primary $ 1.28 $ 2.44 $ 1.00 $ 1.89 $ 0.84
Fully diluted 1.14 2.44 0.95 1.89 0.81
Stockholders' equity at year (period) end 7.68 37.79 7.48 35.71 7.02
Cash dividends declared 0.34 0.50 0.34 - 0.34
At year (period) end:
Total assets $ 485,725 $ 161,019 $ 646,744 $ 84,786 $ 731,530
Total loans, net of unearned income 327,879 96,773 424,652 49,699 474,351
Total deposits 418,048 143,483 561,531 74,192 635,723
Total stockholders' equity 28,046 9,722 37,768 7,341 45,109
Allowance for loan losses 4,106 1,641 5,747 555 6,302
Selected ratios:
Return on average assets 0.90 % 0.39 % 0.76 % 0.51 % 0.73 %
Return on average stockholders' equity 15.52 6.56 13.03 5.77 11.79
Average stockholders' equity
to average total assets 5.77 6.01 5.84 8.90 6.20
Leverage ratio 5.01 5.32 5.25 8.66 5.65
Tier one risk-based capital ratio 6.41 8.55 6.64 8.60 6.92
Total risk-based capital ratio 8.81 11.29 9.39 9.25 9.37
Dividend payout 26.47 20.47 33.88 - 40.33
Allowance for loan losses as a
percentage of average net loans 1.36 1.70 1.44 1.20 1.42
Nonperforming loans as a
percentage of year end loans 1.67 1.32 1.59 2.80 1.72
Net charge-offs as a
percentage of average net loans 0.29 0.92 0.44 0.43 0.44
Net interest margin 4.22 4.41 4.27 3.29 4.15
<CAPTION>
Year Ended December 31, 1990
----------------------------
FGC PRO FORMA
HOLDING INCLUDING
COMPANY FGC
--------- -----------
<S> <C> <C>
Net interest income $ 3,944 $ 28,811
Provision for loan losses 560 3,415
Net interest income after
provision for loan losses 3,384 25,396
Non-interest income 351 7,517
Non-interest expenses 2,248 24,830
Income tax expense 299 2,003
Income before cumulative effect
of accounting change $ 1,188 $ 6,080
Per common share:
Income before cumulative effect
of accounting change:
Primary $ 442.70 $ 0.87
Fully diluted 442.70 0.85
Stockholders' equity at year (period) end 1,870.05 6.61
Cash dividends declared - 0.34
At year (period) end:
Total assets $ 112,084 $ 843,614
Total loans, net of unearned income 55,547 529,898
Total deposits 97,000 732,723
Total stockholders' equity 5,687 50,796
Allowance for loan losses 881 7,183
Selected ratios:
Return on average assets 0.99 % 0.77 %
Return on average stockholders' equity 18.89 12.64
Average stockholders' equity
to average total assets 5.27 6.07
Leverage ratio 3.63 5.38
Tier one risk-based capital ratio 7.46 6.97
Total risk-based capital ratio 8.71 9.35
Dividend payout - 39.08
Allowance for loan losses as a
percentage of average net loans 1.51 1.43
Nonperforming loans as a
percentage of year end loans 1.92 1.74
Net charge-offs as a
percentage of average net loans 1.10 0.52
Net interest margin 3.71 4.09
</TABLE>
21
<PAGE> 31
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed balance sheets as of
September 30, 1993, give effect, as of that date, to the acquisition of KCB and
the Merger, with and without the acquisition of FGC by Trans Financial. The
pro forma condensed statements of income for the nine months ended September
30, 1993 and the years ended December 31, 1992, 1991 and 1990 are in effect a
restatement of the historical income statements of each entity as if the
acquisition of KCB and the Merger, including and excluding the acquisition of
FGC, had been consummated for all periods.
The Merger is expected to be accounted for under the pooling of
interests method of accounting. Under the pooling of interests method of
accounting, the historical basis of the assets and liabilities of Trans
Financial and Peoples Financial will be combined at the Effective Time of the
Merger and carried forward at their previously recorded amounts, and the
shareholders' equity accounts of Trans Financial and Peoples Financial will be
combined on Trans Financial's consolidated balance sheet. No goodwill or other
intangible assets will be created. Financial statements of Trans Financial
issued after the Merger will be restated retroactively to reflect the
consolidated operations of Trans Financial and Peoples Financial as if the
Merger had taken place prior to the periods covered by such financial
statements. See "THE MERGER-Accounting Treatment."
The pro forma statements are not necessarily indicative of the
financial position or the results of operations of the combined entities as
they may be in the future or as they might have been had the transaction been
consummated for all periods presented.
The pro forma financial information should be read in conjunction with
the separate historical financial statements of Trans Financial, KCB and FGC
and related notes thereto included in documents incorporated by reference
herein and the historical financial statements of Peoples Financial and
Citizens Federal and related notes thereto included elsewhere in this Proxy
Statement/Prospectus. See "INCORPORATION OF CERTAIN INFORMATION BY REFERENCE"
and "RECENT DEVELOPMENTS."
22
<PAGE> 32
TRANS FINANCIAL BANCORP, INC.
Pro Forma Condensed Consolidated Balance Sheet
September 30, 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 from banks $ 45,741 $ 5,016 $ $ 50,757 $ 4,531
Interest bearing deposits with banks 547 200 747 989
Federal funds sold and resale agreements 27,100 6,919 34,019 5,011
Mortgage loans held for sale 35,129 0 35,129 1,868
Securities available for sale 25,523 22,741 48,264 3,779
Investment securities 243,451 27,300 270,751 32,805
Loans, net of unearned income 752,466 104,565 857,031 67,161
Less allowance for loan losses (8,288) (1,963) (10,251) (1,075)
Net loans 744,178 102,602 846,780 66,086
Premises and equipment 26,557 2,244 28,801 2,331
Goodwill 5,360 0 5,360 0
Mortgage servicing rights 4,531 0 4,531 0
Other assets 20,626 4,274 24,900 2,518
----------- --------- ------------ ---------- ----------
Total assets $ 1,178,743 $ 171,296 $ 0 $1,350,039 $ 119,918
=========== ========= ============ ========== ==========
Liabilities and Stockholders' Equity
Deposits $ 1,002,462 $ 154,388 $ $1,156,850 $ 107,924
Federal funds purchased and resale agreements 32,720 32,720
Other liabilities 7,481 578 8,059 758
Long term debt and other notes payable:
TF Bancorp 7.25% Subordinated Notes 33,000 33,000
ESOP note payable 3,772 3,772
FHLBB Advance to TFB, N.A. 10,000 10,000
FHLBB Advance to TFB of TN, F.S.B. 15,000 15,000
KC Bancorp 6.7% long-term notes 0 3,068 3,068
6.625% Kentucky Housing Notes 0 42 42
----------- --------- ------------ ---------- ----------
Total liabilities 1,104,435 158,076 1,262,511 108,682
Preferred stock 0 0 0
Common stock 13,897 1,305 1,273 (b) 16,475 2,368
Additional paid-in capital 39,320 934 (1,312)(b) 38,942 3,665
Retained earnings 24,991 11,020 36,011 5,203
Treasury stock (39) 39 (b) 0
Unrealized loss on marketable equity securities (128) (128)
Employee Stock Ownership Plan borrowings (3,772) (3,772)
----------- --------- ------------ ---------- ----------
Total stockholders' equity 74,308 13,220 87,528 11,236
----------- --------- ------------ ---------- ----------
Total liabilities and stockholders' equity $ 1,178,743 $ 171,296 $ 0 $1,350,039 $ 119,918
=========== ========= ============ ========== ==========
<CAPTION>
PRO PRO
PRO FORMA FGC PRO FORMA
FORMA EXCLUDING HOLDING FORMA INCLUDING
ADJUSTMENTS FGC (a) COMPANY ADJUSTMENTS FGC
----------- --------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Assets
Cash and due from banks $ $ 55,288 $ 4,097 $ $ 59,385
Interest bearing deposits with banks 1,736 0 1,736
Federal funds sold and resale agreements 39,030 4,250 43,280
Mortgage loans held for sale 36,997 0 36,997
Securities available for sale 52,043 0 52,043
Investment securities 303,556 48,289 351,845
Loans, net of unearned income 924,192 65,836 990,028
Less allowance for loan losses (11,326) (1,371) (12,697)
Net loans 912,866 64,465 977,331
Premises and equipment 31,132 1,855 32,987
Goodwill 5,360 1,471 6,831
Mortgage servicing rights 4,531 0 4,531
Other assets 27,418 1,857 29,275
------- --------------- ----------- -------- --------------
Total assets $ 0 $ 1,469,957 $ 126,284 $ 0 $ 1,596,241
======= =============== =========== ======== ==============
Liabilities and Stockholders' Equity
Deposits $ 1,264,774 $ 110,880 $ $ 1,375,654
Federal funds purchased and resale agreements 32,720 0 32,720
Other liabilities 8,817 5,208 14,025
Long term debt and other notes payable:
TF Bancorp 7.25% Subordinated Notes 33,000 0 33,000
ESOP note payable 3,772 0 3,772
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 3,068 0 3,068
6.625% Kentucky Housing Notes 42 0 42
------- --------------- ----------- -------- --------------
Total liabilities 0 1,371,193 116,088 0 1,487,281
Preferred stock 0 1,010 1,010
Common stock 99 (c) 18,942 1,500 469 (d) 20,911
Additional paid-in capital (99)(c) 42,508 0 (469)(d) 42,039
Retained earnings 41,214 7,686 48,900
Treasury stock 0 0 0
Unrealized loss on marketable equity securitie (128) 0 (128)
Employee Stock Ownership Plan borrowings (3,772) 0 (3,772)
------- --------------- ----------- -------- --------------
Total stockholders' equity 0 98,764 10,196 0 108,960
------- --------------- ----------- -------- --------------
Total liabilities and stockholders' equity $ 0 $ 1,469,957 $ 126,284 $ 0 $ 1,596,241
======= =============== =========== ======== ==============
</TABLE>
See accompanying notes to pro forma financial information.
23
<PAGE> 33
TRANS FINANCIAL BANCORP, INC.
Pro Forma Condensed Income Statement
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1993
------------------------------------------------------------------------
TRANS KENTUCKY PRO FORMA PEOPLES PRO FORMA
FINANCIAL COMMUNITY EXCLUDING FINANCIAL EXCLUDING
BANCORP (a) BANCORP (a) PEOPLES & FGC SERVICES (a) FGC (e)
----------- ----------- ------------- ------------- ---------
<S> <C> <C> <C> <C> <C>
Interest income:
Loans $ 39,525 $ 6,658 $ 46,183 $ 5,011 $ 51,194
Securities 10,366 2,254 12,620 1,604 14,224
Other 2,631 289 2,920 204 3,124
--------- ------- --------- ------- --------
Total interest income 52,522 9,201 61,723 6,819 68,542
Interest expense:
Deposits 22,118 3,379 25,497 2,955 28,452
Short-term borrowings 498 0 498 498
Notes payable 701 215 916 916
--------- ------- --------- ------- --------
Total interest expense 23,317 3,594 26,911 2,955 29,866
--------- ------- --------- ------- --------
Net interest income 29,205 5,607 34,812 3,864 38,676
Provision for loan losses 1,321 338 1,659 157 1,816
--------- ------- --------- ------- --------
Net interest income after
provision for loan losses 27,884 5,269 33,153 3,707 36,860
Non-interest income 9,941 989 10,930 859 11,789
Non-interest expenses 27,904 4,469 32,373 2,618 34,991
--------- ------- --------- ------- --------
Income before income taxes 9,921 1,789 11,710 1,948 13,658
Income tax expense 2,990 481 3,471 780 4,251
--------- ------- --------- ------- --------
Income before cumulative effect
of accounting change $ 6,931 $ 1,308 $ 8,239 $ 1,168 $ 9,407
========= ======== ========= ======= ========
Income applicable to common stock $ 6,931 $ 1,308 $ 8,239 $ 1,168 $ 9,407
========= ======== ========= ======= ========
Weighted average shares outstanding:
Primary 7,521 8,896 10,198
Fully diluted 7,521 8,896 10,198
Earnings per common share:
Primary $ 0.92 $ 0.93 $ 0.92
========= ========= ========
Fully diluted $ 0.92 $ 0.93 $ 0.92
========= ========= ========
<CAPTION>
Nine Months Ended September 30, 1993
------------------------------------
FGC PRO FORM A
HOLDING INCLUDING
COMPANY (a) FGC (e)
------------ ------------
<S> <C> <C>
Interest income:
Loans $ 4,827 $ 56,021
Securities 1,992 16,216
Other 81 3,205
-------- ---------
Total interest income 6,900 75,442
Interest expense:
Deposits 2,494 30,946
Short-term borrowings 0 498
Notes payable 209 1,125
-------- ---------
Total interest expense 2,703 32,569
-------- ---------
Net interest income 4,197 42,873
Provision for loan losses 390 2,206
-------- ---------
Net interest income after
provision for loan losses 3,807 40,667
Non-interest income 332 12,121
Non-interest expenses 2,169 37,160
-------- ---------
Income before income taxes 1,970 15,628
Income tax expense 478 4,729
-------- ---------
Income before cumulative effect
of accounting change $ 1,492 $ 10,899
======== =========
Income applicable to common stock $ 1,431 $ 10,838
======== =========
Weighted average shares outstanding:
Primary 11,248
Fully diluted 11,248
Earnings per common share:
Primary $ 0.96
=========
Fully diluted $ 0.96
=========
See accompanying notes to pro forma financial information.
</TABLE>
24
<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
FINANCIAL COMMUNITY EXCLUDING FINANCIAL EXCLUDING
BANCORP (a) BANCORP (a) PEOPLES & FGC SERVICES (a) FGC (e)
----------- ----------- ------------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Interest income:
Loans $ 46,099 $ 9,369 $ 55,468 $ 6,730 $ 62,198
Securities 16,694 3,137 19,831 2,343 22,174
Other 614 417 1,031 149 1,180
--------- -------- --------- --------- ---------
Total interest income 63,407 12,923 76,330 9,222 85,552
Interest expense:
Deposits 30,822 5,361 36,183 4,426 40,609
Short-term borrowings 902 17 919 63 982
Notes payable 287 343 630 - 630
--------- -------- --------- --------- ---------
Total interest expense 32,011 5,721 37,732 4,489 42,221
--------- -------- --------- --------- ---------
Net interest income 31,396 7,202 38,598 4,733 43,331
Provision for loan losses 1,216 838 2,054 263 2,317
--------- -------- --------- --------- ---------
Net interest income after
provision for loan losses 30,180 6,364 36,544 4,470 41,014
Non-interest income 11,064 1,514 12,578 748 13,326
Non-interest expenses 27,498 6,157 33,655 3,198 36,853
--------- -------- --------- --------- ---------
Income before income taxes 13,746 1,721 15,467 2,020 17,487
Income tax expense 4,686 372 5,058 792 5,850
--------- -------- --------- --------- ---------
Income before cumulative effect
of accounting change $ 9,060 $ 1,349 $ 10,409 $ 1,228 $ 11,637
========= ======== ========= ========= =========
Income applicable to common stock $ 9,004 $ 1,349 $ 10,353 $ 1,228 $ 11,581
========= ======== ========= ========= =========
Weighted average shares outstanding:
Primary 6,906 8,281 9,583
Fully diluted 6,906 8,281 9,583
Earnings per common share:
Primary $ 1.30 $ 1.25 $ 1.21
========= ========= =========
Fully diluted $ 1.30 $ 1.25 $ 1.21
========= ========= =========
<CAPTION>
Year Ended December 31, 1992
--------------------------------
FGC PRO FORMA
HOLDING INCLUDING
COMPANY (a) FGC (e)
--------------- ------------
<S> <C> <C>
Interest income:
Loans $ 6,456 $ 68,654
Securities 3,192 25,366
Other 114 1,294
---------- -----------
Total interest income 9,762 95,314
Interest expense:
Deposits 4,136 44,745
Short-term borrowings 0 982
Notes payable 406 1,036
---------- -----------
Total interest expense 4,542 46,763
---------- -----------
Net interest income 5,220 48,551
Provision for loan losses 300 2,617
---------- -----------
Net interest income after
provision for loan losses 4,920 45,934
Non-interest income 495 13,821
Non-interest expenses 3,038 39,891
---------- -----------
Income before income taxes 2,377 19,864
Income tax expense 550 6,400
---------- -----------
Income before cumulative effect
of accounting change $ 1,827 $ 13,464
========== ===========
Income applicable to common stock $ 1,746 $ 13,327
========== ===========
Weighted average shares outstanding:
Primary 10,633
Fully diluted 10,633
Earnings per common share:
Primary $ 1.25
===========
Fully diluted $ 1.25
===========
See accompanying notes to pro forma
financial information.
</TABLE>
25
<PAGE> 35
TRANS FINANCIAL BANCORP. INC.
Pro Forma Condensed Income Statement
(Unauditied)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1991
-------------------------------------------------------------------------
TRANS KENTUCKY PRO FORMA PEOPLES PRO FORMA
FINANCIAL COMMUNITY EXCLUDING FINANCIAL EXCLUDING
BANCORP (a) BANCORP (a) PEOPLES & FGC SERVICES (a) FGC (e)
----------- ----------- ------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Interest income:
Loans $ 35,858 $ 10,365 $ 46,223 $ 6,435 $ 52,658
Securities 9,582 3,435 13,017 2,311 15,328
Other 523 796 1,319 242 1,561
----------- ---------- ---------- --------- ---------
Total interest income 45,963 14,596 60,559 8,988 69,547
Interest expense:
Deposits 25,561 7,606 33,167 5,352 38,519
Short-term borrowings 466 56 522 198 720
Notes payable 1,203 452 1,655 --- 1,655
----------- ---------- ---------- --------- ---------
Total interest expense 27,230 8,114 35,344 5,550 40,894
----------- ---------- ---------- --------- ---------
Net interest income 18,733 6,482 25,215 3,438 28,653
Provision for loan losses 750 772 1,522 470 1,992
----------- ---------- ---------- --------- ---------
Net interest income after
provision for loan losses 17,983 5,710 23,693 2,968 26,661
Non-interest income 6,542 1,396 7,938 859 8,797
Non-interest expenses 17,957 5,748 23,705 2,815 26,520
----------- ---------- ---------- --------- ---------
Income before income taxes 6,568 1,358 7,926 1,012 8,938
Income tax expense 2,028 293 2,321 435 2,756
----------- ---------- ---------- --------- ---------
Income before cumulative effect
of accounting change $ 4,540 $ 1,065 $ 5,605 $ 577 $ 6,182
=========== ========== ========== ========= =========
Income applicable to common stock $ 4,227 $ 1,065 $ 5,292 $ 577 $ 5,869
=========== ========== ========== ========= =========
Weighted average shares outstanding:
Primary 3,277 4,652 5,954
Fully diluted 3,921 5,296 6,598
Earnings per common share:
Primary $ 1.29 $ 1.14 $ 0.99
=========== ========== =========
Fully diluted $ 1.17 $ 1.07 $ 0.94
=========== ========== =========
<CAPTION>
Year Ended December 31, 1991
----------------------------
FGC PRO FORMA
HOLDING INCLUDING
COMPANY (a) FGC (e)
-------------- ----------
<S> <C> <C>
Interest income:
Loans $ 6,360 $ 59,018
Securities 3,524 18,852
Other 268 1,829
--------- ----------
Total interest income 10,152 79,699
Interest expense:
Deposits 5,401 43,920
Short-term borrowings 100 820
Notes payable 424 2,079
--------- ----------
Total interest expense 5,925 46,819
--------- ----------
Net interest income 4,227 32,880
Provision for loan losses 250 2,242
--------- ----------
Net interest income after
provision for loan losses 3,977 30,638
Non-interest income 471 9,268
Non-interest expenses 2,708 29,228
--------- ----------
Income before income taxes 1,740 10,678
Income tax expense 327 3,083
--------- ----------
Income before cumulative effect
of accounting change $ 1,413 $ 7,595
========= ==========
Income applicable to common stock $ 1,332 $ 7,201
========= ==========
Weighted average shares outstanding:
Primary 7,006
Fully diluted 7,648
Earnings per common share:
Primary $ 1.03
=========
Fully diluted $ 0.99
==========
See accompanying notes to pro forma
financial information.
</TABLE>
26
<PAGE> 36
TRANS FINANCIAL BANCORP, INC.
Pro Forma Condensed Income Statement
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31, 1990
-------------------------------------------------------------------------------
TRANS KENTUCKY PRO FORMA PEOPLES PRO FORMA
FINANCIAL COMMUNITY EXCLUDING FINANCIAL EXCLUDING
BANCORP (a) BANCORP (a) PEOPLES & FGC SERVICES (a) FGC (e)
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Interest income:
Loans $ 34,463 $ 10,816 $ 45,279 $ 5,326 $ 50,605
Securities 6,834 3,162 9,996 2,086 12,082
Other 652 952 1,604 313 1,917
--------------- --------------- --------------- --------------- ---------------
Total interest income 41,949 14,930 56,879 7,725 64,604
Interest expense:
Deposits 23,207 8,332 31,539 4,996 36,535
Short-term borrowings 995 82 1,077 305 1,382
Notes payable 1,258 562 1,820 1,820
--------------- --------------- --------------- --------------- ---------------
Total interest expense 25,460 8,976 34,436 5,301 39,737
--------------- --------------- --------------- --------------- ---------------
Net interest income 16,489 5,954 22,443 2,424 24,867
Provision for loan losses 1,529 1,052 2,581 274 2,855
--------------- --------------- --------------- --------------- ---------------
Net interest income after
provision for loan losses 14,960 4,902 19,862 2,150 22,012
Non-interest income 5,179 1,238 6,417 749 7,166
Non-interest expenses 14,873 5,392 20,265 2,317 22,582
--------------- --------------- --------------- --------------- ---------------
Income before income taxes 5,266 748 6,014 582 6,596
Income tax expense 1,412 120 1,532 172 1,704
--------------- --------------- --------------- --------------- ---------------
Income before cumulative effect
of accounting change $ 3,854 $ 628 $ 4,482 $ 410 $ 4,892
=============== =============== =============== =============== ===============
Income applicable to common stock $ 3,536 $ 628 $ 4,164 $ 410 $ 4,574
=============== =============== =============== =============== ===============
Weighted average shares outstanding:
Primary 2,773 4,148 5,450
Fully diluted 3,440 4,815 6,117
Earnings per common share:
Primary $ 1.28 $ 1.00 $ 0.84
=============== =============== ===============
Fully diluted $ 1.14 $ 0.95 $ 0.81
=============== =============== ===============
<CAPTION>
Year Ended December 31, 1990
----------------------------
FGC PRO FORMA
HOLDING INCLUDING
COMPANY (a) FGC (e)
----------- --------------
<S> <C> <C>
Interest income:
Loans $ 6,589 $ 57,194
Securities 3,102 15,184
Other 474 2,391
---------- ------------
Total interest income 10,165 74,769
Interest expense:
Deposits 5,725 42,260
Short-term borrowings 0 1,382
Notes payable 496 2,316
---------- ------------
Total interest expense 6,221 45,958
---------- ------------
Net interest income 3,944 28,811
Provision for loan losses 560 3,415
---------- ------------
Net interest income after
provision for loan losses 3,384 25,396
Non-interest income 351 7,517
Non-interest expenses 2,248 24,830
---------- ------------
Income before income taxes 1,487 8,083
Income tax expense 299 2,003
---------- ------------
Income before cumulative effect
of accounting change $ 1,188 $ 6,080
========== ============
Income applicable to common stock $ 1,107 $ 5,681
========== ============
Weighted average shares outstanding:
Primary 6,500
Fully diluted 7,167
Earnings per common share:
Primary $ 0.87
============
Fully diluted $ 0.85
============
See accompanying notes to pro forma
financial information.
</TABLE>
27
<PAGE> 37
TRANS FINANCIAL BANCORP, INC.
Notes to Pro Forma Financial Information
(a) Represents historical balance sheet or income statement of respective
entities.
(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 FGC
acquisition, with an offsetting reduction in additional paid-in
capital.
(e) No adjustments to the historical statements of income are necessary in
the circumstances under the pooling of interests method of accounting.
28
<PAGE> 38
THE SPECIAL MEETING
GENERAL
This Proxy Statement-Prospectus is being furnished to holders of
Peoples Financial Common Stock in connection with the solicitation of proxies
by the Board of Directors of Peoples Financial for use at the Special Meeting
to consider and vote upon the approval of the Merger Agreement and the
transactions contemplated thereby and to transact such other business as may
properly come before the Special Meeting or any adjournments or postponements
thereof. Each copy of this Proxy Statement-Prospectus mailed to holders of
Peoples Financial Common Stock is accompanied by a form of proxy for use at the
Special Meeting.
This Proxy Statement-Prospectus is also furnished by Trans Financial
to Peoples Financial shareholders as a prospectus in connection with the
issuance by Trans Financial of shares of Trans Financial Common Stock pursuant
to the Merger.
DATE, PLACE AND TIME
The Special Meeting will be held at the main office of Peoples
Financial, Two West Jackson, Cookeville, Tennessee, on April 12, 1994
at 4:30 p.m. local time.
RECORD DATE
The Board of Directors of Peoples Financial has fixed the close of
business on March 4, 1994 as the record date for the determination of
shareholders of Peoples Financial entitled to receive notice of and to vote at
the Special Meeting.
VOTE REQUIRED
As of the record date for the Special Meeting, there were 236,777
shares of Peoples Financial Common Stock outstanding. Each share of Peoples
Financial Common Stock outstanding on such record date is entitled to one vote
on each matter properly submitted at the Special Meeting. Approval of the
Merger Agreement by the shareholders of Peoples Financial requires the
affirmative vote of a majority of the votes entitled to be cast by the holders
of record of Peoples Financial Common Stock.
As of February 28, 1994, directors and executive officers of Peoples
Financial and their affiliates owned beneficially an aggregate of 138,955
shares of Peoples Financial Common Stock, or approximately 58.7% of the shares
of Peoples Financial Common Stock outstanding on such date. Directors and
executive officers of Peoples Financial have indicated their intention to vote
their shares of Peoples Financial Common Stock in favor of the proposal to
approve the Merger Agreement.
29
<PAGE> 39
THE BOARD OF DIRECTORS OF PEOPLES FINANCIAL UNANIMOUSLY RECOMMENDS
THAT PEOPLES FINANCIAL SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER.
VOTING AND REVOCATION OF PROXIES
Shares of Peoples Financial Common Stock represented by a proxy
properly signed and received at or prior to the Special Meeting, unless
subsequently revoked, will be voted in accordance with the instructions
thereon. If a proxy is signed and returned without indicating any voting
instructions, shares of Peoples Financial Common Stock represented by the proxy
will be voted for the proposal to approve the Merger Agreement. Any proxy
given pursuant to this solicitation may be revoked by the person giving it at
any time before the proxy is voted by the filing of an instrument revoking it
or of a duly executed proxy bearing a later date with the Secretary of Peoples
Financial prior to or at the Special Meeting, or by voting in person at the
Special Meeting. All written notices of revocation and other communications
with respect to revocation of proxies should be addressed as follows: Peoples
Financial Services, Inc., Two West Jackson, P.O. Box 130, Cookeville, Tennessee
38501-0130, Attention: Secretary. Attendance at the Special Meeting will not
in and of itself constitute revocation of a proxy.
PEOPLES FINANCIAL SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH
THEIR PROXY CARDS. A TRANSMITTAL FORM WITH INSTRUCTIONS WITH RESPECT TO THE
SURRENDER OF PEOPLES FINANCIAL COMMON STOCK CERTIFICATES WILL BE MAILED TO EACH
PEOPLES FINANCIAL SHAREHOLDER AS SOON AS PRACTICABLE AFTER THE EFFECTIVE TIME.
The Board of Directors of Peoples Financial is not aware of any
business to be acted upon at the Special Meeting other than as described
herein. If, however, other matters are properly brought before the Special
Meeting, or any adjournments or postponements thereof, the persons appointed as
proxies will have discretion to vote or act thereon according to their best
judgment.
SOLICITATION OF PROXIES
In addition to solicitation by mail, directors, officers and employees
of Peoples Financial, who will not be specifically compensated for such
services, may solicit proxies from the shareholders of Peoples Financial,
personally or by telephone or telegram or other forms of communication.
Brokerage houses, nominees, fiduciaries and other custodians will be requested
to
30
<PAGE> 40
forward soliciting materials to beneficial owners and will be reimbursed for
their reasonable expenses incurred in doing so. Peoples Financial will bear
its own expenses in connection with the solicitation of proxies for the Special
Meeting, except that Trans Financial and Peoples Financial each will pay
one-half of the costs incurred in printing and mailing this Proxy Statement-
Prospectus, the form of proxy and other proxy materials. See "THE
MERGER-Expenses."
THE MERGER
This section of the Proxy Statement-Prospectus describes certain
aspects of the proposed Merger. To the extent that it relates to the Merger
Agreement, the following description does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement, which is
attached as Appendix A to this Proxy Statement-Prospectus and is incorporated
herein by reference. All shareholders are urged to read the Merger Agreement,
as well as the other appendices, in their entirety. All per share information
contained herein with respect to Trans Financial has been adjusted for a
4-for-3 stock split effected on December 18, 1992 and a 4-for-3 stock split
effected on December 16, 1991.
PARTIES TO THE MERGER
TRANS FINANCIAL BANCORP, INC.
Trans Financial is a bank holding company under the Bank Holding
Company Act of 1956, as amended, and a savings and loan holding company under
Section 10(e)(3) of the Home Owners' Loan Act headquartered in Bowling Green,
Kentucky. Trans Financial, with consolidated total assets of approximately
$1.2 billion at September 30, 1993, conducts its operations through 26 offices
of its five commercial bank subsidiaries, Trans Financial Bank, N.A., Bowling
Green, Kentucky, Trans Financial Bank, Pikeville, Kentucky, State National
Bank, Maysville, Kentucky, Peoples State Bank of Morehead, Morehead, Kentucky,
and Farmers Liberty Bank, Augusta, Kentucky and 19 offices of its two thrift
subsidiaries, Trans Financial Bank, Federal Savings Bank, Russellville,
Kentucky, and Trans Financial Bank of Tennessee, FSB, Tullahoma, Tennessee.
See "RECENT DEVELOPMENTS."
Trans Financial's operating strategy is to provide its customers with
the financial sophistication and breadth of products of a regional bank, while
successfully retaining the local appeal and level of service of a community
bank. In addition to traditional deposit and lending products and services,
Trans Financial derives noninterest income from its corporate customers with
fee based trust and employee benefit services and fee based depository and cash
management products. Trans Financial provides a full range of retail banking
services including consumer, installment
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and residential lending, savings and checking deposit products, estate planning
and related trust services, and corporate trust and employee benefit services.
Trans Financial's customers may also obtain full service retail brokerage
services from offices of INVEST located in its offices.
Trans Financial's principal executive offices are located at 500 East
Main Street, Bowling Green, Kentucky 42101. Its telephone number is (502)
781-5000.
PEOPLES FINANCIAL SERVICES, INC.
Peoples Financial is a bank holding company under the BHC Act, and a
savings and loan holding company under Section 10(e)(3) of the Home Owners'
Loan Act, headquartered in Cookeville, Tennessee. Peoples Financial engages in
a wide range of commercial banking activities through its banking subsidiaries,
Peoples Bank and Trust of the Cumberlands, Cookeville, Tennessee, and Citizens
Federal Savings Bank, Rockwood, Tennessee. At September 30, 1993, Peoples
Financial had consolidated total assets of approximately $120 million, net
loans of approximately $68 million and shareholders' equity of approximately
$11.2 million.
Peoples Financial's principal executive offices are located at Two West
Jackson, Cookeville, Tennessee 38501. Its telephone number is (615) 528-1768.
BACKGROUND OF THE MERGER
In 1987, a group of local residents from the area in and around
Cookeville, Tennessee, decided to open a new, state-chartered, nonmember bank
in Cookeville to be known as Peoples Bank and Trust of the Cumberlands. After
raising $5,138,800 in initial capital, a charter was granted by the Tennessee
Commissioner of Financial Institutions on June 14, 1988. A one-bank holding
company, Peoples Financial Services, Inc., was formed in 1989, and on May 30,
1990, it acquired 100% of Peoples Bank as a result of a share exchange, with
all shareholders of Peoples Bank becoming shareholders of Peoples Financial.
In 1991, Peoples Financial had an opportunity to expand by acquiring
banking assets and liabilities from the Resolution Trust Corporation that had
been operated by a savings institution that had been closed by bank regulators.
In 1992, Peoples Bank opened another branch at 1824 North Main in Crossville,
Tennessee.
In 1992, another opportunity for expansion arose. Peoples Financial
negotiated the acquisition of Citizens Federal Savings Bank, a federal mutual
savings bank located in Rockwood and Kingston, Tennessee. As part of the
acquisition, Citizens Federal was converted to a federal stock savings bank,
100% of the stock was acquired by Peoples Financial, and Peoples Financial
issued $1,405,125 million in new capital (31,225 shares of common stock)
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to the depositors of Citizens Federal and other members of the community. The
acquisition of Citizens Federal was completed on February 1, 1993.
It has always been the mission statement of Peoples Financial and its
subsidiaries to respond to the financial needs of, and provide the services
requested by, its customers. It is also the business of Peoples Financial to
be an involved corporate citizen in its communities and be able to add to the
growth and progress of its communities. Finally, but most importantly, the
main mission of Peoples Financial has been to foster the financial
opportunities and economic progress for its shareholders and employees.
In light of these missions, the Board of Directors of
Peoples Financial has always been open to suggestions to achieve any of
these goals as evidenced by their willingness, as a new institution, to expand
through various types of acquisitions. One opportunity that arose during the
latter part of 1993 began with a discussion with an out-of-state bank holding
company to sell Peoples Financial to the holding company. The initial offer
involved an exchange of Peoples Financial stock for the publicly traded stock
of the acquiring holding company with a market value of over two times the
sales price of the Peoples Financial shares sold in early 1993 as part of its
acquisition of Citizens Federal; therefore, the Board of Directors felt that it
had an obligation to seriously pursue discussions further.
Upon the advice of outside advisers, the Board of Directors of
Peoples Financial was approached by other bank holding companies to discuss a
possible acquisition. The Board of Directors of Peoples Financial established a
committee to negotiate specific proposals with these potential acquirors and
others deemed acceptable by the committee. As a result of these discussions,
many meetings of the Board's special committee, and regular and special
meetings of the full Board of Directors to discuss these issues, the Board of
Directors of Peoples Financial voted to approve the Merger Agreement with Trans
Financial at a special meeting held on December 22, 1993.
RECOMMENDATION OF THE BOARD OF DIRECTORS AND
REASONS FOR THE MERGER
The Board of Directors of Peoples Financial approved the Merger by the
unanimous vote of all directors at the December 22, 1993 meeting. The Board of
Directors of Peoples Financial believes that the terms of the Merger are fair
to and in the best interests of Peoples Financial and its shareholders,
subsidiaries, employees, customers and communities. The Board of Directors
unanimously recommends that the shareholders of Peoples Financial vote FOR
approval of the Merger. See "THE SPECIAL MEETING."
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The Board of Directors of Peoples Financial decided to approve the
Agreement and has voted to recommend the approval of the Merger by the
Peoples Financial shareholders for the following reasons:
1. The value of the Trans Financial Common Stock offered in
exchange for the Peoples Financial Common Stock exceeds the recent trading
prices of the Peoples Financial Common Stock and the price for which such stock
was recently sold in 1993 as part of the acquisition of Citizens Federal by
Peoples Financial.
2. Subject to some short-term trading restrictions for insiders
of Peoples Financial, the Trans Financial Common Stock has a broader and more
liquid market than the Peoples Financial Common Stock and is more easily
tradable, being in the NASDAQ National Market.
3. Various independent reports issued by regional stock brokerage
companies indicate the underlying strength of the value of the Trans
Financial Common Stock and favorable prospects for increasing values and
dividend returns; therefore, the consideration to be received by the
shareholders of Peoples Financial appeared to be in the interest of the
shareholders based on the then-current estimate of the future value of Peoples
Financial as an independent entity.
4. Employee benefit plans offered by Trans Financial are much
broader and will provide greater incentives and income opportunities for the
employees of Peoples Financial.
5. The shareholders of Peoples Financial will be able to exchange
their Peoples Financial Common Stock for Trans Financial Common Stock in a
tax-free exchange. See "THE MERGER-Certain Federal Income Tax Consequences".
6. Trans Financial's operating philosophy is to operate the
Peoples Financial subsidiaries more like community banks, but with the
additional resources that a $1.35 billion financial institution can offer to
its subsidiaries. In addition, the current, local management of Peoples
Financial is expected to remain in place.
7. The Board believes the sale will have a positive social and
economic effect on the employees, customers, suppliers, and other constituents
of Peoples Financial and on the communities in which Peoples Financial operates
and is located.
8. After reviewing recent trends in the banking industry and the
highly competitive and highly regulated environment in which Peoples Financial
and its subsidiaries have had to operate, the Board of Directors felt that it
was the proper time to affiliate with another organization to achieve all of
the benefits described above.
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OPINION OF FINANCIAL ADVISOR
Professional Bank Services, Inc. ("PBS"), Louisville, Kentucky, was
engaged by Peoples Financial to advise the Peoples Financial Board of Directors
as to the fairness of the consideration, from a financial perspective, to be
paid by Trans Financial to Peoples Financial's shareholders under the Merger
Agreement. PBS is a bank consulting firm with offices in Louisville,
Nashville, Omaha, and Ocala, Florida. As part of its investment banking
business, PBS is regularly engaged in reviewing the fairness of bank
acquisition transactions from a financial perspective and in the valuation of
banks and other businesses and their securities in connection with mergers,
acquisitions, estate settlements, and other transactions. Neither PBS nor any
of its affiliates has a material financial interest in Peoples Financial or
Trans Financial. PBS was selected to advise the Peoples Financial Board based
upon its familiarity with Tennessee financial institutions and its knowledge of
the banking industry as a whole.
PBS performed certain valuation analyses described below and discussed
the range of values for Peoples Financial resulting from such analyses with the
Board of Directors of Peoples Financial in connection with its advice as to the
fairness of the consideration to be paid by Trans Financial.
A Fairness Opinion of PBS was delivered to the Board of Directors of
Peoples Financial on February 8, 1994, at a regular meeting of the Board of
Directors. A copy of the Fairness Opinion, which includes a summary of the
assumptions made and information analyzed in deriving the Fairness Opinion, is
attached as Appendix B to this Proxy Statement-Prospectus and should be read
in its entirety.
In arriving at its Fairness Opinion, PBS reviewed certain publicly
available business and financial information relating to Peoples Financial and
Trans Financial. PBS considered certain financial and stock market data of
Peoples Financial and Trans Financial, compared that data with similar data for
certain other publicly-held bank holding companies which own Tennessee banks,
and considered the financial terms of certain other comparable Tennessee bank
transactions that had recently been effected. PBS also considered such other
information, financial studies, analyses and investigations and financial,
economic and market criteria that it deemed relevant. In connection with its
review, PBS did not independently verify the foregoing information and relied
on such information as being complete and accurate in all material respects.
Financial forecasts prepared by PBS were based on assumptions believed by PBS
to be reasonable and to reflect currently available information. PBS did not
make an independent evaluation or appraisal of the assets of Peoples Financial
or Trans Financial.
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PBS was not requested to, and did not, solicit third party indications
of interest in acquiring all or any part of Peoples Financial.
In connection with rendering the Fairness Opinion and preparing its
various written and oral presentations to Peoples Financial's Board of
Directors, PBS performed a variety of financial analyses, including those
summarized below. The summary set forth below does not purport to be a
complete description of the analyses performed by PBS in this regard. The
preparation of a Fairness Opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of these methods to the particular circumstances and therefore, such an opinion
is not readily susceptible to summary description. Accordingly,
notwithstanding the separate factors summarized below, PBS believes that its
analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all analyses and
factors, could create an incomplete view of the evaluation process underlying
its opinion. In performing its analyses, PBS made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond Peoples Financial's or Trans Financial's
control. The analyses performed by PBS are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. In addition, analyses relating to
the values of businesses do not purport to be appraisals or to reflect the
process by which businesses actually may be sold.
Acquisition Comparison Analysis
In performing its analysis, PBS reviewed 90 Tennessee bank and bank
holding company acquisition transactions announced since 1984. The purpose of
the analysis was to obtain a valuation range based on these other Tennessee
acquisition transactions. Multiples of earnings and book value implied by the
comparable transactions were utilized in obtaining a range for the acquisition
value of Peoples Financial. In addition to reviewing all recent Tennessee bank
transactions, PBS performed separate comparability analyses for acquisitions of
Tennessee institutions which, like Peoples Financial, had an equity-to-asset
ratio between 8.0% and 10.0%, acquisitions of institutions located in central
Tennessee, and acquisitions of Tennessee institutions with a deposit size
between $75 and $150 million. The median acquisition prices for the 90
Tennessee bank acquisitions, expressed as multiples of both book value and
earnings, were 1.46 and 11.77, respectively. For acquisitions of Tennessee
banks with capital between 8.0% and 10.0%, the median acquisition price
multiples were 1.44 and 11.64, respectively. For acquisitions of the Tennessee
banks located in central Tennessee, the median acquisition price multiples were
1.79 and 13.39 respectively. For acquisitions of Tennessee banks with deposits
between $75 and $150 million, the median acquisition price
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multiples were 1.87 and 13.91, respectively. Based on the market value of
Trans Financial Common Stock of $15.75 as of February 1, 1994, the value per
share of Peoples Financial Common Stock is $86.63 or 1.83 times book value and
12.87 times earnings.
Adjusted Net Asset Value Analysis
PBS reviewed Peoples Financial's balance sheet data to determine
the amount of material adjustments required to the stockholders' equity of
Peoples Financial based on differences between the estimated market value
of Peoples Financial's net assets and their book value as reflected on
Peoples Financial's consolidated financial statements. PBS determined
that two adjustments were warranted. The investment securities portfolio
had appreciation of approximately $562,000 after adjustment for income
taxes. PBS also reflected a demand deposit adjustment of approximately
$2,666,000. The adjusted net asset value was determined to be $61.09
per share of Peoples Financial Common Stock.
Discounted Earnings Analysis
A dividend discount analysis was performed by PBS pursuant to which a
range of stand-alone value of Peoples Financial was determined by adding (i)
the present value of estimated future dividend streams that Peoples Financial
could generate over a five-year period beginning in 1994 and ending in 1998,
and (ii) the present value of the "terminal value" of Peoples Financial's
common equity at the end of 1998. The "terminal value" of Peoples Financial's
common equity at the end of the five-year period was determined by applying a
multiple of 1.46 times the projected terminal year's book value. The 1.46
multiple represents the median price paid as a multiple of book value for all
Tennessee banks and bank holding companies since 1984.
Dividend streams and terminal values were discounted to present values
using a discount rate of 12%. This rate reflects assumptions regarding the
required rate of return of holders or buyers of Peoples Financial's Common
Stock. The short-term value of Peoples Financial, determined by adding the
present value of the total cash flows, was $67.67 per Peoples Financial share.
In addition, using the five-year projection as a base, a twenty-year
projection was prepared assuming that a return on assets of 1.15% would remain
at an even level for the entire term beginning in 1994. Dividends also were
assumed to be 50% of income for all years. This long-term projection resulted
in a value of $69.59 per Peoples Financial Common Stock.
Specific Acquisition Analysis
PBS also valued Peoples Financial based on an acquisition analysis
assuming a "breakeven" scenario to an acquiror as to
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price, current interest rates and amortization of the premium paid. Based on
the analysis, an acquiring institution would pay $79.12 per share of Peoples
Financial Common Stock, assuming they were willing to accept no impact to their
net income in the initial year. This analysis was based on a funding cost of
8.0% adjusted for taxes, amortization of the acquisition premium over 15 years,
and a projected earnings level of Peoples Financial of $1,489,000 in 1994.
Pro Forma Merger Analysis
PBS compared the historical performance of Trans Financial to that of
Peoples Financial and other regional bank holding companies. This included,
among other things, a comparison of profitability, asset quality and capital
adequacy measures. In addition, the contribution of each of Peoples Financial
and Trans Financial to the income statement and balance sheet of the pro forma
combined company was analyzed.
The effect of the affiliation on the historical and pro forma
financial data of Trans Financial, as well as the projected financial data
prepared by PBS, was analyzed. Trans Financial's historical financial data was
compared to pro forma combined historical and projected earnings and book value
per share as well as other measures of profitability, capital adequacy, and
credit quality.
The Fairness Opinion is directed only to the question of whether the
consideration to be received by Peoples Financial's shareholders under the
Merger Agreement is fair and equitable from a financial perspective and does not
constitute a recommendation to any Peoples Financial shareholder to vote in
favor of the affiliation. No limitations were imposed on PBS regarding the
scope of its investigation or otherwise by Peoples Financial or any of its
affiliates.
Based on the results of the various analyses described above, PBS
concluded that the consideration to be received by Peoples Financial
shareholders under the Merger Agreement is fair and equitable from a financial
perspective.
PBS will receive a fee not to exceed $12,000 from Peoples Financial
for all of its services performed in connection with the affiliation, including
rendering the Fairness Opinion. In addition, Peoples Financial has agreed to
indemnify PBS and its directors, officers and employees, from liability in
connection with the affiliation, and to hold PBS harmless from any losses,
actions, claims, damages, expenses or liabilities related to any of PBS' acts
or decisions made in good faith and in the best interest of Peoples Financial.
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TERMS OF THE MERGER
At the Effective Time of the Merger, Peoples Financial will merge with
and into Trans Financial, with Trans Financial as the surviving corporation.
The articles of incorporation and bylaws of Trans Financial as in effect
immediately prior to the Effective Time shall be the articles of incorporation
and bylaws of the surviving corporation.
The Merger Agreement provides that, upon satisfaction or waiver of all
conditions precedent to the Merger, at the Effective Time of the Merger, each
outstanding share of Peoples Financial Common Stock (other than shares as to
which dissenters' rights have been duly exercised) will be converted
automatically into the right to receive 5.5 shares of Trans Financial Common
Stock. See "THE MERGER-Dissenters' Rights" and "DESCRIPTION OF TRANS FINANCIAL
COMMON STOCK AND RIGHTS."
The Merger Agreement provides that, in the event the number of
outstanding shares of Trans Financial Common Stock are increased, decreased, or
changed into or exchanged for a different number or kind of shares or
securities as a result of a stock split, stock dividend, recapitalization or
other similar transaction, all without Trans Financial receiving consideration
therefor, then an appropriate and proportionate adjustment shall be made in the
number and kind of shares of Trans Financial Common Stock to be delivered in
the Merger.
No fractional shares of Trans Financial Common Stock will be issued in
the Merger. Instead, the Merger Agreement provides that each holder of shares
of Peoples Financial Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of Trans
Financial Common Stock will receive, in lieu thereof, cash (without interest)
in an amount equal to such fractional interest multiplied by the average of the
bid and asked price per share as quoted on the NASDAQ National Market for Trans
Financial Common Stock on the trading day which occurs immediately prior to the
Closing Date.
Shares of Trans Financial Common Stock issued and outstanding
immediately prior to the Effective Time of the Merger will remain issued and
outstanding after the Merger.
Based on the outstanding shares of common stock of Trans Financial and
Peoples Financial as of February 15, 1994 (8,800,258 and 236,777 shares,
respectively), the shareholders of Peoples Financial immediately prior to the
consummation of the Merger will own Trans Financial Common Stock representing
approximately 13% of the shares of Trans Financial Common Stock outstanding
following consummation of the Merger (approximately 11.7% assuming the
consummation of the FGC acquisition). See "PRO FORMA FINANCIAL INFORMATION."
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INTEREST OF CERTAIN PERSONS IN THE MERGER
Outstanding options to purchase a total of 3,111 shares of Peoples
Financial Common Stock, held by M. Dale Bruner, President of Citizens Federal,
Terry Eastwood, Executive Vice President of Citizens Federal, and Barry
Buckley, President of Peoples Financial, will be converted at the Effective
Time into options to purchase an equivalent number of shares of Trans Financial
Common Stock, based upon the Exchange Ratio. The options to purchase Trans
Financial Common Stock will be subject to substantially the same terms and
conditions as the options to purchase Peoples Financial Common Stock.
In addition, it is expected that upon consummation of the Merger, Mr.
Buckley will enter into a three year employment contract with Trans Financial,
pursuant to which Mr. Buckley will act as president of Peoples Bank at an
annual salary of $110,000, and that Mr. Bruner's existing contract with
Citizens Federal will be extended to two years from the date of the closing of
the Merger.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of Articles of Merger
with the Kentucky Secretary of State and the Tennessee Secretary of State or at
such later date and time as may be specified in the Articles of Merger. Such
filing will be made, subject to the terms and conditions of the Merger
Agreement, on the fifth business day following the effective date of the last
order, approval or exemption of any federal or state regulatory agency
approving the Merger and the expiration of all applicable waiting periods or
such other time as Peoples Financial and Trans Financial may agree. The
parties currently expect that the Effective Time will be on or before
April 30, 1994, although there can be no assurance as to whether or when
the Merger will occur. See "THE MERGER-Conditions to the Merger" and
"-Regulatory Approvals."
SURRENDER OF CERTIFICATES
No later than seven (7) days after the Closing Date, Peoples Bank,
acting in the capacity of exchange agent for Trans Financial (the "Exchange
Agent"), will mail or deliver to each former holder of record of shares of
Peoples Financial Common Stock a form of letter of transmittal, together with
instructions for the exchange of Peoples Financial stock certificates for the
consideration to which they are entitled in the Merger.
PEOPLES FINANCIAL SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES
UNTIL THEY RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS.
Upon surrender to the Exchange Agent of one or more certificates for
Peoples Financial Common Stock, together with a properly completed letter of
transmittal, there will be issued and mailed or delivered to the holder thereof
a certificate or certificates representing the number of shares of Trans
Financial Common Stock to which such holder is entitled, together with all
declared but
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unpaid dividends in respect to such shares and, where applicable, a check for
the amount representing any fractional shares (without interest). A
certificate for Trans Financial Common Stock or any check representing cash may
be issued in a name other than the name in which the surrendered certificate is
registered only if the certificate surrendered is properly endorsed,
accompanied by a guaranteed signature if required by the letter of transmittal
and otherwise in proper form for transfer and the person requesting the
issuance of such certificate either pays to the Exchange Agent any transfer or
other taxes required by reason of the issuance of the certificate for such
shares in a name other than the registered holder of the certificate
surrendered or establishes to the satisfaction of the Exchange Agent that such
tax has been paid or is not applicable. Certificates surrendered for exchange
by any person constituting an affiliate of Peoples Financial for purposes of
Rule 145(c) under the Securities Act will not be exchanged for certificates
representing shares of Trans Financial Common Stock until Trans Financial has
received a written agreement from such person as described under "THE
MERGER-Resales of Trans Financial Common Stock."
All Trans Financial Common Stock issued pursuant to the Merger will be
deemed issued as of the Effective Time of the Merger. After the Effective Time
of the Merger, former holders of record of Peoples Financial Common Stock who
receive shares of Trans Financial Common Stock in the Merger will be entitled
to vote the number of shares of Trans Financial Common Stock into which their
Peoples Financial shares have been converted, regardless of whether they have
surrendered their Peoples Financial certificates. Dividends declared by Trans
Financial after the Effective Time of the Merger will include dividends on all
shares of Trans Financial Common Stock issued in the Merger, but no dividends
or other distributions declared shall be paid to the holder of any
unsurrendered certificate with respect to which shares of Trans Financial
Common Stock have been issued in the Merger until such certificate has been
surrendered, promptly after which time all such dividends or distributions will
be paid, without interest. After the Effective Time of the Merger, there will
be no transfers on the transfer books of Peoples Financial of the shares of
Peoples Financial Common Stock that were outstanding immediately prior to the
Effective Time of the Merger. If, after the Effective Time of the Merger,
certificates representing such shares are presented for transfer to the
Exchange Agent, they will be canceled and exchanged for certificates
representing shares of Trans Financial Common Stock or cash in accordance with
the Merger Agreement.
CONDITIONS TO THE MERGER
The Merger will occur only if the Merger Agreement is approved by the
requisite vote of the shareholders of Peoples Financial. Consummation of the
Merger is subject to the satisfaction of certain other conditions, unless
waived, to the extent waiver is
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permitted by law. Such conditions include (1) the receipt of all
necessary regulatory approvals on terms and conditions that are satisfactory to
Trans Financial; (2) the effectiveness of the Registration Statement and the
absence of a stop order suspending such effectiveness; (3) the absence of any
action or proceeding before any court or agency of competent jurisdiction
challenging the Merger or seeking to prohibit consummation of the Merger which,
in the opinion of either party's counsel has a reasonable probability of
success; (4) the absence of any material adverse change in the business,
financial condition or operations of Peoples Financial or Trans Financial since
December 31, 1992; (5) the receipt by Trans Financial of a written release from
each of the executive officers and directors of Peoples Financial; (6) the
receipt by Peoples Financial of an opinion of counsel to the effect that the
Merger will be treated for federal income tax purposes as a reorganization
within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended (the "IRC"), and that the Merger will not give rise to the recognition
of gain or loss for federal income tax purposes; (7) the receipt by Trans
Financial of an accountant's letter confirming that the Merger qualifies for
"pooling of interests" accounting treatment; (8) the continued accuracy in all
material respects of representations and warranties made by Trans Financial and
Peoples Financial in the Merger Agreement; (9) the execution and delivery to
Trans Financial by certain directors of Peoples Financial of a noncompetition
agreement, providing that each shall not engage in the financial services
industry in Putnam, Cumberland or Roane County, Tennessee in any manner
whatsoever competitive with Trans Financial and its affiliates, and that each
shall not divulge any information about Peoples Financial's business for a
period of two years from the closing date of the Merger; and (10) the receipt
by Peoples Financial of an opinion from its financial advisor to the effect
that, as of the date this Proxy Statement/Prospectus is mailed to the
shareholders of Peoples Financial, the Merger is fair to the Peoples Financial
shareholders from a financial viewpoint. See "THE MERGER-Regulatory
Approvals," "-Waiver and Amendment," and "-Termination."
In addition, unless waived, each party's obligation to effect the
Merger is subject to performance by the other party of its obligations under
the Merger Agreement, the receipt of certain certificates from the other party
and the receipt of certain legal opinions from the other party's counsel. No
assurances can be provided as to when or if all of the conditions precedent to
the Merger can or will be satisfied or waived by the party permitted to do so.
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REGULATORY APPROVALS
The Merger is subject to prior approval of the Federal Reserve Board
under the BHC Act. Trans Financial has submitted an application for approval
of the Merger with the Federal Reserve Bank of St. Louis and the Federal
Reserve has indicated that it will likely act on the application on or about
March 13, 1994. Under the BHC Act, the Federal Reserve Board is required, in
approving a transaction such as the Merger, to take into consideration, among
other things, the financial and managerial resources and future prospects for
the existing institutions, the convenience and needs of the communities to be
served and the record of performance of the institutions in meeting the credit
needs of the entire community, including low and moderate income neighborhoods
served by the institutions.
The Merger is subject to the approval of the Commissioner of the
Kentucky Department of Financial Institutions and the Tennessee Department of
Financial Institutions. Under Kentucky's banking laws, the Commissioner must
approve the Merger if he finds that (i) the terms of the Merger are in
accordance with Kentucky law, (ii) the financial condition, or the competence,
experience and integrity of Trans Financial or its principals are such as will
not jeopardize the financial stability of Peoples Financial, (iii) the public
convenience and advantage will be served by the acquisition, and (iv) no
federal regulatory authority whose approval is required has disapproved the
Merger because it would result in a monopoly or substantially lessen
competition. Under Tennessee's banking laws, among other requirements, the
Commissioner shall only approve the application for the Merger if (a) the
acquisition would not have the effect of substantially lessening competition in
the relevant geographic market in Tennessee that is not clearly outweighed by
other factors which advance the public interests of the State of Tennessee; (b)
the Merger would not be detrimental to the applicant or the safety and
soundness of Peoples Bank or Peoples Financial; and (c) the Commissioner
determines that Trans Financial, its directors and officers are qualified by
character, experience and financial responsibility to control and operate a
Tennessee bank. Trans Financial has submitted applications for approval of the
Merger to the Kentucky and Tennessee Departments of Financial Institutions.
The Merger is also subject to the approval of the Office of Thrift
Supervision ("OTS"). Trans Financial has submitted an application for approval
of the Merger with the OTS.
Under the BHC Act, the Merger may not be consummated until the 30th
day following the date of Federal Reserve Board approval, during which time the
United States Department of Justice may challenge the Merger on antitrust
grounds. Trans Financial and
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Peoples Financial believe that the Merger raises no antitrust concerns.
Trans Financial and Peoples Financial have filed or will file all
applications, and have taken or will take other appropriate action with respect
to any requisite approvals or other action of any governmental authority. The
Merger Agreement provides that the obligation of each of Peoples Financial and
Trans Financial to consummate the Merger is conditioned upon the receipt of all
requisite regulatory approvals, and, with respect to Trans Financial, on terms
and subject to conditions satisfactory to Trans Financial. There can be no
assurance that any governmental agency will approve or take any other required
action with respect to the Merger, and, if approvals are received or action is
taken, there can be no assurance as to the date of such approvals or action,
that such approvals or action will not be conditioned upon matters that would
cause the parties to abandon the Merger or that no action will be brought
challenging such a privilege or action, including a challenge by the Department
of Justice or, if such a challenge is made, the result thereof.
Trans Financial and Peoples Financial are not aware of any
governmental approvals or actions that may be required for consummation of the
Merger except as described above. Should any such approval or action be
required, it is presently contemplated that such approval or action will be
sought.
BUSINESS PENDING THE MERGER
The Merger Agreement provides that, during the period from the date of
the Merger Agreement to the Effective Time of the Merger, Peoples Financial
will, and will cause its subsidiaries to, among other things, conduct its
business in the usual, regular and ordinary course, and use its best efforts to
keep available services of its present officers and employees and to preserve
the goodwill of their customers and others having business relations with them.
NO SOLICITATION OF TRANSACTIONS BY PEOPLES FINANCIAL
Peoples Financial agreed that, prior to the Effective Time, neither it
nor any Peoples Financial subsidiary would, and neither would authorize or
permit its respective officers, directors, employees, agents and
representatives to, solicit or encourage any inquiries or the making or
implementation of any proposal or offer (including any proposal or offer to its
shareholders) with respect to a merger, acquisition, consolidation or similar
transaction involving, or any purchase of all or any significant portion of the
assets or any equity securities of, Peoples Financial or any Peoples Financial
subsidiary (a "Takeover Proposal") or engage in any negotiations concerning, or
provide any confidential information or data to, or have any discussions with,
any person, relating
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to a Takeover Proposal, or otherwise facilitate any effort or attempt to make
or implement a Takeover Proposal.
DIVIDENDS
The Merger Agreement provides that, beginning with the second calendar
quarter of 1994 and for each succeeding calendar quarter thereafter prior to
the calendar quarter in which the Effective Time occurs, Peoples Financial may
declare and pay dividends on shares of Peoples Financial Common Stock in an
amount not to exceed $.72 per share of Peoples Financial Common Stock.
However, Peoples Financial may not declare or pay any dividends or make any
distributions in any amount on Peoples Financial Common Stock in the quarter in
which the Effective Time shall occur and in which the shareholders of Peoples
Financial Common Stock are entitled to receive regular quarterly dividends on
the shares of Trans Financial Common Stock into which the shares of Peoples
Financial Common Stock have been converted. It is the intent of the Merger
Agreement to provide that the holders of Peoples Financial Common Stock will
receive either the payment of cash dividends on their shares of Peoples
Financial Common Stock or the payment of cash dividends as the holders of
shares of Trans Financial Common Stock received in the Merger for the calendar
quarter in which the Effective Time shall occur, but will not receive and will
not become entitled to receive for the same calendar quarter both the payment
of a cash dividend as a holder of Peoples Financial Common Stock and the
payment of a cash dividend as a holder of Trans Financial Common Stock.
WAIVER AND AMENDMENT
Prior to or at the Effective Time of the Merger, any provision of the
Merger Agreement, including, without limitation, the conditions to consummation
of the Merger and the restrictions described under "Business Pending the
Merger," may be /i/ waived, to the extent permitted under law, in writing by
the party which is entitled to the benefits thereof, or /ii/ amended at any
time by written agreement of the parties approved by their respective Boards of
Directors, whether before or after the Special Meeting.
TERMINATION
The Merger Agreement provides that, whether before or after the
Special Meeting and notwithstanding the approval by the shareholders of Peoples
Financial, the Merger Agreement may be terminated and the Merger abandoned at
any time prior to the Effective Time of the Merger /i/ by mutual consent of the
Boards of
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Directors of Trans Financial and Peoples Financial; or /ii/ by either the Board
of Directors of Trans Financial or the Board of Directors of Peoples Financial
/a/ if the Effective Time shall not have occurred on or before August 31, 1994,
or /b/ in the event of a material breach by the other party of any
representation, warranty, covenant or other agreement contained in the Merger
Agreement, which breach is not cured after 30 days written notice thereof is
given to the party committing such breach, or /iii/ by Trans Financial, if
Peoples Financial shareholders owning greater than 9% of the issued and
outstanding shares of Peoples Financial Common Stock dissent from the Merger.
In the event of the termination and abandonment of the Merger
Agreement pursuant to such termination provisions, the Merger Agreement will
become void and have no effect, except that /i/ certain provisions of the
Merger Agreement relating to expenses and confidentiality of information
obtained pursuant to the Merger Agreement or in connection with its
negotiation, will survive any such termination and abandonment, and /ii/ no
party will be relieved or released from any liability arising out of a breach
of any provision of the Merger Agreement.
OPERATIONS AFTER THE MERGER
Upon consummation of the Merger, Peoples Bank and Citizens Federal will
become wholly-owned subsidiaries of Trans Financial. It is currently expected
that, following the Merger, the operations of Peoples Bank will continue
substantially unchanged except that Trans Financial expects to merge all of the
operations of Citizens Federal into Peoples Bank.
EMPLOYEE BENEFITS
At or as soon as administratively feasible after the Effective Time,
Trans Financial has agreed to provide the employees and officers of Peoples
Financial and its subsidiaries such employee benefits as Trans Financial from
time to time generally provides to employees and officers of a Trans Financial
subsidiary, including, but not limited to, participation in Trans Financial's
Employee Stock Ownership Plan, Savings Investment Plan, life, medical and
hospitalization and disability insurance, sick pay, vacation, personal leave
and severance benefits, on a non-discriminatory and substantially similar
basis. For purposes of providing such benefits to employees and officers of
Peoples Financial or any Peoples Financial subsidiary after the Effective Time,
Trans Financial will credit such employees and officers for years of service at
Peoples Financial or any Peoples Financial subsidiary prior to the Effective
Time for purposes of eligibility and vesting.
STOCK OPTION AGREEMENTS
Simultaneous with the execution of the Merger Agreement, Trans
Financial and certain shareholders of Peoples Financial (including
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all of Peoples Financial's directors) entered into stock option agreements
pursuant to which each such shareholder granted to Trans Financial an
irrevocable Option to purchase all of the shares of Peoples Financial Common
Stock then owned by such individual. The stock option agreements, if
exercised, would allow Trans Financial to acquire in the aggregate, 138,955
shares, or 58.7% of the Peoples Financial Common Stock outstanding, at a price
of $85.19 per share, subject to the terms and conditions set forth therein.
Trans Financial may exercise each Option, in whole but not in part,
subject to regulatory approval, by giving written notice of exercise to each
optionor at any time after a "Purchase Event" occurs prior to termination of
the Option. A "Purchase Event" is defined as the occurrence of any of the
following events:
A. Peoples Financial or its Board of Directors enters into or
recommends to its shareholders that they approve an agreement with any person
(other than the Trans Financial or any of its subsidiaries) pursuant to which
such person would: (i) merge or consolidate with, or enter into any similar
transaction with Peoples Financial, (ii) purchase, lease or otherwise acquire
all or substantially all of the assets of Peoples Financial or its subsidiaries
or (iii) purchase or otherwise acquire (by merger, consolidation, share
exchange or similar transaction) securities representing twenty-five percent
(25%) or more of the voting shares of Peoples Financial or its subsidiaries;
B. The shareholders of Peoples Financial fail to approve the Merger
Agreement after any person (other than the Trans Financial or any of its
subsidiaries) announces publicly or communicates to Peoples Financial or any of
its directors or representatives a proposal to (i) acquire Peoples Financial or
its subsidiaries (by merger, consolidation, share exchange, the purchase of all
or substantially all of their assets or any other similar transaction), (ii)
purchase or otherwise acquire securities representing twenty five percent (25%)
or more of the voting shares of Peoples Financial or its subsidiaries or (iii)
change the composition of the Board of Directors of Peoples Financial;
C. Peoples Financial or any of its subsidiaries consummates a
transaction with any person in which: (i) Peoples Financial or any of its
subsidiaries merges, consolidates or combines in any similar transaction with
such person, or (ii) such person purchases, leases or otherwise acquires all or
substantially all of the assets of Peoples Financial or any of its subsidiaries
or, (iii) such person purchases or otherwise acquires (by merger,
consolidation, share exchange or similar transaction) securities represent-
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ing twenty-five percent (25%) or more of the voting shares of Peoples Financial
or its subsidiaries;
D. The shareholder party to the stock option agreement shall fail to
vote his shares of Peoples Financial Common Stock in favor of the Merger
Agreement.
Under the option agreements, each shareholder optionor has agreed to
cooperate fully with Trans Financial and exercise his best efforts to assist
Trans Financial in connection with its acquisition of all of the outstanding
Peoples Financial Common Stock and will cause Peoples Financial and its
subsidiaries not to conduct their business other than in the usual, regular and
ordinary course or fail to use their best efforts to preserve their respective
business organization intact.
Each shareholder optionor also agreed not to solicit or encourage
(including by way of furnishing information) inquiries, or authorize or permit
any of Peoples Financial's officers, directors, employees, advisors or
representatives to solicit or encourage, or take any other action to facilitate
any inquiries or the making of any proposal which constitutes, or may
reasonably be expected to lead to, or agree to or endorse any, or participate
in any discussions or negotiations, or provide third parties with any
information, relating to, any tender or exchange offer, proposal for a merger,
consolidation or other business combination involving Peoples Financial or its
subsidiaries, or agree to or endorse any such transaction, other than the
transactions contemplated by the Merger Agreement.
The Options terminate upon the earliest to occur of (i) the Effective
Time, (ii) August 31, 1994, or (iii) termination of the Merger Agreement prior
to the occurrence of a Purchase Event.
The stock option agreements could have the effect of discouraging
persons who now or prior to the Effective Time of the Merger might be
interested in acquiring all of or a significant interest in Peoples Financial
from considering or proposing such an acquisition, even if such persons were
prepared to propose greater consideration per share for Peoples Financial
Common Stock than the consideration per share represented by the Exchange
Ratio.
To the best of Trans Financial's and Peoples Financial's knowledge, no
event giving rise to the exercise of the Options has occurred as of the date of
this Proxy Statement-Prospectus.
ACCOUNTING TREATMENT
Consummation of the Merger is conditioned upon the receipt by Trans
Financial of an opinion from KPMG Peat Marwick, Trans Financial's independent
certified public accountants, to the effect that the Merger qualifies for
pooling of interests accounting
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treatment if consummated in accordance with the Merger Agreement. Trans
Financial and Peoples Financial have agreed not to intentionally take or cause
to be taken any action that would disqualify the Merger as a pooling of
interests for accounting purposes.
Under the pooling of interests method of accounting, the historical
basis of the assets and liabilities of Trans Financial and Peoples Financial
will be combined at the Effective Time of the Merger and carried forward at
their previously recorded amounts, and the shareholders' equity accounts of
Trans Financial and Peoples Financial will be combined on Trans Financial's
consolidated balance sheet and no goodwill or other intangible assets will be
created. Financial statements of Trans Financial issued after the Merger will
be restated retroactively to reflect the consolidated operations of Trans
Financial and Peoples Financial as if the Merger had taken place prior to the
periods covered by such financial statements.
The unaudited pro forma financial information contained in the Proxy
Statement-Prospectus has been prepared using the pooling-of-interests
accounting method to account for the Merger. See "SUMMARY-Comparative
Unaudited Per Share Information," "SELECTED CONSOLIDATED FINANCIAL INFORMATION"
and "PRO FORMA FINANCIAL INFORMATION."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary description of the material federal income
tax consequences of the Merger. This summary is not a complete description of
all the consequences of the Merger and, in particular, may not address federal
income tax considerations that may affect the treatment of a shareholder who
holds Peoples Financial Common Stock acquired pursuant to an employee stock
option. Each shareholder's individual circumstances may affect the tax
consequences of the Merger to such shareholder. In addition, no information is
provided herein with respect to the tax consequences of the Merger under
applicable foreign, state or local laws. Consequently, each Peoples Financial
shareholder is advised to consult his or her own tax advisor as to the specific
tax consequences of the Merger.
Peoples Financial has received an opinion from Trans Financial's
counsel, Wyatt, Tarrant & Combs of Louisville, Kentucky, as to the federal
income tax consequences of the Merger, based upon certain customary
representations set forth therein. Based, in part, on such representations,
Wyatt, Tarrant & Combs has expressed its opinion that, among other things:
1. No gain or loss will be recognized by shareholders of Peoples
Financial who receive solely shares of Trans Financial Common Stock as a result
of the Merger.
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2. The basis of the shares of Trans Financial Common Stock
received by shareholders of Peoples Financial (including any fractional share
interests to which they may be entitled) will be the same as their basis in the
shares of Peoples Financial Common Stock surrendered by them in exchange for
Trans Financial Common Stock.
3. The holding period of the shares of Trans Financial Common
Stock received by the shareholders of Peoples Financial will include the
holding period during which they held their shares of Peoples Financial Common
Stock surrendered by them in exchange for Trans Financial Common Stock,
provided the shares of Peoples Financial Common Stock were held as capital
assets at the Effective Time of the Merger.
4. A dissenting shareholder of Peoples Financial who receives
cash in exchange for his or her shares of Peoples Financial Common Stock will
be treated as having received such cash in a distribution in redemption of his
or her Peoples Financial Common Stock if the requirements of Section 302(b) of
the IRC are met, taking into account the attribution rules of IRC Section 318
pursuant to IRC Section 302(c). Under IRC Section 1001, gain or loss (subject
to the limitations of IRC Section 267) will be realized and recognized by any
such dissenting shareholder in an amount equal to the difference between the
amount of cash received and the adjusted basis of the shares of Peoples
Financial Common Stock surrendered, as determined under IRC Section 1011.
5. A shareholder of Peoples Financial who receives cash in lieu
of fractional share interests of Trans Financial Common Stock will be treated
for federal income tax purposes as if the fractional shares were distributed as
part of the Merger and then were redeemed by Trans Financial. These cash
payments will be treated as having been received as distributions in full
payment in exchange for the stock redeemed as provided in IRC Section 302(a).
As provided in IRC Section 1001, gain or loss will be realized and recognized
by such shareholder in an amount equal to the difference between the redemption
price and the adjusted basis of Trans Financial Common Stock surrendered
therefor.
6. No gain or loss will be recognized by Peoples Financial or
Trans Financial by reason of the Merger.
7. The Merger will constitute a reorganization under IRC Section
368.
THE FOREGOING IS INTENDED TO BE ONLY A GENERAL OVERVIEW OF CERTAIN
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND SHOULD NOT BE CONSIDERED TO
BE TAX ADVICE. IT DOES NOT ADDRESS THE STATE OR LOCAL TAX ASPECTS OF THE
MERGER, NOR DOES IT ADDRESS FEDERAL TAX ISSUES THAT MAY BE AFFECTED BY THE
SHAREHOLDER'S PARTICULAR TAX
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CIRCUMSTANCES (E.G. ALTERNATIVE MINIMUM TAX, FOREIGN TAX, ETC.). THE
DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE INTERNAL REVENUE
CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS. PEOPLES FINANCIAL SHAREHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE FEDERAL, STATE AND LOCAL
TAX CONSEQUENCES WITH RESPECT TO THE FOREGOING MATTERS AND ANY OTHER
CONSIDERATIONS THAT MAY BE APPLICABLE TO THEM.
RESALES OF TRANS FINANCIAL COMMON STOCK
The shares of Trans Financial Common Stock issuable to shareholders of
Peoples Financial upon consummation of the Merger have been registered under
the Securities Act. Such shares may be traded freely and without restriction
by those shareholders not deemed to be affiliates of Peoples Financial as that
term is defined in the rules under the Securities Act. Affiliates are
generally defined as persons who control, are controlled by or are under common
control with Peoples Financial at the time of the Special Meeting.
Accordingly, affiliates generally will include the directors and executive
officers of Peoples Financial. Trans Financial Common Stock received by those
shareholders of Peoples Financial who are deemed to be affiliates of Peoples
Financial may be resold without registration as provided for by Rules 144 and
145, or as otherwise permitted under the Securities Act. This Proxy
Statement-Prospectus does not cover any resales of Trans Financial Common Stock
received by affiliates of Peoples Financial, or by certain of their family
members or related interests.
Peoples Financial has agreed to cause each holder of Peoples Financial
Common Stock deemed to be an affiliate to enter into an agreement providing,
among other things, that such person will not dispose of any shares of Trans
Financial Common Stock received in the Merger until such time as financial
results covering at least 30 days of combined operations of Trans Financial and
Peoples Financial shall be published and that such person, for a period of two
years (or three years if that person becomes an affiliate of Trans Financial)
following the Effective Time, (i) will not offer to sell or otherwise dispose
of any of the shares of Trans Financial Common Stock received pursuant to the
Merger in violation of the Securities Laws, (ii) will acknowledge the placement
of a legend on the certificate(s) representing the "affiliate's" shares of
Trans Financial Common Stock referring to the issuance of such shares in a
transaction to which Rule 145 is applicable, and (iii) will acknowledge the
giving of stop-transfer instructions to Trans Financial's transfer agent with
respect to the "affiliate's" certificates evidencing Trans Financial Common
Stock received in the Merger, which shall be effective absent evidence of
compliance with said Rule 145.
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EXPENSES
The Merger Agreement provides that Trans Financial and Peoples
Financial will each pay its own expenses in connection with the Merger and the
transactions contemplated thereby, including fees and expenses of its financial
or other consultants, investment bankers, accountants and counsel, except that
Peoples Financial and Trans Financial will divide equally all printing and
mailing costs in connection with this Proxy Statement-Prospectus.
DISSENTERS' RIGHTS
Under Tennessee law, a shareholder entitled to vote on the Merger may
dissent and obtain payment of the fair value of his or her shares of Peoples
Financial Common Stock if the Merger is approved by the shareholders of Peoples
Financial. Generally, dissenters' rights are a shareholder's sole remedy for
objecting to the Merger Agreement. The following summary is not intended to
and does not constitute a complete statement or summary of each provision of
the Tennessee Code relating to the rights of dissenting shareholders and is
qualified in its entirety by reference to Chapter 23 of the TBCA which is
attached as Appendix C to this Proxy Statement-Prospectus. Accordingly, any
holder of Peoples Financial Common Stock intending to exercise dissenters'
rights is urged to review Appendix C carefully and to consult his or her own
legal counsel. EACH STEP MUST BE TAKEN IN STRICT COMPLIANCE WITH THE
APPLICABLE PROVISIONS OF CHAPTER 23 IN ORDER FOR A HOLDER OF PEOPLES FINANCIAL
COMMON STOCK TO PERFECT DISSENTERS' RIGHTS.
A shareholder wishing to exercise dissenters' rights must deliver to
Peoples Financial, prior to the vote on the Merger at the Special Meeting, a
written notice of intent to demand payment for his or her shares if the Merger
is consummated, and must refrain from voting in favor of the Merger. The
written notice of intent must be given in addition to and separate from a vote
against approval of the Merger Agreement (whether in person or by proxy); a
vote against approval of the Merger Agreement (whether in person or by proxy)
will not constitute such a written notice. The written notice of intent should
be sent to Peoples Financial Services, Inc., Two West Jackson, Cookeville,
Tennessee 38501-0130, Attention: Secretary. It is recommended that all
required documents to be delivered by mail be sent registered or certified mail
with return receipt requested.
PEOPLES FINANCIAL SHAREHOLDERS ELECTING TO EXERCISE THEIR DISSENTERS'
RIGHTS UNDER CHAPTER 23 OF THE TBCA MUST NOT VOTE FOR APPROVAL OF THE
MERGER AGREEMENT. A VOTE BY A SHAREHOLDER AGAINST APPROVAL OF THE MERGER
AGREEMENT IS NOT REQUIRED IN ORDER FOR THAT SHAREHOLDER TO EXERCISE DISSENTERS'
RIGHTS. HOWEVER, IF A SHAREHOLDER RETURNS A SIGNED PROXY FORM BUT DOES NOT
SPECIFY A VOTE AGAINST APPROVAL OF THE MERGER AGREEMENT OR A DIRECTION TO
ABSTAIN, IF NOT REVOKED, THE SHARES REPRESENTED BY THE PROXY FORM WILL BE VOTED
FOR APPROVAL OF THE MERGER AGREEMENT,
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WHICH WILL HAVE THE EFFECT OF WAIVING THAT SHAREHOLDER'S DISSENTERS' RIGHTS.
If the Merger is approved, within ten days after the Special Meeting
(or any adjournment thereof), Peoples Financial will send to all shareholders
exercising their dissenters' rights ("Dissenters") written notice (the
"Dissenters' Notice") which states where the Dissenter must send a demand for
payment and where and when his or her share certificates must be deposited;
encloses a form for demanding payment to be completed by the Dissenter and
returned to Peoples Financial; establishes the date (not less than one month
nor more than two months after the delivery of the Dissenters' Notice) by which
Peoples Financial must receive the demand for payment from the Dissenter; and
encloses a copy of Chapter 23 of the TBCA. After a Dissenter receives the
Dissenters' Notice, he or she must deliver the demand for payment to Peoples
Financial and deposit his or her shares in accordance with the Dissenters'
Notice.
Upon its receipt of the demand for payment, Peoples Financial will
send to each Dissenter a statement containing an estimate by Peoples Financial
of the fair value of the Dissenter's shares as of the day before the date of
the Special Meeting, excluding any appreciation or depreciation in anticipation
of the Merger (unless exclusion would be inequitable), and payment based on
that estimate plus accrued interest. The payment will be accompanied by an
explanation of how interest was calculated along with the balance sheet of
Peoples Financial as of the end of the most recent fiscal year, an income
statement, a statement of changes in shareholders' equity and the latest
available interim financial statements. In addition, the Dissenter will be
informed of his or her right to demand payment according to the Dissenter's own
estimate of the fair value.
Peoples Financial is not required to send payment with the statement
of its estimate of fair value to a Dissenter who was not a beneficial owner of
Peoples Financial Common Stock at the time of the first public announcement of
the Merger Agreement, but rather may offer to purchase the Dissenter's shares
based on the estimate. Any such Dissenter must either accept that amount in
full satisfaction or proceed with the exercise of his or her dissenters'
rights.
Within one month after Peoples Financial has delivered its estimate of
fair value, a Dissenter may notify Peoples Financial of his or her own estimate
of the fair value of the shares and demand payment of the balance due under
such estimate.
If an agreement is not reached as to the fair value of the shares,
then within two months after receiving the Dissenter's payment demand, Peoples
Financial must file a petition in the Circuit Court of Putnam County requesting
the court to determine the fair value of the shares and the accrued interest.
If Peoples
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Financial fails to institute such a proceeding, it will be required to pay each
Dissenter whose demand remains unsettled the amount demanded.
Each Dissenter who is a party to the proceeding is entitled to the
amount, if any, by which the court finds the fair value of his or her shares,
plus accrued interest, exceeds the amount paid by Peoples Financial. In an
appraisal proceeding, the Putnam Circuit Court will determine all costs of the
proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court will assess costs against Peoples Financial,
except that the court may assess costs against all or some of the Dissenters,
in amounts the court finds equitable, to the extent the court finds the
Dissenters acted arbitrarily, vexatiously or not in good faith in demanding
payment. The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable as
follows: (i) against Peoples Financial and in favor of any or all Dissenters
if the court finds Peoples Financial did not substantially comply with the
requirements set forth in T.C.A. 48-23-201 through 48-23-209, or (ii) against
either Peoples Financial or a Dissenter, in favor of any other party, if the
court finds that the party against whom the fees and expenses are assessed
acted arbitrarily, vexatiously or not in good faith with respect to the rights
provided by Chapter 23. If the court finds that the services of counsel for
any Dissenter were of substantial benefit to other Dissenters similarly
situated, and that the fees for those services should not be assessed against
Peoples Financial, the court may award to these counsel reasonable fees to be
paid out of the amounts awarded the Dissenters who benefited.
If Peoples Financial does not consummate the Merger within two months
after the deadline for demanding payment and depositing certificates, it must
return all deposited shares. If Peoples Financial fails to do so, the
Dissenter may nevertheless proceed with the exercise of his or her Dissenters'
rights, and Peoples Financial will have no further right to terminate the
Dissenters' rights by returning deposited shares.
A record shareholder may dissent as to less than all of the Peoples
Financial Common Stock registered in his or her name only if he or she dissents
with respect to all of the shares beneficially owned by any one person and
notifies Peoples Financial in writing of the name and address of each person on
whose behalf the record shareholder is asserting dissenters' rights. In that
event, the rights of each party shall be determined as if the shares as to
which the shareholder has dissented and the shareholder's other shares were
registered in the names of different shareholders.
A beneficial shareholder may assert dissenters' rights as to shares
held on his or her behalf only if he or she submits to Peoples Financial the
record shareholder's written consent to the
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dissent no later than the time such beneficial shareholder asserts his or her
dissenters' rights, and he or she dissents as to all shares of which he or she
is the beneficial owner or over which he or she has the power to direct the
vote.
SHAREHOLDERS OF PEOPLES FINANCIAL SHOULD BE AWARE THAT FAILURE TO
PROCEED IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER 23 OF THE TBCA WILL RESULT
IN A LOSS OF ALL DISSENTERS' RIGHTS AND IN THEIR BEING BOUND BY THE MERGER
AGREEMENT AND THE MERGER.
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RECENT DEVELOPMENTS
On January 28, 1994, Trans Financial entered into a definitive
Agreement and Plan of Reorganization and related Plan of Merger with FGC, a
bank holding company headquartered in Martin, Kentucky, pursuant to which FGC
will merge into Trans Financial and each outstanding share of FGC common stock
will be exchanged for 419.83 shares of Trans Financial Common Stock, or an
aggregate of approximately 1,050,000 shares of Trans Financial Common Stock.
As of September 30, 1993, FGC had total assets of approximately $126 million.
On February 15, 1994, Trans Financial consummated its acquisition of
KCB and KCB's three banking subsidiaries, The State National Bank, Maysville,
Kentucky, Peoples First Bank of Morehead, Morehead, Kentucky, and Farmers
Liberty Bank, Augusta, Kentucky. Pursuant to the Agreement and Plan of
Reorganization and related Plan of Merger entered into between KCB and Trans
Financial on November 9, 1993, each as amended on January 6, 1994, KCB merged
with and into Trans Financial, and the outstanding shares of KCB were converted
into an aggregate of approximately 1,375,000 shares of Trans Financial Common
Stock. At September 30, 1993, KCB has consolidated assets of approximately
$171.3 million, net loans of approximately $102.6 million and shareholders'
equity of approximately $13.2 million. It is expected that KCB's three bank
subsidiaries will be merged into Trans Financial Bank, N.A. on March 31, 1994.
See "PRO FORMA FINANCIAL INFORMATION."
DESCRIPTION OF TRANS FINANCIAL COMMON STOCK AND RIGHTS
Shares of Trans Financial Common Stock issued in the Merger will be
fully paid and nonassessable. Each share of Trans Financial Common Stock is
entitled to one vote on all matters on which holders of common stock are
entitled to vote, except in the election of directors. In the election of
directors, cumulative voting rules apply and each stockholder is entitled to
cast a number of votes equal to the number of such shareholder's shares
multiplied by the number of directors to be elected and to distribute such
votes among one or more of the nominees to be elected. Holders of Trans
Financial Common Stock are entitled to receive such dividends as may be
declared by the Board of Directors, subject to the preferential rights of
holders of shares of any class or series of stock ranking prior to the Trans
Financial Common Stock as to payment of dividends. Holders of Trans Financial
Common Stock are entitled to receive distributions upon liquidation of Trans
Financial after satisfaction of all liquidation preferences of shares of
classes or series of stock ranking prior to the Trans Financial Common Stock
upon liquidation.
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Holders of Trans Financial Common Stock are not entitled to preemptive or other
subscription rights. See "CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS."
On January 20, 1992, the Board of Directors of Trans Financial
declared a dividend of one Right for each outstanding share of Trans Financial
Common Stock, payable to the holders of record on January 30, 1992. In
addition, Trans Financial has issued and will issue one Right with respect to
each share of Common Stock that becomes outstanding between the record date and
the earliest of the Distribution Date, the Redemption Date and the Expiration
Date, as defined below. Each Right, when and if it becomes exercisable, will
entitle the registered holder to purchase from Trans Financial 1/100 of a share
of Series 1992 Preferred Stock, subject to adjustment as described below. The
exercise price with respect to each whole right is $45 (the "Exercise Price").
The description and terms of the Rights are set forth in a Rights Agreement,
dated as of January 20, 1992 (the "Rights Agreement"), between Trans Financial
and Chemical Bank (formerly Manufacturers Hanover Trust Company), as Rights
Agent.
Until the Distribution Date, the Rights will be transferred with and
only with the Common Stock. The "Distribution Date" is the earlier of (i) the
tenth business day after the first public disclosure that a person or group
(including any affiliate or associate of such person or group) acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding Trans Financial Common Stock (such person or group being called an
"Acquiring Person"), (ii) the tenth business day after the Disinterested
Directors of Trans Financial (as defined in the Rights Agreement) determine
that a shareholder's beneficial ownership, such beneficial ownership being at
least greater than 10% of the outstanding Trans Financial Common Stock, has a
detrimental effect on Trans Financial or its shareholders (such person or group
being called an "Adverse Person") (such dates provided in (i) or (ii) above
being called the "Share Acquisition Date"), or (iii) the tenth business day
after the commencement of, or first public disclosure of an intention to
commence, a tender or exchange offer for 25% or more of the outstanding Trans
Financial Common Stock.
The Rights are not exercisable until the Distribution Date and will
expire on January 20, 2002 (the "Expiration Date"), unless earlier redeemed.
The number of shares of Preferred Stock issuable upon exercise of the Rights,
and the number of Rights associated with each share of Trans Financial Common
Stock, is subject to adjustment from time to time. The number and kind of
stock issuable upon exercise of the Rights are also subject to adjustment as
provided in the Rights Agreement. If at any time following the Distribution
Date, a person becomes the beneficial owner of more than 15% of the then
outstanding Trans Financial Common Stock without the prior approval of
two-thirds of the Disinterested
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<PAGE> 67
Directors or a person who is beneficial owner of more than 10% of the
then outstanding Trans Financial Common Stock is deemed by the Disinterested
Directors to be an Adverse Person (such events being called
"Triggering Events") then the Rights will entitle each holder of a Right to
purchase, for the Exercise Price, that number of shares of Preferred Stock
which at the time of the transaction would have a market value twice the
Exercise Price.
At any time prior to the earliest of /i/ the close of Business on the
tenth business day following the Share Acquisition Date or /ii/ the Expiration
Date, the Board of Directors of Trans Financial may redeem the Rights in whole,
but not in part, at a price of $.01 per whole Right; however, immediately upon
the date that an Acquiring Person becomes an Acquiring Person or an Adverse
Person becomes an Adverse Person, and thereafter the earliest of /1/ the close
of business on the tenth business day following the Share Acquisition Date or
/2/ the Expiration Date, the Rights may be redeemed only if a majority of the
Disinterested Directors then in office determine that such redemption is, in
their judgment, in the best interest of Trans Financial and its shareholders.
At any time after any person or group becomes an Acquiring Person or
Adverse Person and prior to the acquisition by such person or group of 50% or
more of the outstanding Trans Financial Common Stock, the Board of Directors of
Trans Financial may exchange the Rights (other than Rights owned by such person
or group, which will have become null and void under the terms of the Rights
Agreement), in whole or in part, at an exchange ratio of 1/100 share of
Preferred Stock per Right, subject to adjustment.
A copy of the Rights Agreement has been filed by Trans Financial with
the Commission as an exhibit to a current report on Form 8-K dated January 24,
1992. The foregoing description of the material terms of the Rights does not
purport to be a complete description of all of the terms of the Rights, and is
qualified in its entirety by reference to the terms of such Rights, which are
set forth in full in the Rights Agreement.
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<PAGE> 68
PEOPLES FINANCIAL COMMON STOCK
Each share of Peoples Financial Common Stock is entitled to one vote on
all matters on which shareholders are entitled to vote. Except with respect to
matters required by statute to be approved by a greater number of votes, action
on a matter may be approved if the votes cast for exceed the votes cast against
the matter at a meeting at which a quorum is present. The affirmative vote of
a majority of all the outstanding shares of Peoples Financial Common Stock
entitled to vote is required to approve certain actions specified in the
corporate statutes such as mergers, share exchanges and certain sales of
assets.
Holders of Peoples Financial Common Stock are entitled to such
dividends and other distributions as may be declared from time to time by
Peoples Financial's Board of Directors out of funds legally available for
distributions to shareholders. Under Tennessee law, Peoples Financial's Board
of Directors may declare dividends or make other distributions with respect to
Peoples Financial Common Stock if after payment of the dividends, (i) Peoples
Financial is
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<PAGE> 69
able to pay its debts as they become due in the usual course of business, or
(ii) Peoples Financial's total assets will not be less than the sum of its
total liabilities plus any amount needed to satisfy any preferential
liquidation rights of shares, if any, whose preferential rights are superior to
those of Peoples Financial Common Stock.
Peoples Financial's ability to pay dividends depends upon dividends
paid to it by its subsidiaries. Tennessee and Federal banking laws limit the
dividends that may be declared by Peoples Bank and Citizens Federal in certain
circumstances. Holders of Peoples Financial Common Stock are entitled to
receive the net assets of Peoples Financial upon its dissolution or
liquidation.
The shares of Peoples Financial Common Stock outstanding are fully paid
and nonassessable. Peoples Financial's shareholders have no preemptive rights
to subscribe for unissued shares of Peoples Financial Common Stock.
OWNERSHIP OF PEOPLES FINANCIAL COMMON STOCK
Peoples Financial has 236,777 shares of Peoples Financial Common Stock
outstanding, which were held by approximately 274 shareholders of record as of
February 28, 1994. The following table sets forth as of February 28, 1994,
the persons known by Peoples Financial to own beneficially (as determined in
accordance with the rules and regulations of the Commission) more than 5% of
the Peoples Financial Common Stock, and the Peoples Financial Common Stock
beneficially owned by each director and executive officer of Peoples Financial
and by all directors and executive officers as a group.
<TABLE>
<CAPTION>
Position(s) Percent of
with Amount of Shares of
Name and Address Peoples Beneficial Common Stock
of Beneficial Owner Financial Ownership Outstanding
- ------------------- --------- --------- -----------
<S> <C> <C> <C>
Fred H. Brown Chairman of the 22,331 9.4%
Two West Jackson Board of Directors
Cookeville, Tennessee
Dale Bruner Director 22 *
51 Lake Circle Drive
Harriman, Tennessee
</TABLE>
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<PAGE> 70
<TABLE>
<S> <C> <C> <C>
Billy C. Hall(1) Director 25,664(2) 10.8%
S. Maple Street
Cookeville, Tennessee
James N. Hall(1) Director 25,664(3) 10.8%
S. Maple Street
Cookeville, Tennessee
Michael Evans Director 21,561 9.1%
Rt. 1 Box 381
Sparta, Tennessee
Paul R. Gaw Director 11,562(4) 4.9%
Rt. 3 Box 322
Cookeville, Tennessee
Thomas D. Gentry Director 18,182(5) 7.7%
P.O. Box 2504
Cookeville, Tennessee
Steve D. Cihat Director 4,000(6) 1.7%
Rt. 12 Box 246A
Cookeville, Tennessee
</TABLE>
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<PAGE> 71
<TABLE>
<S> <C> <C> <C>
Garry W. McNabb Director 5,814(7) 2.5%
P.O. Box 939
Cookeville, Tennessee
James B. McWilliams Director 1,775(8) *
831 S. Willow
Cookeville, Tennessee
Walter W. Carlen Director 1,600(9) *
660 Woodlawn
Cookeville, Tennessee
Barry T. Buckley President, Chief 780(10) *
Two West Jackson Executive Officer
Cookeville, Tennessee and Director
All Directors and Officers as a Group 138,955 58.7%
</TABLE>
* Less than 1%
(1) Directors Hall and Hall are brothers.
(2) Includes 781 shares held jointly by Mr. Hall with his wife, Rose Hall,
60 shares held by Carla M. Hall, Mr. Hall's daughter, 60 shares held
by Gina L. Hall, Mr. Hall's daughter, and 60 shares held by Gary L.
Jackson, Mr. Hall's stepson.
(3) Includes 781 shares held jointly by Mr. Hall with his wife, Coleen
Hall.
(4) Includes 1,561 shares held by Paul Gaw, Inc., and 10,001 shares held
by Paul Gaw, Inc. Defined Benefit Pension Plan.
(5) Includes 200 shares held by Nancy Ann Gentry, Mr. Gentry's wife, 5,561
shares held jointly by Mr. Gentry with his wife, 8,000 shares held by
Genco Profit Retirement, and 3,821 shares held by Genco Reinstated
Profit Sharing.
(6) Includes 600 shares held by Suzanna Kay Cihat, Mr. Cihat's daughter,
and 600 shares held by Sarah Leighanne Cihat, Mr. Cihat's daughter.
(7) Includes 100 shares held by Jonathan A. McNabb, Mr. McNabb's son.
(8) Includes 1,775 shares held jointly by Mr. McWilliams with his wife,
Adelheid E. McWilliams.
(9) Includes 220 shares held by Linda Puckett Carlen, Mr. Carlen's wife,
and 1,000 shares held by Carlen Motors, Inc.
(10) Includes 133 shares held by Pamela Buckley, Mr. Buckley's wife.
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<PAGE> 72
COMPARATIVE STOCK PRICES AND DIVIDENDS
Trans Financial Common Stock is traded in the over-the-counter market
and quoted on the NASDAQ National Market under the symbol TRFI. The following
table sets out the high and low sale prices in the Trans Financial Common Stock
and cash dividends declared during the years 1992 and 1993 and the first
quarter of 1994 through March 3, 1994. The sales price information reflects
the range of sales prices for Trans Financial Common Stock as reported by
NASDAQ. Price and dividends per common share have been adjusted for the effect
of the 4-for-3 stock split effected December 18, 1992.
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<PAGE> 73
<TABLE>
<CAPTION>
Price Per
Common Share Quarterly
------------ Dividends
Per Common
High Low Share
---- --- ----------
<S> <C> <C> <C>
1992
1st Quarter $12.375 $10.875 $.1050
2nd Quarter 14.125 11.25 .1125
3rd Quarter 14.25 12.125 .1125
4th Quarter 15.125 12.00 .1125
1993
1st Quarter $24.00 $16.75 $.1275
2nd Quarter 23.75 19.25 .1275
3rd Quarter 20.25 17.00 .1275
4th Quarter 18.75 14.825 .1275
1994
1st Quarter through March 3, 1994 $17.25 $15.50 $ .14
</TABLE>
At December 31, 1993, Trans Financial Common Stock was held of record
by 1,273 stockholders.
Trans Financial's policy is to declare regular quarterly dividends
based upon its earnings, financial position, capital requirements and such
other factors deemed relevant by the Board of Directors. This dividend policy
is subject to change, however, and the payment of dividends by Trans Financial
is necessarily dependent upon the availability of earnings and Trans
Financial's financial condition in the future. The payment of dividends on
Trans Financial Common Stock is also subject to applicable regulatory capital
requirements.
The Common stock of Peoples Financial is not traded on an exchange nor
is there a known active trading market. While Peoples Financial handles the
transfer of shares, which has involved a limited number of buyers and sellers,
Peoples Financial is not directly aware of the prices paid for the shares.
Based upon the sale of shares by Peoples Financial in 1993 for $45 per share,
Peoples Financial would estimate that recent trading prices, before
announcement of the Merger have been close to $45 per share. No dividends have
ever been paid on the Peoples Financial Common Stock.
There can be no assurance that the information furnished to Peoples
Financial represents trading prices for Peoples Financial Common Stock
generally. At December 31, 1993, Peoples Financial Common Stock was held of
record by approximately 274 stockholders.
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<PAGE> 74
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
Trans Financial is a Kentucky corporation subject to the provisions of
the Kentucky Business Corporation Act, and Peoples Financial is a Tennessee
corporation subject to the provisions of the TBCA. Shareholders of Peoples
Financial, whose rights are governed by Peoples Financial's charter and bylaws
and by the TBCA, will, upon consummation of the Merger, become shareholders of
Trans Financial. The rights of such shareholders as shareholders of Trans
Financial will then be governed by the articles of incorporation and bylaws of
Trans Financial and by the Kentucky Business Corporation Act.
Except as set forth below, there are no material differences between
the rights of a Peoples Financial shareholder under Peoples Financial's charter
and bylaws, on the one hand, and the rights of a Trans Financial shareholder
under the articles of incorporation and bylaws of Trans Financial, on the other
hand. This summary does not purport to be a complete discussion of and is
qualified in its entirety by reference to the governing law and the articles of
incorporation or charter and bylaws of each corporation.
BUSINESS COMBINATIONS
Trans Financial's articles of incorporation require the affirmative
vote of the holders of 80% of the outstanding shares of Trans Financial Common
Stock to approve certain Business Combinations (as defined therein, which term
includes a merger with a "Control Person" (a person or entity owning 10% or
more of the outstanding common stock), a sale of all or a substantial part of
the assets of Trans Financial to a Control Person, a liquidation or dissolution
proposed by or on behalf of a Control Person and similar extraordinary
transactions), unless (a) the transaction is approved by at least two-thirds of
the Continuing Directors (members of the Board of Directors who are
unaffiliated with the Control Person and who were Directors prior to the time
when the Control Person became a Control Person) or (b) all stockholders
receive for their shares of Common Stock the greater of the market price for
the shares or the highest price per share paid by the Control Person in the
Business Combination. This provision may be amended, altered or repealed only
by two-thirds of the Continuing Directors adopting a resolution approving such
amendment and the affirmative vote of the holders of 80% of the outstanding
Trans Financial Common Stock. Such provisions may make Trans Financial a less
attractive acquisition target by making a Business Combination more difficult
or costly for a potential acquiror. Peoples Financial's charter and bylaws
do not contain any similar provisions.
Peoples Financial's charter provides that when evaluating any offer of a
person to (a) make a tender or exchange offer for any equity security of
Peoples Financial or
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<PAGE> 75
other security convertible into such security; (b) merge or consolidate Peoples
Financial with another entity; (c) acquire substantially all of the assets of
Peoples Financial, the Board of Directors of Peoples Financial shall consider
all relevant factors, including (i) the consideration being offered in relation
to the then-current market price, the then-current value in a freely negotiated
transaction, and in relation to the Board of Directors' then-current estimate
of future value; (ii) social and economic effects on employees, customers,
suppliers and other constituents and the communities in which Peoples Financial
operates; and (iii) the desirability of maintaining independence.
SPECIAL MEETINGS OF SHAREHOLDERS
Trans Financial's articles of incorporation provide that special
meetings of the shareholders may be called only by resolution of the directors
in writing or by the holders of not less than 50% of all shares entitled to
cast votes at the meeting. Trans Financial's articles of incorporation would
limit the power of shareholders to call a special meeting and, to that extent,
may discourage potential acquirors from unsolicited offers for control of Trans
Financial and strengthen the ability of the Board of Directors in dealing with
potential acquirors. Under the TBCA and Peoples Financial's Bylaws, Peoples
Financial must hold a specific meeting of shareholders on call of its board of
directors or if the holders of at least 10% of all the votes entitled to be
cast on any issue proposed to be considered at the special meeting sign, date
and deliver to the secretary of Peoples Financial one or more written demands
for the meeting describing the purpose or purposes for which it is to be held.
VOTING FOR AND REMOVAL OF DIRECTORS
Under the TBCA, shareholders do not have a right to cumulate their
votes for directors unless the charter of the corporation so provides. Peoples
Financial's charter does not provide for cumulative voting for directors.
Under the Kentucky Business Corporation Act, Trans Financial shareholders have
the right to cast in person or by proxy, at each election for directors, as
many votes in the aggregate as such shareholder shall be entitled to vote under
Trans Financial's articles of incorporation, multiplied by the number of
directors to be elected. Each Trans Financial shareholder may cast the whole
number of votes for one candidate, or distribute the votes among two or more
candidates.
Under Trans Financial's articles of incorporation, the directors are
divided into three classes, each class to be as nearly equal in number as
possible. If the classes of directors are not equal, the board of directors
shall determine which class shall contain an unequal number of directors. The
term of office of directors of the first class shall expire at the first annual
meeting of shareholders following their election; the term of office of
directors of the second class shall expire at the second annual meeting of
shareholders following their election; and the term of office of the directors
of the third class shall expire at the third annual meeting of shareholders
following their election. Thereafter, at each annual meeting of shareholders
the successors to the class of directors whose term expires at the time of such
meeting shall be elected to hold office until the third annual succeeding
meeting. If the number of directors is changed, any increase or decrease shall
be apportioned among the classes so as to maintain the number of directors in
each class as nearly equal as possible. Peoples Financial's charter does not
provide for a staggered board of directors.
Under Trans Financial's articles of incorporation, directors of Trans
Financial may be removed from office before the expiration of their term only
with the approval of the holders of 80% of the outstanding Trans Financial
Common Stock entitled to vote thereon. This provision of the articles of
incorporation of Trans Financial can be amended, altered or repealed only with
the approval of 80% of the outstanding Trans Financial stock entitled to vote
thereon. These provisions
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<PAGE> 76
regarding removal limit the right of shareholders to remove directors
with or without cause and would make it more difficult for potential unwanted
acquirors to replace such directors. Under the TBCA and Peoples Financial's
Bylaws, Peoples Financial's shareholders may remove one or more directors with
or without cause only at a meeting called for the purpose of removing such
director, and if the number of votes cast to remove the director exceeds the
number of votes cast not to remove the director.
SHAREHOLDER NOMINATIONS
Shareholders of Trans Financial may nominate one or more persons for
election as a director at a meeting by written notice to the secretary of Trans
Financial not later than the close of business on the 10th day following the
day on which notice of the date of the meeting is mailed. Peoples Financial's
charter and bylaws do not contain provisions regarding the nomination of
directors by shareholders.
BUSINESS OF PEOPLES FINANCIAL
GENERAL
Peoples Financial is a bank and thrift holding company chartered by
the State of Tennessee that was formed in 1989 at the direction of the Board of
Directors of Peoples Bank to acquire and hold all of the outstanding capital
stock of Peoples Bank.
Peoples Bank is a state chartered commercial bank headquartered in
Cookeville, Tennessee. Peoples Bank commenced operations in 1988. In 1990,
Peoples Financial acquired all the shares of Peoples Bank and the stockholders
of Peoples Bank received shares of Peoples Financial in exchange for their
shares of Peoples Bank. During May 1991 Peoples Financial executed a
transaction with the Resolution Trust Corporation ("RTC") to assume the
deposits and acquire certain assets of Tennessee Federal Savings Bank,
Bartlett, Tennessee, which was taken over by the RTC in September 1990. The
total assets acquired and liabilities assumed in this transaction were $18.8
million, including net loans of $11.5 million. Peoples Bank is a community
bank that offers personalized commercial banking services to business and
individuals through its two office locations in Putnam County in Central
Tennessee as well as its one branch located in Cumberland County in Central
Tennessee.
On February 1, 1993, Peoples Financial consummated the acquisition of
Citizens Federal upon the conversion of Citizens Federal from a federal mutual
to a federal stock savings bank, resulting in Citizens Federal being held as a
wholly owned subsidiary of Peoples Financial ("Conversion/Acquisition"). The
Conversion/Acquisition was accomplished through the sale by Peoples
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<PAGE> 77
Financial of newly issued shares of its common stock in a subscription and
community offering to certain members of Citizens Federal and to existing
stockholders of Peoples Financial. A total of 31,225 shares of Peoples
Financial Common Stock was sold at a price of $45.00 per share in the
Conversion/Acquisition that resulted in total gross proceeds of $1,405,125.
Peoples Financial accounted for the Conversion/Acquisition under the
pooling-of-interests method of accounting. The consolidated financial
statements of Peoples Financial included in this Proxy Statement/Prospectus
consolidate the financial statements of Peoples Financial and its wholly owned
subsidiary, Peoples Bank. Separate consolidated financial statements for
Citizens Federal are also included herein. For a discussion of the accounting
treatment of the Conversion/Acquisition, see Note 6 to Notes to Consolidated
Financial Statements of Peoples Financial. For a discussion of the business of
Citizens Federal, see "Business of Citizens Federal" included herein.
Upon consummation of the Conversion/Acquisition, Peoples Financial
became a savings and loan holding company under the Home Owners' Loan Act. As
a savings and loan holding company, Peoples Financial is registered with the
OTS and is subject to OTS regulations, supervision and reporting requirements.
LENDING ACTIVITIES
GENERAL. The largest portion of Peoples Bank's earning assets consists
of loans. Because of the expanding economy in Peoples Bank's market area and
as a result of Peoples Bank's efforts, particularly in the commercial loan
area, and the acquisition of assets and assumption of certain liabilities from
Tennessee Federal, Peoples Bank increased its loan portfolio over 81.96% during
the two year period ended December 31, 1992.
Peoples Bank emphasizes commercial loans for small businesses,
professionals, churches and other industrial purposes. While these types of
loans represent the largest portion of the loan portfolio and have experienced
the most growth from 1988 to 1992, Peoples Bank also offers a full range of
real estate, consumer and other retail loans. A significant portion of the
loan portfolio, including commercial loans, is secured by the borrower's
accounts receivable and inventory, as well as real estate. In addition, in
excess of 64.5% of the real estate mortgage portfolio at December 31, 1992 was
secured by mortgages on one-to four-family residences. Management believes
that its underwriting guidelines, including collateral requirements, have
provided Peoples Bank with reasonable protection against losses on loans.
The lending activities of Peoples Bank are guided by the basic lending
policy established by its Board of Directors. Each loan must meet the tests of
a prudent loan encompassing certain
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<PAGE> 78
criteria, including the character of the borrower, leverage capacity of the
borrower, capital, collateral provided for the loan, and prevailing economic
conditions. The lending officer, and ultimately the loan committee, must
consider each of these criteria and determine that the risks are appropriate in
light of such evaluation. Peoples Bank's lending policy also requires an
independent appraisal typically on each parcel of real estate to be taken as
collateral for a loan. Loan approval is centralized and no loan officer has
loan approval authority in excess of $100,000.
Approximately 90.0% of all of Peoples Bank's loans at December 31, 1992
were located in Putnam County, Tennessee. The loans that are out of this area
were a result of the purchase of the assets from Tennessee Federal and those
loans originated from the Crossville branch.
At December 31, 1992, the largest aggregate amount of loans by Peoples
Bank to any one borrower was approximately $1.7 million, which was composed of
commercial/business loans. The next largest amount of loans outstanding to any
one borrower was $1.2 million. As of December 31, 1992, both of these loans
were current in their payments.
LOAN PORTFOLIO ANALYSIS. The following table sets forth the
composition of Peoples Bank's loan portfolio by type of loan as of the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------
1992 1991 1990
--------------------- -------------------- ---------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Type of Loan:
- ------------
Construction and land
development . . . . . . . . . . . . . . . $1,686 4.0% $ 4,024 10.7% $ 3,047 13.3%
Secured by farmland . . . . . . . . . . . . 285 .7 622 1.7 616 2.7
Secured by 1-4 family
residential properties . . . . . . . . . . 16,677 40.1 17,107 45.6 5,423 23.7
Secured by multi-family
residential property . . . . . . . . . . . 731 1.8 982 2.6 875 3.8
Secured by non farm
non residential
property . . . . . . . . . . . . . . . . . 6,497 15.6 405 1.1 2,601 11.4
Loans to finance
agricultural production . . . . . . . . . 551 1.3 214 0.6 108 0.5
Commercial and
industrial loans . . . . . . . . . . . . . 9,459 22.7 10,087 26.9 5,366 23.5
Loans to individuals for
household, family and
other personal
expenditures . . . . . . . . . . . . . . . 8,062 19.4 6,765 18.0 5,489 24.0
</TABLE>
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<PAGE> 79
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
LESS:
Unearned income and
discount . . . . . . . . . . . . . . . . (1,739) (4.2) (2,263) (6.0) (398) (1.8)
Allowance for loan loss . . . . . . . . . (573) (1.4) (453) (1.2) (245) (1.1)
------- ------- --------- ------- --------- -------
Total net loans . . . . . . . . . . . . . . $41,636 100.0% $37,490 100.0% $22,882 100.0%
======= ====== ======= ====== ======= ======
</TABLE>
LOAN MATURITY AND REPRICING. The following table sets forth certain
information at December 31, 1992 regarding the dollar amount of loans maturing
in Peoples Bank's portfolio based on their contractual terms to maturity,
including scheduled payments, but does not include potential prepayments.
Demand loans, loans having no stated schedule of repayments and no stated
maturity, and overdrafts are reported as due in one year or less. Mortgage
loans which have adjustable rates are shown as maturing at their next repricing
date. Loan balances do not include undisbursed loan proceeds, unearned
discounts, unearned income and allowance for loan losses.
<TABLE>
<CAPTION>
Over One Over 5
0 Through Year Through Through
12 Months 5 Years 10 Years Over 10 Years Totals
---------- ------------ ----------- ------------- ------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Mortgage loans . . . . . . . $ 5,664 $ 70 $2,012 $542 $ 8,288
Commercial business loans . . 20,627 718 58 -- 21,403
Consumer . . . . . . . . . . 2,508 11,716 33 -- 14,257
-------- -------- ------ ---- -------
Total loans . . . . . $ 28,799 $ 12,504 $2,103 $ 542 $ 43,948
======== ======== ====== ===== =========
</TABLE>
The following table sets forth the dollar amount of all loans due after
one year from December 31, 1992 which have fixed interest rates and have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
Fixed Floating or
Rates Adjustable Rates
-------------- ----------------
(In thousands)
<S> <C> <C>
Mortgage loans . . . . . . . . . . . . . . . . . . . . . $ 1,817 $ --
Commercial business loans . . . . . . . . . . . . . . . . 3,413 30
Consumer . . . . . . . . . . . . . . . . . . . . . . . . 9,889 --
------- ----
Total . . . . . . . . . . . . . . . . . . . . . . . $15,119 $ 30
======= ====
</TABLE>
COMMERCIAL LOANS. Approximately 48.70% of Peoples Bank's loan portfolio
at December 31, 1992 consisted of commercial loans. Loans in this category
include loans made primarily to small businesses, retail stores, service
companies, manufacturers and other industries for the purpose of financing
inventory, equipment and lines of credit to small businesses for working
capital. Although Peoples Bank typically looks to the borrower's cash flow as
the principal source of repayment for such loans, many of the loans within this
category are secured by real estate, equipment, accounts receivable and other
assets on which Peoples Bank deems it
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<PAGE> 80
prudent to secure a lien. Peoples Bank had total letters of credit outstanding
at December 31, 1992 in the amount of $142,000.
Peoples Bank does not believe that it has any significant
concentrations within any industry group with respect to the commercial loan
category. Because of the diverse nature of the central Tennessee trade area,
Peoples Bank has loans outstanding to such diverse groups as automobile
dealers, manufacturing firms, servicing companies and retail businesses.
Management believes that Peoples Bank's diverse commercial loan portfolio
reduces the possibility that a downturn in any portion of the regional or
national economy would significantly impact its loan delinquencies.
Commercial loans generally have a term of up to ten years, are
amortized over five to 15 years and bear a floating rate of interest tied to
the prime rate. Depending on the type of collateral and the strength of the
borrower, the maximum loan-to-value ratio applied to these loans varies.
Peoples Bank, however, attempts to apply conservative standards so that the
collateral's liquidation value will be sufficient to repay the loan.
COMMERCIAL REAL ESTATE LOANS. Commercial real estate loans totaled
$6.5 million, or 14.78%, of Peoples Bank's total loan portfolio at December 31,
1992. Peoples Bank originates permanent loans on commercial real estate with
terms of one to 15 years with interest rates based on the prime rate.
Currently, it is Peoples Bank's policy to originate commercial real estate
loans only on properties in its immediate service area. Peoples Bank's
permanent commercial real estate loans are secured by improved property such as
office buildings, small commercial business properties, churches and
subdivision developments.
Commercial real estate loans in the portfolio are generally made in
amounts between $10,000 and $200,000 and up to a maximum of $1 million.
RESIDENTIAL LOANS. Peoples Bank, through a correspondent lending
relationship, has been involved in the granting of mortgage loans to enable
borrowers to purchase existing homes or to construct new single-family homes.
Peoples Bank forwards the loan materials to the correspondent and the
correspondent originates the notes and retains the servicing. Peoples Bank's
real estate loan portfolio also includes loans on two-to four-family dwellings
and loans for the development of residential lot sites. At December 31, 1992,
approximately $16.7 million, or 37.9% of Peoples Bank's total loan portfolio,
consisted of loans secured by one-to four-family residential real estate.
Peoples Bank's loan portfolio includes both fixed rate and ARMs secured
by one-to four-family properties with loan terms of 15 to 30 years that were
obtained in connection with the acquisition of assets from Tennessee Federal.
The ARMs have interest
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<PAGE> 81
rates that adjust annually based upon changes in the FHLB contract interest
rate index for a period matching the repricing period of the loan. The
majority of these loans provide that the amount of any increase or decrease in
the interest rate is limited to two percentage points (upward or downward) per
adjustment period, which is typically annually and generally limited to six
percentage points over the life of the loan.
CONSTRUCTION LOANS. At December 31, 1992, Peoples Bank had $1.7
million of construction and land development loans or 3.8% of total loans.
Peoples Bank originates residential construction mortgage loans to residential
owner-occupants (custom construction loans) and to local contractors building
residential properties for sale, as well as construction loans for
condominiums, multi-family residential properties and land development on
properties located within its primary market area. Of the total construction
loans outstanding at December 31, 1992, $1.2 million was construction loans to
builders and $420,000 was construction loans to owner-occupants. Construction
loans to owner-occupants generally have a term of six months and then are
converted to permanent loans. The construction loans to builders generally are
in amounts below $250,000 and are made with a nine-month term. Peoples Bank's
construction loans bear interest rates that adjust with prime. Peoples Bank
intends to continue to grant construction loans to owner-occupants and builders
with whom Peoples Bank has conducted business in the past.
Peoples Bank's underwriting criteria are designed to evaluate and
minimize the risks of each construction loan. Among other things, Peoples Bank
considers evidence of the availability of permanent financing for the borrower,
the reputation of the borrower, the amount of the borrower's equity in the
project, the independent appraisal and review of cost estimates, the
pre-construction sale and leasing information, and the cash flow projections of
the borrower. In addition, most of the construction loans granted by Peoples
Bank are secured by property in Peoples Bank's local market area.
CONSUMER LOANS. As of December 31, 1992, consumer loans, consisting of
loans secured by savings accounts, automobiles, boats, farm equipment, home
equity and improvement loans and unsecured consumer loans were approximately
$14.2 million, or 32.4% of Peoples Bank's total loan portfolio.
The underwriting standards employed by Peoples Bank for consumer loans
include a determination of the applicant's payment history on other debt and an
assessment of ability to meet existing obligations and payments on the proposed
loans. Although creditworthiness of the applicant is of primary consideration,
the underwriting process also includes a comparison of the value of the
security, if any, in relation to the proposed loan amount.
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<PAGE> 82
CERTAIN UNDERWRITING RISKS. While commercial, income property and
construction and consumer loans are integral to Peoples Bank's asset and
liability management program and reduce exposure to interest rate changes, such
loans may entail significant additional risks compared to residential mortgage
lending.
Commercial lending entails certain risks different from those
encountered in the residential mortgage lending and commercial mortgage lending
areas. The borrower's ability to repay the loan is closely tied to the ongoing
profitability of the borrower's business. Consequently, a commercial loan
tends to be more directly affected by changes in economic cycles. The
availability of adequate collateral is a factor in commercial loan decisions,
and loans are collateralized or guaranteed by third parties when deemed
appropriate. However, the type of collateral securing commercial loans can be
more difficult to sell (e.g., specialized machinery), and may be subject to
more rapid declines in value (e.g., securities) or may be of less certain value
(e.g., personal guarantees by corporate principals) than is ordinarily the case
with real estate. Real property often serves as collateral for commercial
loans made by Peoples Bank. At December 31, 1992, approximately 31.5% of the
Bank's commercial loan portfolio was secured by real property, in whole or in
part.
Commercial real estate and construction mortgage loans may involve
large loan balances to single borrowers or groups of related borrowers. In
addition, the payment experience on loans secured by income-producing
properties typically is dependent on the successful operation of the properties
and thus may be subject to a greater extent to adverse conditions in the real
estate market or in the economy generally. Construction loans may involve
additional risks because loan funds are advanced upon the security of the
project under construction that is of uncertain value prior to the completion,
delays may arise from labor problems, material shortages may be experienced and
other unpredictable contingencies may occur. It is relatively difficult to
evaluate accurately the total loan funds required to complete a project and
related loan-to-value ratios. Because of these factors, the analysis of
prospective construction loan projects requires an expertise that is different
in significant respects from the expertise required for residential mortgage
lending.
Construction lending generally is considered to involve a higher degree
of credit risk than long-term financing of residential properties. Peoples
Bank's risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction or development and the estimated cost (including interest) of
construction. If the estimate of construction costs and the marketability of
the property upon completion of the project prove to be inaccurate, Peoples
Bank may be required to advance additional funds to
73
<PAGE> 83
complete the development. If the borrower is unable to sell the completed
project in a timely manner or obtain adequate proceeds to repay the loan, the
loan may become nonperforming. Furthermore, if the estimate of value proves to
be inaccurate, Peoples Bank may be confronted with, at or prior to the maturity
of the loan, a project with a value that is insufficient to assure full
repayment.
Consumer loans may entail additional risks, particularly in the case of
consumer loans that are unsecured or secured by assets that depreciate rapidly,
such as automobiles. In the latter case, repossessed collateral for a
defaulted consumer loan may not provide an adequate source of repayment for the
outstanding loan and the remaining deficiency often does not warrant further
substantial collection efforts against the borrower. In addition, consumer
loan collections are dependent on the borrower's continuing financial
stability, and thus are more likely to be adversely affected by job loss,
divorce, illness or personal bankruptcy. Furthermore, the application of
various federal and state laws, including federal and state bankruptcy and
insolvency laws, may limit the amount that can be recovered on such loans.
Such loans may also give rise to claims and defenses by the borrower against
Peoples Bank as the holder of the loan, and a borrower may be able to assert
claims and defenses which it has against the seller of the underlying
collateral.
LOAN ORIGINATIONS, PURCHASES AND SALES. The following table shows
total loans originated, purchased and repaid during the periods indicated. No
loans were sold during the periods indicated.
74
<PAGE> 84
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------
1992 1991 1990
---- ------ ------
(Dollars in thousands)
<S> <C> <C> <C>
Total loans at beginning of period . . . . . . . . . . . . . . . $40,206 $23,526 $15,442
Loans originated:
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 8,161 --
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,647 11,658 8,661
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . 23,573 9,327 11,023
------- --------- -------
Total loans originated . . . . . . . . . . . . . . . . . . . 33,220 29,146 19,684
Loans purchased:
Mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 12,484 --
Consumer . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 346 --
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . -- 195 --
Loan principal repayments . . . . . . . . . . . . . . . . . . . . 29,478 25,491 11,600
------- ------- -------
Net loan activity . . . . . . . . . . . . . . . . . . . . . . . . 3,742 16,680 8,084
------- ------- -------
Total gross loans at end of period . . . . . . . . . . . . . . . $43,948 $40,206 $23,526
======= ======= =======
</TABLE>
LOAN COMMITMENTS AND LINES OF CREDIT. Lines of credit and loan
commitments are established by Peoples Bank to finance the working capital
needs of borrowers during peak business periods. Lines of credit have been
issued to individuals, businesses, contractors and for dealer floor plans.
Lines of credit and loan commitments are generally limited to terms of no more
than one year. The approval of lines of credit is subject to the receipt and
approval of financial statements on the borrower. Most lines of credit have
interest rates that change on a daily basis based on a market interest rate,
usually the prime interest rate. This rate is based on the creditworthiness of
the borrower and compensating balances held at Peoples Bank. The amount of
unfunded lines of credit was $4.3 million while the amount of unfunded
commitments was $1.1 million as of December 31, 1992.
NONPERFORMING LOANS AND CLASSIFIED ASSETS. Loans are reviewed on a
monthly basis and an allowance for loan losses is established when, in the
opinion of management, collectibility of the loan's principal becomes
uncertain. Peoples Bank's procedures provide that when a loan becomes
delinquent 15 days or more the borrower is given notice of such delinquency in
writing. If the loan remains delinquent, the borrower is contacted, usually by
phone, within 30 to 60 days. When the loan is over 30 days delinquent, the
borrower is contacted in writing. Typically, Peoples Bank will initiate legal
action against the borrower when principal and interest become 90 days or more
delinquent. At December 31, 1991 and at December 31, 1992, Peoples Bank had
$71,000 and $98,000, respectively, of loans accounted for on a nonaccrual basis
(i.e., loans upon which management believes the future collectibility of
interest is uncertain).
75
<PAGE> 85
Management classifies a loan as nonaccrual when principal and interest
is past due 90 days or more and the loan is not adequately collateralized, or
when, in the opinion of management, principal or interest is not likely to be
paid. Consumer installment loans are charged-off after 90 days of delinquency
unless adequately secured and in the process of collection. Loans are not
reclassified as accruing until principal and interest payments are brought
current and future payments appear certain.
At December 31, 1992, Peoples Bank had two nonperforming commercial
loans totaling $27,000, the largest of which was $19,245. As of December 31,
1992, Peoples Bank had $93,000 in nonperforming mortgage real estate, real
estate construction and consumer loans, the largest of which was $21,306.
At December 31, 1992, Peoples Bank had no loans that were partially
charged-off and which were not included in nonperforming assets. Also, Peoples
Bank did not have any restructured loans at December 31, 1992.
The following table sets forth information with respect to Peoples
Bank's nonperforming assets for the periods indicated. During the periods
shown, Peoples Bank had no restructured loans within the meaning of Statement
of Financial Accounting Standards (SFAS) 15.
76
<PAGE> 86
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------
1992 1991 1990 1989
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Loans accounted for on
a nonaccrual basis:
Real estate -
Residential . . . . . . . . . . . . . . . $ -- $ 27 $-- $--
Commercial . . . . . . . . . . . . . . . . -- -- -- --
Commercial business . . . . . . . . . . . . 27 -- -- --
Consumer . . . . . . . . . . . . . . . . . 71 44 28 16
---- ---- --- ---
TOTAL . . . . . . . . . . . . . . . . . 98 71 28 16
---- ---- --- ---
Accruing loans which are contractually
past due 90 days or more:
Real estate -
Residential . . . . . . . . . . . . . . . 22 9 -- --
Commercial . . . . . . . . . . . . . . . . -- -- -- --
Commercial business . . . . . . . . . . . . -- -- -- --
Consumer . . . . . . . . . . . . . . . . . -- 82 60 10
---- ---- --- ---
TOTAL . . . . . . . . . . . . . . . . 22 91 60 10
---- ---- --- ---
Total nonperforming loans . . . . . . . . . 120 162 88 26
Other nonperforming assets . . . . . . . . . -- -- -- --
---- ---- --- ---
Total nonperforming assets . . . . . . . . $120 $162 $88 $26
==== ==== === ===
Total loans delinquent
90 days or more to net loans . . . . . . . .05% .43% .38% .17%
Total loans delinquent 90 days
or more to total assets . . . . . . . . . . .03% .28% .24% .10%
Total nonperforming loans to
total loans . . . . . . . . . . . . . . .28% .40% .37% .17%
Total nonperforming assets
to total assets . . . . . . . . . . . . . . .19% .28% .24% .10%
</TABLE>
ANALYSIS OF ALLOWANCE FOR LOAN LOSSES. Primary considerations in this
evaluation are prior loan loss experience, the character and mix of the loan
portfolio, adverse situations which may affect the borrower's ability to repay,
size of the loan portfolio, business and economic conditions and management's
estimation of future potential losses. While management uses the available
information, including the monitoring of the economic conditions in the
geographic regions in which the loan portfolio is located, future additions to
the allowance may be necessary based on estimates that are susceptible to
significant change as a result of changes in economic conditions and other
factors. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review Peoples Bank's allowance for
loan losses. Such agencies may require Peoples Bank to recognize additions to
the allowance based on their judgments about information available to them at
the time of their examination.
77
<PAGE> 87
The following table sets forth an analysis of Peoples Bank's allowance
for loan losses for the periods indicated.
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------------------------------
1992 1991 1990 1989
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Allowance at beginning of period . . . . . . . . . . . . $453 $245 $158 $ 50
Provision for loan losses . . . . . . . . . . . . . . . . 240 311 123 115
Recoveries:
Residential real estate . . . . . . . . . . . . . . . . -- -- -- --
Commercial real estate . . . . . . . . . . . . . . . . . -- -- -- --
Real estate construction . . . . . . . . . . . . . . . . -- -- -- --
Commercial business . . . . . . . . . . . . . . . . . . -- -- 1 --
Consumer . . . . . . . . . . . . . . . . . . . . . . . . 9 4 -- --
---- ---- ---- ----
Total recoveries . . . . . . . . . . . . . . . . . . . 9 4 1 --
---- ---- ---- ----
Charge offs:
Residential real estate . . . . . . . . . . . . . . . . -- -- -- --
Commercial real estate . . . . . . . . . . . . . . . . . -- -- -- --
Real estate construction . . . . . . . . . . . . . . . . -- 10 -- --
Commercial business . . . . . . . . . . . . . . . . . . 56 48 37 7
Consumer . . . . . . . . . . . . . . . . . . . . . . . . 73 49 -- --
---- ---- ---- ----
Total charge offs . . . . . . . . . . . . . . . . . . 129 107 37 7
---- ---- ---- ----
Net charge offs . . . . . . . . . . . . . . . . . . . 120 103 36 7
---- ---- ---- ----
Balance at end of period . . . . . . . . . . . . . . $573 $453 $245 $158
==== ==== ==== ====
Ratio of allowance to total
loans outstanding at the
end of the period . . . . . . . . . . . . . . . . . . . 1.30% 1.13% 1.04% 1.02%
Ratio of allowance to total nonperforming
loans at the end of the period . . . . . . . . . . . . . 477.50% 279.60% 278.40% 607.70%
Ratio of net charge offs
to average loans outstanding
during the period . . . . . . . . . . . . . . . . . . . .29% .33% .19% .07%
</TABLE>
78
<PAGE> 88
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------------
1992 1991 1990 1989
------------------- -------------------- -------------------- ------------------
Percent Percent Percent Percent
of loans of loans of loans of loans
in each in each in each in each
category category category category
to total to total to total to total
Amount loans Amount loans Amount loans Amount loans
------ -------- ------ -------- ------ -------- ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage . . . . . . . . . . . . . . . . $115 20.07% $125 27.65% $ -- --% $ -- --%
Commercial business . . . . . . . . . . . 283 49.39 180 39.36 137 55.94 90 57.45
Consumer . . . . . . . . . . . . . . . . 175 30.54 148 32.49 108 44.06 68 42.55
---- ------ --- ------ --- ------ ---- ------
Total allowance for loan
losses . . . . . . . . . . . . . . . $573 100.00% $453 100.00% $245 100.00% $158 100.00%
==== ====== ==== ====== ==== ====== ==== ======
</TABLE>
SECURITIES
Peoples Bank's securities portfolio totaled approximately $14.0 million
as of December 31, 1992, or 21.85% of total assets, and consisted of United
States Government and Federal government agency obligations, mortgage-backed
securities and other corporate obligations, as compared to $11.3 million, or
19.62% of total assets, at December 31, 1991. Peoples Bank is required under
Federal regulations to maintain a minimum amount of liquid assets that may be
invested in specified short-term securities and is also permitted to make
certain other securities investments. At December 31, 1992, Peoples Bank did
not hold securities classified as held for sale.
79
<PAGE> 89
The following table sets forth Peoples Financial's
securities portfolio at carrying value at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------------
1992 1991 1990
------------------------ ------------------------ ---------------------
Percent Percent Percent
Book of Book of Book of
Value(1) Portfolio Value(1) Portfolio Value(1) Portfolio
-------- ---------- -------- ---------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
United States Government
securities . . . . . . . . . . . . . . . $10,539 75.03% $9,359 82.53% $6,798 75.62%
Corporate obligations . . . . . . . . . . 90 .64 90 .79 -- --
Mortgage-backed securities . . . . . . . 3,417 24.33 1,891 16.68 2,192 24.38
-------- -------- ------- ------ ------ ------
Total . . . . . . . . . . . . . . . . $14,046 100.00% $11,340 100.00% $8,990 100.00%
======= ======= ======= ====== ====== ======
</TABLE>
---------------------------
(1) The market value of Peoples Financial's securities portfolio
amounted to $14.4 million, $12.0 million and $9.1 million at
December 31, 1992, 1991 and 1990, respectively.
The following table sets forth the maturities and average
yields of the debt securities in Peoples Financial's portfolio at
December 31, 1992.
<TABLE>
<CAPTION>
Less Than One to Five to Over Ten
One Year Five Years Ten Years Years
----------------- ------------------ ---------------- ------------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States Government
securities . . . . . . . . . . . . . . . . . . $ -- --% $2,804 7.34% $7,735 8.05% $ -- --%
Corporate obligations . . . . . . . . . . . . . -- -- -- -- 90 9.75 -- --
Mortgage-backed securities(1) . . . . . . . . . -- -- 1,188 8.46 782 6.18 1,447 6.20
----- ---- ------ ---- ------- ---- ------ ----
Total . . . . . . . . . . . . . . . . . . . $ -- --% $3,992 7.67% $8,607 7.89% $1,447 6.20%
===== ==== ====== ==== ====== ==== ====== ====
</TABLE>
--------------------------------
(1) Mortgage-backed securities are stated at estimated average
lives.
SOURCES OF FUNDS AND BORROWINGS
GENERAL. Deposits and loan repayments are the major source of
Peoples Bank's funds for lending and other investment purposes.
Scheduled loan repayments are a relatively stable source of funds,
while deposit inflows and outflows and loan prepayments are
significantly influenced by general interest rates and money market
conditions. Borrowings may be used on a short-term basis to
80
<PAGE> 90
compensate for reductions in the availability of funds from other sources, or
on a longer-term basis for general business purposes.
DEPOSITS. Peoples Bank offers a wide range of deposit products to
attract customers in Putnam and surrounding counties. Peoples Bank offers NOW
accounts, demand checking accounts, savings accounts, Christmas club accounts,
certificates of deposit accounts, and individual retirement accounts. In
setting its rates on all accounts, management will review profitability of
Peoples Bank's area competition, the Peoples Bank current and future liquidity
needs and its interest rate risk sensitivity. Management reviews the rates
being paid on deposits on a weekly basis. Peoples Bank does not pay premiums
of any kind to attract new savings nor does it utilize brokered funds.
All certificates of deposit rates are fixed for the term of the
deposit. Once the certificate matures, the customer has a ten-day grace period
to withdraw the funds before the account automatically renews at the present
rate being offered. Regular savings accounts and NOW checking accounts are
fixed-rate deposits. The savings accounts are not charged any fee but are
subject to minimum balance requirements. Christmas club accounts are charged a
small fee that is consistent with area competition. At December 31, 1992,
Peoples Bank did not have deposits for IRA fixed-and variable-rate accounts.
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<PAGE> 91
DEPOSIT FLOW. The following table sets forth the balances of savings
deposits in the various types of savings accounts offered by Peoples Bank at
the dates indicated.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------------------
1992 1991 1990
---------------------------- ---------------------------- --------------------------
Percent Percent Percent
of Increase of Increase of Increase
Amount Total (Decrease) Amount Total (Decrease) Amount Total (Decrease)
------ ------- ---------- ------ ------- ---------- ------ ------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest-bearing . . . . . . . . . . $ 8,245 14.61% $ 4,008 $ 4,237 8.28% $ 1,141 $ 3,096 9.96% $ 935
NOW checking . . . . . . . . . . . . . . 6,516 11.54 1,485 5,031 9.83 2,504 2,527 8.13 1,107
Regular savings accounts/Christmas . . . 7,530 13.34 2,351 5,179 10.12 2,934 2,245 7.22 1,562
Money market deposit/MMDA . . . . . . . . 3,417 6.06 125 3,292 6.43 2,568 724 2.33 (218)
Fixed-rate certificates which
mature in the year ending(1):
December 31, 1990 . . . . . . . . . . . N/A N/A N/A N/A N/A N/A N/A N/A (13,625)
December 31, 1991 . . . . . . . . . . . N/A N/A N/A N/A N/A (20,382) 20,382 65.57 19,772
December 31, 1992 . . . . . . . . . . . N/A N/A (29,287) 29,287 57.20 28,689 598 1.92 528
Certificates maturing
thereafter . . . . . . . . . . . . . . 30,733 54.45 26,568 4,165 8.14 2,651 1,514 4.87 139
------- ----- ------- ------- ----- ------- ------- ----- -------
Total . . . . . . . . . . . . . . . $56,441 100.00% $ 5,250 $51,191 100.00% $20,105 $31,086 100.00% $10,200
======= ====== ======= ======= ====== ======= ======= ====== =======
</TABLE>
- ----------------------
Note: IRA accounts are included in certificate balances: Amounts are $3,582,
$2,180 and $2,596 for December 31, 1992, 1991 and 1990, respectively.
(1) At December 31, 1992, 1991 and 1990, jumbo certificates amounted to
$5,652, $5,733 and $6,941, respectively.
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<PAGE> 92
The following table sets forth the deposit activities of Peoples Bank
for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1992 1991 1990
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Beginning Balance . . . . . . . . $51,191 $31,086 $20,886
Net increase (decrease)
before interest credited . . . 3,579 18,843 9,406
Interest credited . . . . . . . . 1,671 1,262 794
------- ------- -------
Net increase (decrease)
in deposits . . . . . . . . 5,250 20,105 10,200
------- ------- -------
Ending balance . . . . . . . . . $56,441 $51,191 $31,086
======= ======= =======
</TABLE>
TIME DEPOSITS BY RATES. The following table sets forth the time
deposits in Peoples Bank classified by rates as of the dates indicated.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------
1992 1991 1990
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Below 5.00% . . . . . . $19,615 $ 4,524 $ --
5.01 - 7.00% . . . . . . 8,556 25,015 599
7.01 - 9.00% . . . . . . 1,880 3,110 21,704
9.01 - 11.00% . . . . . 682 803 191
</TABLE>
The following table sets forth the amount and maturities of time deposits at
December 31, 1992.
<TABLE>
<CAPTION>
Amount Due
-----------------------------------------------------------------------------------
Percent
of Total
Less Than 1-2 2-3 3-4 After Certificate
One Year Years Years Years 4 Years Total Accounts
--------- ----- ----- ----- ------- ----- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Below 5.00% . . . . . . . . . . . . $18,262 $1,059 $137 $12 $145 $19,615 63.82%
5.01 - 7.00% . . . . . . . . . . . . 7,966 462 60 51 17 8,556 27.84
7.01 - 9.00% . . . . . . . . . . . . 1,750 102 13 11 4 1,880 6.12
9.01 - 11.00% . . . . . . . . . . . . 635 37 5 4 1 682 2.22
</TABLE>
83
<PAGE> 93
The following table sets forth information concerning Peoples
Bank's time deposits and other interest-bearing deposits at December 31, 1992.
<TABLE>
<CAPTION>
Percentage
Interest Minimum of Total
Rate Term Category Amount Balance
- ---- ------- -------- ------ -------
(Deposits in thousands)
<S> <C> <C> <C> <C>
3.20% None NOW accounts $6,516 11.54%
3.15 None Regular Savings 7,530 13.34
3.25 None Money market accounts 3,417 6.05
None None Non-interest checking 8,245 14.61
Certificates of Deposit (Remaining Maturity)
--------------------------------------------
3.97% 0 - 3 mos. Fixed rate 9,245 16.38
3.72 4 - 6 mos. Fixed rate 7,310 12.95
4.18 7 - 12 mos. Fixed rate 3,225 5.71
4.46 13 - 24 mos. Fixed rate 1,290 2.29
4.63 25 - 48 mos. Fixed rate 429 0.77
4.48 18 mos. 18 month IRA accounts 3,582 6.35
3.84 6 mos. Jumbo certificates 5,652 10.01
------- ------
$56,441 100.00%
======= ======
</TABLE>
The following table indicates the amount of Peoples Bank's jumbo
certificates of deposit by time remaining until maturity as of December 31,
1992. Jumbo certificates of deposit require minimum deposits of $100,000 and
rates paid on such accounts are negotiable.
<TABLE>
<CAPTION>
Certificates
Maturity Period of Deposit
- --------------- --------------
(In thousands)
<S> <C>
Three months or less $3,212
Three through six months 2,013
Six through twelve months 427
Over twelve months --
------
Total $5,652
======
</TABLE>
84
<PAGE> 94
BUSINESS OF CITIZENS FEDERAL
The following discussion of the business of Citizen Federal is offered
for presentation due to the significant acquisition of Citizens Federal by
Peoples Financial on February 1, 1993.
Citizens Federal was organized in 1934 as a mutual savings and loan
association and, since 1934, its deposits have been federally insured. In April
1989, Citizens Federal converted from a federally chartered mutual savings
association to a federally chartered mutual savings bank. Citizens Federal
conducts its business from its main office and one branch office located in
Rockwood and Kingston, Tennessee. At December 31, 1992, Citizens Federal had
total assets of $47.9 million, total deposits of $45.7 million and retained
earnings of $1.9 million. The savings deposits of Citizens Federal are insured
by the FDIC under the SAIF.
Citizens Federal's principal business currently consists of attracting
deposits from the general public and using these funds to originate
conventional one- to four-family, first-mortgage real estate loans and, to a
lesser extent, consumer and commercial loans.
LENDING ACTIVITIES
GENERAL. The principal lending activity of Citizens Federal is the
origination of residential one- to four-family mortgage loans in Citizens
Federal's primary market area of Roane, Knox and Cumberland counties,
Tennessee. Citizens Federal originates construction and permanent loans on
single-family dwellings and to a lesser extent commercial business and consumer
loans.
Citizens Federal's loan and mortgage-backed securities portfolio
totalled approximately $31.2 million at December 31, 1992, representing
approximately 65.1% of its total assets. On that date, approximately 70.9% of
Citizens Federal's total outstanding loans were secured by mortgages on one- to
four-family residential properties. The balance of Citizens Federal's
outstanding loans at that date consisted of construction loans, consumer loans,
multi-family real estate loans and nonresidential real estate loans.
In 1985, in connection with its asset restructuring, Citizens Federal
purchased ten participation interests in income property loans of $750,000 each
from one lender. Six of the loan participations performed satisfactorily and
have been paid off; however, four remaining participations have been included
in problem assets and at December 31, 1992 had a total balance of $2.06 million
after valuation allowanc-
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es of $395,000. The establishment of these valuation allowances has adversely
affected Citizens Federal's earnings during recent years. At December 31,
1992, properties securing three of the loan participations had been acquired
through foreclosure and one other loan participation had been classified
because of delinquent payments or other areas of concern. See "BUSINESS OF
CITIZENS FEDERAL -- ASSET CLASSIFICATIONS."
ANALYSIS OF LOAN AND MORTGAGE-BACKED SECURITIES PORTFOLIO.
Set forth below is selected data relating to the composition of Citizens
Federal's loan and mortgage-backed securities portfolio by type of loan and
type of security (collateral) on the dates indicated.
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<PAGE> 96
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------
1992 1991 1990
------------- -------------- -------------
Type of Loan: (1) $ % $ % $ %
- ------------ --- --- --- --- --- ---
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Conventional real estate loans:
Interim construction loans . . . . . . . . . . . . . . . . . . $ 1,867 6.06% $ 859 2.64% $ 976 2.81%
One-to-four family . . . . . . . . . . . . . . . . . . . . . . 21,680 70.38 23,428 71.98 23,405 67.10
Commercial participation . . . . . . . . . . . . . . . . . . . 1,275 4.14 1,281 3.94 1,281 3.67
Nonresidential real estate loans . . . . . . . . . . . . . . . 936 3.04 1,405 4.31 1,548 4.43
FHA or VA guaranteed . . . . . . . . . . . . . . . . . . . . . -- -- -- 0.00 121 0.35
Consumer loans:
Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . 4,268 13.85 4,273 13.13 5,188 14.87
Savings account loans . . . . . . . . . . . . . . . . . . . . . 385 1.25 381 1.17 665 1.91
Home equity and second mortgage . . . . . . . . . . . . . . . . 443 1.44 343 1.05 300 0.86
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,203 3.91 1,495 4.59 2,611 7.49
Less:
Loans in process . . . . . . . . . . . . . . . . . . . . . . . (812) (2.64) (319) (0.98) (414) (1.19)
Deferred loan origination fees . . . . . . . . . . . . . . . . (15) (.05) (17) (0.05) (21) (0.06)
Allowance for loan losses . . . . . . . . . . . . . . . . . . . (349) (1.13) (383) (1.18) (310) (0.89)
Unearned income . . . . . . . . . . . . . . . . . . . . . . . . (75) (.24) (197) (0.60) (469) (1.35)
------- ------ ------- ------ ------- ------
Total loans and mortgage-backed securities, net. . . . . . . $30,806 100.00% $32,549 100.00% $34,881 100.00%
======= ====== ======= ====== ======= ======
Type of Security:
- ----------------
Residential real estate:
One-to-four family . . . . . . . . . . . . . . . . . . . . . . $23,990 77.87% $24,630 75.67% $24,681 70.77%
Multi-family properties . . . . . . . . . . . . . . . . . . . . 1,275 4.14 1,281 3.94 1,281 3.67
Government guaranteed . . . . . . . . . . . . . . . . . . . . . -- -- -- -- 121 0.35
Nonresidential real estate . . . . . . . . . . . . . . . . . . 936 3.04 1,405 4.31 1,548 4.43
Automobile . . . . . . . . . . . . . . . . . . . . . . . . . . 4,268 13.85 4,273 13.13 5,188 14.87
Savings accounts . . . . . . . . . . . . . . . . . . . . . . . 385 1.25 381 1.17 665 1.91
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,203 3.91 1,495 4.59 2,611 7.49
Less:
Loans in process . . . . . . . . . . . . . . . . . . . . . . . (812) (2.64) (319) (0.98) (414) (1.19)
Deferred loan origination fees . . . . . . . . . . . . . . . . (15) (.05) (17) (0.05) (21) 0.06
Allowance for loan losses . . . . . . . . . . . . . . . . . . . (349) (1.13) (383) (1.18) (310) (0.89)
Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . (75) (.24) (197) (0.60) (469) (1.35)
------- ------ ------- ------ ------- ------
Total loans and mortgage-backed securities, net. . . . . . . $30,806 100.00% $32,549 100.00% $34,881 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
- -------------------
(1) Includes construction loans converted to permanent loans.
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<PAGE> 97
ONE-TO FOUR-FAMILY RESIDENTIAL LOANS. The primary lending activities
of Citizens Federal have been the origination of conventional loans to enable
borrowers to purchase existing homes or residential lots, refinance existing
mortgages or construct new homes. Mortgage loans made by Citizens Federal are
generally long-term loans, amortized on a monthly basis, with principal and
interest due each month. The initial contractual loan payment period for
single family residential loans typically ranges from 15 to 30 years. Citizens
Federal's experience indicates that real estate loans remain outstanding for
significantly shorter periods than their contractual terms. Borrowers may
refinance or prepay loans at their option, subject to any prepayment penalty
provisions included in the note. Citizens Federal requires mortgage title
insurance on all first mortgage loans.
Since 1990, Citizens Federal has offered three- and five-year
adjustable mortgages, the interest rates of which currently adjust based upon
the one-year United States Treasury Constant Maturity. The interest rates on
these mortgages generally may not adjust more than 2.0% per adjustment period
and 5.0% over the life of the loan. Citizens Federal originates ARMs at below
the fully phased-in interest rate but qualifies borrowers at the fully
phased-in rate. Citizens Federal intends to continue emphasizing the
origination of adjustable rate mortgage loans for its loan portfolio in order
to reduce the impact of rapid increases in market rates of interest.
Citizens Federal's lending policies generally limit the maximum
loan-to-value ratio on fixed-rate and adjustable-rate residential one- to
four-family owner occupied loans to 80.0% or less of the lesser of the
appraised value or purchase price of the underlying residential property on
purchases and 75.0% on refinances. Non-owner occupied one- to four-family
residential loans are limited to 70.0% or less of the lesser of the appraised
value or purchase price of the underlying residential property. The loan-
to-value ratio, maturity and other provisions of the loans made by Citizens
Federal are generally reflected in the policy of making less than the maximum
loan permissible under Federal regulations, in accordance with established
lending practices, market conditions and underwriting standards maintained by
Citizens Federal. Loans originated with a loan-to-value ratio above the
maximum loan-to-value ratio have typically required private mortgage insurance.
CONSTRUCTION LOANS. Citizens Federal primarily originates construction
loans to individuals on single family residences. Such construction loans
generally have a term of six months and are usually tied to a commitment by
Citizens Federal to provide permanent financing after the construction period.
The interest rates charged by Citizens Federal on permanent construction loans
are fixed at market rates. In the past, Citizens Federal has not originated a
significant amount of nonresidential real estate construction loans.
Nonresidential real estate construction financing generally exposes the lender
to a greater risk of loss
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<PAGE> 98
than long-term financing on improved, occupied real estate, due in part to the
fact that the loans are underwritten on projected rather than historical
income and rental results. Citizens Federal's risk of loss on such loans is
dependent largely upon the accuracy of the initial appraisal of the property's
value at completion of construction and the estimated cost (including interest)
of completion. If either estimate proves to have been inaccurate and the
borrower is unable to provide additional funds pursuant to his guaranty, the
lender either may be required to advance funds beyond the amount originally
committed to permit completion of the development and/or be confronted at the
maturity of the loan with a project whose value is insufficient to assure full
repayment. It is generally the practice of Citizens Federal to provide a
permanent financing commitment on nonresidential properties at the time
Citizens Federal provides the construction financing.
At December 31, 1992, approximately $1.9 million or 7.5% of Citizens
Federal's total loan portfolio consisted of construction loans on residential
properties.
INCOME PROPERTY LOANS. Income property loans, including nonresidential
real estate loans and loans secured by multi-family properties of five or more
units, constituted approximately $2.1 million, or 7.18% of Citizens Federal's
total loans and mortgage-backed securities at December 31, 1992. Of this
amount, $1.3 million or 4.13% consisted of participation loans with other
institutions.
Income property lending entails significant additional risks compared
to residential lending. Income property loans typically involve large loan
balances to single borrowers or groups of related borrowers. At December 31,
1992, Citizens Federal had four borrowers with loan amounts from $438,000 to
$624,000. The payment experience of such loans is typically dependent upon the
successful operation of the real estate project. These risks can be
significantly affected by supply and demand conditions in the market for office
and retail space and, as such, may be subject, to a greater extent, to adverse
conditions in the economy. In dealing with these risk factors in connection
with loans it originates, Citizens Federal generally limits itself to a real
estate market or to borrowers with which it has substantial experience.
Citizens Federal concentrates on originating income property loans secured by
properties located within Roane County, Tennessee.
Of the four referenced loans, three were current in their payments as of
December 31, 1992. The property securing the fourth loan was acquired by
Citizens Federal in foreclosure proceedings in August 1992. Citizens Federal
had reserved $200,000 against
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losses resulting from the disposition of the property at December 31, 1992.
COMMERCIAL BUSINESS LOANS. At December 31, 1992, Citizens Federal had
two lines of credit with two automobile dealerships in Roane County, Tennessee.
One line of credit was for $125,000 with a minimum interest rate of 12.0% which
adjusts monthly according to the prime rate, plus a 3.0% margin. The other
line of credit was for $150,000 with an interest rate of prime plus 1.5%
adjusted on a monthly basis.
CONSUMER LOANS. Federal thrift institutions are permitted to invest up
to 30.0% of their assets in consumer loans. Citizens Federal currently offers
a wide variety of consumer loans, including home improvement loans, loans
secured by savings accounts, automobile and boat loans. Total consumer loans
(excluding home equity and second mortgage loans) amounted to $5.9 million or
18.7% of Citizens Federal's total loans and mortgage-backed securities at
December 31, 1992 as compared to $6.3 million, or 19.4%, at December 31, 1991.
Citizens Federal has marketed consumer loans in order to provide a
wider range of financial services to its customers and because of the shorter
term and normally higher interest rates on such loans than on residential real
estate loans.
In 1985, as a result of the deregulation that was occurring in the
thrift industry, Citizens Federal began a program designed to increase its
consumer loan portfolio. The program was intended to increase Citizens
Federal's average rate of return on assets and shorten the maturity range on
assets. With the implementation of the program, Citizens Federal instituted
new lending policies and developed lending relationships with several local
boat and car dealerships. The program resulted in increased consumer lending
during the next four years with the highest volume of consumer lending at $10.3
million in 1989. In 1988 Citizens Federal started making increased loan loss
provisions. In order to manage and deter further losses, Citizens Federal
instituted stricter underwriting controls and restricted the authorization of
consumer loans to Citizens Federal's President and the Executive Vice
President.
Consumer loans may entail greater risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured or
secured by assets that depreciate rapidly, such as automobiles. In the latter
case, repossessed collateral for a defaulted consumer loan may not provide an
adequate source of repayment of the outstanding loan and the remaining
deficiency often does not warrant further substantial collection efforts
against the borrower. In addition, consumer loan collections are dependent on
the borrower's continuing financial stability and, thus, are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various Federal and state laws, including
Federal
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<PAGE> 100
and state bankruptcy and insolvency laws, may limit the amounts recoverable on
such loans. Such loans may also give rise to claims and defenses by the
borrower against Citizens Federal as the holder of the loan, and a borrower may
be able to assert claims and defenses which it has against the seller of the
underlying collateral.
LOAN AND MORTGAGE-BACKED SECURITIES MATURITY. The following table sets
forth certain information at December 31, 1992 regarding the dollar amount of
loans maturing in Citizens Federal's portfolio based on their contractual terms
to maturity, but does not include potential prepayments. Demand loans, loans
having no stated schedule of repayments and no stated maturity, and overdrafts
are reported as due in one year or less.
<TABLE>
<CAPTION>
After One After 3 After 5
Year Years Years
Within Through Through Through Beyond
1 Year 3 Years 5 Years 10 Years 10 Years Totals
------ --------- ------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
(In Thousands)
Residential real estate
mortgage(1) . . . . . . . $ 6,647 $2,174 $ 960 $3,284 $7,788 $20,853
Nonresidential real estate 918 -- 18 -- -- 936
Commercial participation . -- -- -- 1,275 -- 1,275
Construction . . . . . . . 1,867 -- -- -- -- 1,867
Consumer and other . . . . 835 2,119 2,778 195 372 6,299
------- ------ ------ ------ ------ -------
Total Loans . . . . . . . $10,267 $4,293 $3,756 $4,754 $8,160 $31,230
======= ====== ====== ====== ====== =======
- -----------------
(1) Includes mortgage-backed securities.
</TABLE>
The following table sets forth the dollar amount of all loans and
mortgage-backed securities due one year after December 31, 1992 which have
fixed interest rates and have floating or adjustable interest rates.
<TABLE>
<CAPTION>
Fixed Floating or
Rates Adjustable Rates
-------------- ----------------
(In thousands)
<S> <C> <C>
Residential real estate
mortgage . . . . . . . . . . . . . . . . . . . $13,004 $1,202
Nonresidential real estate . . . . . . . . . . . -- 18
Commercial participation . . . . . . . . . . . . 1,275 --
Construction . . . . . . . . . . . . . . . . . . -- --
Consumer and other . . . . . . . . . . . . . . . 5,464 --
------- ------
Total . . . . . . . . . . . . . . . . . . . $19,743 $1,220
======= ======
</TABLE>
LOAN SOLICITATION AND PROCESSING. Citizens Federal actively solicits
mortgage loan applications from existing customers, walk-ins, referrals and
from real estate brokers.
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Detailed loan applications are obtained to determine the borrower's
ability to repay, and the more significant items on these applications are
verified through the use of credit reports, financial statements and
confirmations through verification forms. After analysis of the loan
application and property or collateral involved, including an appraisal of the
property by independent appraisers approved by Citizens Federal's Board of
Directors and reviewed by Citizens Federal's underwriter, a lending decision is
made by Citizens Federal's Loan Committee. With respect to nonresidential
loans, Citizens Federal reviews the capital adequacy of the business, the
ability of the borrower to repay the loan and honor its other obligations and
general economic and industry conditions. All real estate mortgage loan
applications must be approved by the Loan Committee and any loan over $202,300
requires the approval of the Board of Directors.
Loan applicants are promptly notified of the decision of Citizens
Federal by a letter setting forth the terms and conditions of the decision. If
approved, such terms and conditions include the amount of the loan, interest
rate, amortization term, a brief description of the real estate to be mortgaged
to Citizens Federal and notice of the requirement of insurance coverage
necessary to protect Citizens Federal's interest in the collateral.
It is Citizens Federal's policy generally to obtain an attorney's
title opinion stating that Citizens Federal has a valid lien on the mortgaged
real estate and that the property is free of encumbrances. Borrowers must also
obtain title insurance and fire and casualty insurance policies prior to
closing.
LOAN ORIGINATIONS, PURCHASES AND SALES. Citizens Federal is a
qualified servicer for Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"). Citizens Federal's general
policy is to close its residential loans on FHLMC and FNMA modified loan
documents. Depending upon interest rates and economic conditions, Citizens
Federal has in the past sold loans in order to provide additional funds for
lending, to generate servicing fee income and to decrease the amount of its
long-term, fixed-rate loans in order to minimize the gap between the maturities
of its interest-earning assets and interest-bearing liabilities. Citizens
Federal generally continues to collect payments on the loans, to supervise
foreclosure proceedings, if necessary, and otherwise to service the loans.
Citizens Federal retains a portion of the interest paid by the borrower on the
loans as consideration for its servicing activities. At December 31, 1992,
Citizens Federal was servicing loans sold to others with a principal balance of
approximately $17.2 million. Sales of whole loans and participation interests
by Citizens Federal are made without right of recourse to Citizens Federal
(except for $5.0 million sold to FNMA) by the buyer of the loans in the event
of default by the borrower. Citizens Federal has purchased only a limited
number of loans, which have been primarily secured by
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single family residences and which have been written on adjustable rate
mortgage loan instruments.
Set forth below is a table showing Citizens Federal's mortgage loan
origination, purchase and sales activity for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1992 1991 1990
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Loans originated
Conventional real estate
Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,997 $1,248 $1,780
One-to four-family . . . . . . . . . . . . . . . . . . . . . . . . . 18,225 4,834 6,572
------- ------ ------
Total loans originated . . . . . . . . . . . . . . . . . . . . . . . $20,222 $6,082 $8,352
======= ====== ======
Loans and mortgage-backed
securities purchased:
Total mortgage-
backed securities purchased . . . . . . . . . . . . . . . . . . . $ 250 $1,156 $ 881
------- ------ ------
Loans and mortgage-backed securities
sold:
One-to four-family . . . . . . . . . . . . . . . . . . . . . . . . . 11,172 2,366 1,995
Mortgage-backed securities . . . . . . . . . . . . . . . . . . . . . -- -- 962
------- ------- ------
Total loans and mortgage-
backed securities sold . . . . . . . . . . . . . . . . . . . . . . $11,172 $2,366 $2,957
======= ====== ======
</TABLE>
LOAN ORIGINATION AND OTHER FEES. Citizens Federal, in most instances,
receives loan origination fees and discount "points." Loan fees and points are
a percentage of the principal amount of the mortgage loan which are charged to
the borrower for funding the loan. Citizens Federal usually charges
origination fees of 0.5% to 1.0% on one-to four-family residential real estate
loans. Fees on long-term nonresidential real estate and residential
construction loans had ranged from 1.0% to 3.0%. Current accounting standards
require fees received for originating loans to be deferred and amortized into
interest income over the contractual life of the loan, adjusted for
prepayments. Deferred fees associated with loans that are sold are recognized
as income at the time of sale. Citizens Federal had $15,077 of net deferred
loan origination fees at December 31, 1992.
DELINQUENCIES. Citizens Federal's collection procedures provide for a
series of contacts with delinquent borrowers. After a loan is delinquent 15
days, the borrower will receive a late notice or letter requesting payment.
Loans 90 days delinquent generally receive a letter from Citizens Federal's
legal counsel. If the delinquency continues, more formal efforts are made to
contact the delinquent borrower. If a residential real estate loan continues
in a delinquent status for 90 days or more, Citizens
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Federal generally initiates foreclosure proceedings. Citizens Federal
generally initiates foreclosure proceedings on a nonresidential real estate
loan if the loan continues in a delinquent status for 90 days or more. In
certain instances, however, Citizens Federal may modify the loan or grant a
limited moratorium on loan payments to enable the borrower to reorganize his or
its financial affairs. Each delinquent loan is reviewed to ensure that the
loan is being serviced in accordance with the guidelines set forth by the FNMA,
FHLMC and private mortgage insurers.
NONPERFORMING ASSETS. Loans are reviewed on a regular basis and when
Citizens Federal no longer continues to accrue interest. Typically, payments
received on a nonaccrual loan are applied to the outstanding principal and
interest as determined at the time of collection of the loan.
The following table sets forth information with respect to Citizens
Federal's nonperforming assets for the periods indicated. During the periods
shown, Citizens Federal had no restructured loans within the meaning of SFAS
No. 15, other than foreclosed assets.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------
1992 1991 1990 1989 1988
---------- ------ ------ ------ --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on
a nonaccrual basis(1):
Real Estate:
Residential . . . . . . . . . . . . . $ 153 $ 123 $ 221 $ 59 $ 185
Consumer . . . . . . . . . . . . . . 42 20 89 231 139
------ ----- ------ ------ ------
$ 195 $ 143 $ 310 $ 290 $ 324
====== ===== ====== ====== ======
Percentage of total loans . . . . . . . .78% .60% 1.18% 1.10% 1.16%
Total loans delinquent 90 days
or more to total assets . . . . . . . .41 .31 .65 .57 .58
Total nonperforming assets to
total assets . . . . . . . . . . . . . 2.36 2.41 2.84 5.66 1.61
Other nonperforming assets (2) . . . . . 937 952 1,044 2,594 575
- ----------------------
</TABLE>
(1) Nonaccrual status denotes loans on which, in the opinion of management,
the collection of additional interest is unlikely, or loans that meet
nonaccrual criteria previously established by regulatory authorities.
Payments received on a nonaccrual loan are either applied to the
outstanding principal balance or recorded as interest income, depending
on assessment of the collectibility of the loan. Citizens Federal did
not accrue interest on loans that were delinquent 90 days or more during
the periods presented above.
(2) Other nonperforming assets represent property acquired by Citizens
Federal through foreclosure or repossession, including insubstance
foreclosures and loans to facilitate the sales of such properties. This
property is carried at the lower of unpaid principal balance at the date
of foreclosure or fair value, not to exceed net realizable value.
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<PAGE> 104
If interest on nonaccrual loans had been accrued, interest income of
approximately $10,365, $31,636 and $13,826 would have been recorded for the
years ended December 31, 1992, 1991 and 1990, respectively. No interest on
nonaccrual loans was included in income at December 31, 1992, 1991 and 1990,
respectively.
ASSET CLASSIFICATIONS. The OTS has adopted various changes in its
regulations regarding problem assets of savings institutions. These
regulations, which became effective on December 31, 1987, are intended to
comply with directives to the FHLBB (as predecessor to the OTS) in the
Competitive Equality Banking Act ("CEBA"). The regulations conform the OTS's
asset classification system to commercial banking practices, eliminate the
FHLBB's previous regulation that had classified certain problem assets as
"scheduled items" and put the establishment of loan loss allowances on a basis
consistent with the requirements of GAAP.
The regulations require that each insured institution review and
classify its assets on a regular basis. In addition, in connection with
examinations of insured institutions, OTS examiners have authority to identify
problem assets and, if appropriate, require them to be classified. There are
three classifications for problem assets: substandard, doubtful and loss.
Substandard assets must have one or more defined weaknesses and are
characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that
the weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified loss is considered uncollectible and
of such little value that its continuance as an asset of the institution is not
warranted. The regulations have also created a new special mention category,
described as assets which do not currently expose an insured institution to a
sufficient degree of risk to warrant classification but do possess credit
deficiencies or potential weaknesses deserving management's close attention.
Assets classified as substandard or doubtful require the institution to
establish general allowances for loan losses. If an asset or portion thereof
is classified loss, the insured institution must either establish specific
allowances for loan losses in the amount of 100.0% of the portion of the asset
classified loss or charge off such amount. A portion of general loss
allowances established to cover possible losses related to assets classified
substandard or doubtful may be included in determining an institution's
regulatory capital, while specific valuation allowances for loan losses
generally do not qualify as regulatory capital.
At December 31, 1992, Citizens Federal had $2.06 million in
participation loans with a lender that were granted in 1984 and 1985 in
connection with its asset restructuring. Citizens Federal had a minority
interest in three out of four of these assets and as a result, had limited
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ability to manage the resolution of these assets. In addition, the lead lender
of these assets has experienced financial difficulty which may further hamper
the ability of Citizens Federal in this area. A discussion of these assets is
as follows:
(1) In 1985 Citizens Federal purchased a $750,000 participation
interest in a $925,000 loan that is secured by a two-story apartment complex
with 51 units located in Ocean Springs, Mississippi that was originated in
1984. Subsequent to the origination of the loan, the lead lender foreclosed on
the property. In 1990, the property was sold to another investor group for
$750,000 with financing provided by the original loan participants after a down
payment of $75,000. At December 31, 1992, the balance of this loan was
$549,113, with an 81.35% participation interest.
(2) In 1985 Citizens Federal purchased a $750,000 participation
interest (5.1%) in a $16.7 million loan that had been granted in 1984 and is
secured by a multi-building office complex in Virginia Beach, Virginia. The
debt is a wrap-around mortgage that is subordinated to six prior liens. In
July 1988, the lead lender committed to reduce the interest rate on the loan.
Additional funds were advanced by the lead lender to facilitate a principal
reduction and pay accrued interest. Citizens Federal did not participate in
this advance. At December 31, 1992, the balance of this loan was $721,123.
The adjusted balance after a specific valuation allowance of $98,000 is
$623,123.
(3) In 1985 Citizens Federal purchased a $750,000 participation
interest (16.1%) in a $5.4 million wrap-around mortgage that had been
originated in 1984. The collateral is a 180 unit apartment complex in Winter
Park, Florida. In April 1990 the lead lender foreclosed on the property and
sold it for $4.0 million. At December 31, 1992, the balance of the loan was
$638,704 after a specific valuation allowance of $200,000. This asset is a
loan to facilitate the sale of real estate owned and thus is classified as real
estate owned. This property was obtained through foreclosure in August 1992.
(4) In 1984 the lead lender granted a $5.5 million loan secured by a
216 unit apartment complex located in Dallas, Texas. Citizens Federal's
participation interest (13.3%) was $750,000. In 1988 the lead lender took a
deed in lieu of foreclosure. In 1989 the property was sold for $4.9 million
with the lenders providing financing of $4.5 million with interest only payable
through 1994. The note has a below market interest rate and thus was
discounted. The balance of the discount was $60,000 at December 31, 1989. At
December 31, 1992, the balance of this loan was $595,291. The adjusted balance
after a specific valuation allowance of $97,000 was $498,291. This asset is a
loan to facilitate the sale of real estate owned and thus is classified as real
estate owned.
96
<PAGE> 106
At December 31, 1992, 1991 and 1990, the aggregate amounts of Citizens
Federal's classified assets, and of Citizens Federal's general and specific
loss allowances and charge-offs for the period then ended, were as follows:
<TABLE>
<CAPTION>
At December 31,
------------------------------------------
1992 1991 1990
----- ---- ----
(In thousands)
<S> <C> <C> <C>
Classified assets (all substandard) . . . . . . . . . . . . . $2,540 $2,934 $2,721
General loss allowances . . . . . . . . . . . . . . . . . . . 349 383 309
Specific loss allowances(1) . . . . . . . . . . . . . . . . . 297 222 176
Charge-offs, net . . . . . . . . . . . . . . . . . . . . . . 57 86 165
- -------------
</TABLE>
(1) Real estate owned loss allowances.
REAL ESTATE OWNED. Real estate acquired by Citizens Federal as a
result of foreclosure or by deed in lieu of foreclosure is classified as real
estate owned. When property is acquired it is recorded at the lower of the
unpaid principal balance of the related loan, or fair value, not to exceed net
realizable value.
Citizens Federal records loans as in substance foreclosures if the
borrower has little or no equity in the property based upon its current fair
value and if the borrower has effectively abandoned control of the collateral
or has continued to retain control of the collateral but because of the current
financial status of the borrower it is doubtful the borrower will be able to
repay the loan in the foreseeable future. In substance foreclosures are
accounted for as real estate acquired through foreclosure.
At December 31, 1992, properties of Citizens Federal classified as
real estate owned consisted primarily of two properties with carrying values
totalling $852,535.
ALLOWANCE FOR LOAN LOSSES. Citizens Federal's management evaluates
the need to establish an allowance for loan losses based on a review of all
loans for which full collectibility may not be reasonably assured and
considers, among other matters, the estimated market value of the underlying
collateral of problem loans, prior loss experience, economic conditions and
overall portfolio quality. Citizens Federal established provisions for losses
on loans for the years ended December 31, 1992, 1991, and 1990 of $23,000,
$159,000 and $152,000, respectively. At December 31, 1992, Citizens Federal
had an allowance for loan losses of $348,725.
Periodic evaluations of the loan portfolio is done through the Asset
Classification Committee, which meets on a regular basis and reviews Citizens
Federal's loans. The amount of the allowance for loan losses is established by
this Committee and is further reviewed by the Board of Directors in regular
Board meetings.
97
<PAGE> 107
The following table sets forth the activity in Citizens Federal's
allowance for loan losses for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1992 1991 1990 1989 1988
----------- ----------- ---------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period . . . . . . . . . . . . $383 $310 $323 $213 $177
Loans charged-off
Real estate--mortgage:
Residential . . . . . . . . . . . . . . . . . . . . -- -- 12 6 --
Nonresidential . . . . . . . . . . . . . . . . . . -- -- -- 225 288
Real estate--construction . . . . . . . . . . . . . . . -- -- -- -- --
Consumer . . . . . . . . . . . . . . . . . . . . . . . 97 160 207 174 53
---- ---- ---- ---- ----
Total charge-offs(1) . . . . . . . . . . . . . . . . . 97 160 219 405 341
Total recoveries(2) . . . . . . . . . . . . . . . . . . 40 74 54 12 --
---- ---- ---- ---- -----
Net loans charged-off . . . . . . . . . . . . . . . . . 57 86 165 393 341
Provision for loan losses . . . . . . . . . . . . . . . 23 159 152 503 377
---- ---- ---- ---- ----
Balance at end of period . . . . . . . . . . . . . . . $349 $383 $310 $323 $213
===== ===== ==== ==== ====
Allowance for loan losses as a percent
of total loans . . . . . . . . . . . . . . . . . . . . 1.40% 1.58% 1.17% 1.22% .76%
Ratio of net charge-offs to
average loans outstanding
during the period . . . . . . . . . . . . . . . . . . .41% .35% .61% 1.29% .38%
- ------------------
</TABLE>
(1) Charge-offs in 1989 exceed the beginning allowances
for loan losses due to losses of approximately
$225,000 resulting from unforeseen foreclosures of
two loan participations.
(2) Recoveries of loan principal balances previously
charged-off are netted against charge-offs in 1988.
LOAN LOSS ALLOWANCE BY CATEGORY. The following table sets forth the
breakdown of the allowance for loan losses by loan category for the periods
indicated. The following allocation does not indicate the unavailability of any
portion of the allowance for loan losses to absorb losses in any loan category.
98
<PAGE> 108
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------------
1992 1991 1990
------------------------------- ------------------------------ ----------------------------
% % of % % of % % of
of Out- Loans in of Out- Loans in of Out- Loans in
standing Category standing Category standing Category
Loans in to Total Loans in to Total Loans in to Total
Amount Category Loans Amount Category Loans Amount Category Loans
------ -------- ----- ------ -------- ----- ------ -------- -------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate -- mortgage:
Residential . . . . . . . . $160 .86% 69.54% $106 .70% 76.12% $ 35 .21% 71.20%
Commercial participations . 99 7.77 5.13 98 7.65 3.94 74 .57 3.67
Consumer . . . . . . . . . . 90 1.43 25.33 178 2.59 19.94 201 2.26 25.13
Unallocated . . . . . . . . . -- -- -- -- -- -- -- -- --
----- ------ ------ ----- ---- ----- --- ---- -----
Total allowance
for loan losses . . . . . $349 1.24% 100.00% $383 1.58% 100.00% $310 1.17% 100.00%
==== ===== ======= ==== ===== ======= ==== ==== =======
December 31,
---------------------------------------------------------------------------------
1989 1988
------------------------------------ ---------------------------------------
As a % As a % of As a % As a % of
of Out- Loans in of Out- Loans in
standing Category standing Category
Loans in to Total Loans in to Total
Amount Category Loans Amount Category Loans
------ -------- -------- ------ -------- --------
(Dollars in thousands)
Real estate -- mortgage:
Residential . . . . . . . . $ 41 .25% 68.04% $ 39 .23% 50.47%
Commercial participations . 74 10.00 1.98 56 2.05 9.72
Consumer . . . . . . . . . . 208 1.91 29.98 118 1.03 39.81
Unallocated . . . . . . . . . -- -- -- -- -- --
------- ------- ------- ------- ----- ------
Total allowance for
loan losses . . . . . . . . . $323 1.22% 100.00% $213 .76% 100.00%
==== ==== ====== ==== === ======
</TABLE>
99
<PAGE> 109
INVESTMENT ACTIVITIES
Federally chartered savings institutions have authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies and of state and municipal governments,
deposits at the FHLB, certificates of deposit of federally-insured
institutions, certain bankers' acceptances and Federal funds. Subject to
various restrictions, such savings institutions may also invest a portion of
their assets in commercial paper, corporate debt securities and mutual funds,
the assets of which conform to the investments that Federally chartered savings
institutions are otherwise authorized to make directly. Savings institutions
are also required to maintain minimum levels of liquid assets which vary from
time to time. Citizens Federal may decide to increase its liquidity
above the required levels depending upon the availability of funds and
comparative yields on investments in relation to return on loans.
Citizens Federal is required under Federal regulations to maintain a
minimum amount of liquid assets and is also permitted to make certain other
securities investments. The balance of Citizens Federal's investments in
short-term securities in excess of regulatory requirements reflects
management's response to the state of the thrift industry as well as Citizens
Federal's noncompliance with the regulatory capital requirements. At December
31, 1992, Citizens Federal's regulatory liquidity was 25.07%, which was well in
excess of the required 5.0%. It is the intention of management to hold
securities with short maturities in Citizens Federal's investment portfolio in
order to enable Citizens Federal to match more closely the interest-rate
sensitivities of its assets and liabilities.
Investment decisions are made by the Investment Committee, which
consists of Directors Brown, J. Hall, Buckley, Bruner and Eastwood. The
Investment Committee acts within policies established by the Board of
Directors. Securities are generally purchased to be held until maturity.
At December 31, 1992, Citizens Federal's investment securities
portfolio totalled $11.0 million and consisted of United States Treasury
securities and obligations of United States Government agencies.
For further information concerning Citizens Federal's securities
portfolio, see Notes 2 and 3 of the Notes to the Consolidated Financial
Statements of Citizens Federal included elsewhere in this Proxy Statement-
Prospectus.
100
<PAGE> 110
The following table sets forth Citizens Federal's investment securities
portfolio at carrying value at the dates indicated.
<TABLE>
<CAPTION>
At December 31
------------------------
1992 1991 1990 1989
------------ ------------ ------------ ------------
Book Percent of Book Percent of Book Percent of Book Percent of
Value(1) Portfolio Value(1) Portfolio Value(1) Portfolio Value(1) Portfolio
-------- --------- -------- --------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United
States
Government
and agency
securities $11,012 100.0% $8,397 100.0% $7,497 100.0% $7,294 100.0%
</TABLE>
(1) The market value of Citizens Federal's investment securities
portfolio amounted to $11.1 million, $8.5 million, $7.1 million and
$7.1 million at December 31, 1992, 1991, 1990 and 1989, respectively.
The following table sets forth the maturities and weighted average
yields of the debt securities in Citizens Federal's investment securities
portfolio at December 31, 1992.
<TABLE>
<CAPTION>
Less Than One to Five to Over Ten
One Year Five Years Ten Years Years
----------------- ------------------ ------------------ ------------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
United States Government
and agency securities . . . . . . . . . . . . $1,778 6.42% $8,468 7.21% $516 7.05% $250 6.14%
</TABLE>
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
GENERAL. Deposits and loan repayments are the major source of
Citizens Federal's funds for lending and other investment purposes. Scheduled
loan repayments are a relatively stable source of funds, while deposit inflows
and outflows and loan prepayments are significantly influenced by general
interest rates and money market conditions. Borrowings may be used on a short-
term basis to compensate for reductions in the availability of funds from other
sources, or on a longer-term basis for general business purposes.
DEPOSIT ACCOUNTS. Citizens Federal offers a wide range of
deposit products to attract customers in Roane and surrounding counties.
Citizens Federal offers NOW accounts, demand checking accounts, savings
accounts, Christmas club accounts, certificates of deposit accounts and
individual retirement accounts. In setting its rates on all accounts,
management will review profitability of Citizens Federal, area competition,
Citizens Federal's current and future liquidity needs and its interest rate
risk sensitivity.
101
<PAGE> 111
Management reviews the rates being paid on deposits on a weekly basis.
Citizens Federal does not pay premiums of any kind to attract new savings nor
does it utilize brokered funds.
All certificates of deposit rates are fixed for the term of the
deposit. Once the certificate matures, the customer has a grace period to
withdraw the funds before the account automatically at the present rate being
offered. Regular savings accounts and NOW accounts are fixed-rate deposits.
The savings accounts are not any fee but are subject to minimum balance
requirements. NOW accounts charged a small fee that is consistent with area
competition.
At December 31, 1992, Citizens Federal did not have deposits for IRA
fixed- and variable-rate accounts.
The following table sets forth information concerning Citizens
Federal's savings deposit programs at December 31, 1992.
<TABLE>
<CAPTION>
Percentage
Weighted Average Minimum of Total
Interest Rate Term Category Amount Balance Deposits
- ------------- ------ -------- ------ ------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
-- None Passbook Accounts $ 100-2,500 $10,447 22.86%
-- None Non-interest checking 300-1,000 128 .28
-- None NOW & Super NOW 300-1,000 3,688 8.07
Accounts
Certificates of Deposit
-----------------------
4.77% 4-6 months fixed term, fixed rate 5,000 6,838 14.96
4.77 7-12 months fixed term, fixed rate 1,000-5,000 5,010 10.98
6.07 13-23 months fixed term, fixed rate 1,000 1,275 2.79
6.85 24-48 months fixed term, fixed rate 1,000 5,224 11.44
8.06 49-120 months fixed term, fixed rate 1,000 4,692 10.27
6.34 18-60 months IRA accounts 200 4,691 10.27
4.77 Jumbo certificates 100,000 3,691 8.08
-------- ------
$45,684 100.00%
======== ======
</TABLE>
102
<PAGE> 112
The following table indicates the amount of Citizens Federal's
certificates of deposit of $100,000 or more by time remaining until maturity as
of December 31, 1992. The rates paid on such accounts are negotiated with the
depositors.
<TABLE>
<CAPTION>
Certificates
Maturity Period of Deposit
--------------- ----------
(In thousands)
<S> <C>
Three months or less $ 777
Three through six months 301
Six through twelve months 802
Over twelve months 1,811
------
Total $3,691
======
</TABLE>
103
<PAGE> 113
DEPOSIT FLOW. The following table sets forth the balances of
savings deposits in the various types of savings accounts offered by Citizens
Federal at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1992 1991
-------------------------------------------------------------------------
Percent Percent
of Increase of Increase
Amount Total (Decrease) Amount Total (Decrease)
------ ----- ---------- ------ ----- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Passbook accounts . . . . . . . . . . . . . . . . . . . $10,447 22.87% $ 3,631 $6,816 16.35% $ 566
Non-interest-bearing . . . . . . . . . . . . . . . . . 128 0.28 15 113 .27 (117)
NOW checking . . . . . . . . . . . . . . . . . . . . . 3,688 8.07 1,185 2,503 6.00 (299)
Super NOW checking . . . . . . . . . . . . . . . . . . (392) 392 .94 (70)
Fixed-rate certificates which
mature in the year ending(1):
December 31, 1990 . . . . . . . . . . . . . . . . . . -- -- -- -- -- --
December 31, 1991 . . . . . . . . . . . . . . . . . . -- -- -- -- -- (24,924)
December 31, 1992 . . . . . . . . . . . . . . . . . . -- -- (24,666) 24,666 59.17 20,120
Certificates maturing thereafter . . . . . . . . . . 31,421 68.78 24,224 7,197 17.27 3,422
Other . . . . . . . . . . . . . . . . . . . . . . . . -- -- -- -- -- --
------- ------- -------- ------- ------ --------
Total . . . . . . . . . . . . . . . . . . . . . . $45,684 100.00% $ 3,997 $41,687 100.00% $(1,302)
======= ======= ======== ======= ====== ========
<CAPTION>
December 31,
---------------------
1990
---------------------
Percent
of
Amount Total
------ -----
(Dollars in thousands)
<S> <C> <C>
Passbook accounts . . . . . . . . . . . . . . . . . . . $6,250 14.54%
Non-interest-bearing . . . . . . . . . . . . . . . . . 230 .54
NOW checking . . . . . . . . . . . . . . . . . . . . . 2,802 6.52
Super NOW checking . . . . . . . . . . . . . . . . . . 462 1.07
Fixed-rate certificates which
mature in the year ending(1):
December 31, 1990 . . . . . . . . . . . . . . . . . . -- --
December 31, 1991 . . . . . . . . . . . . . . . . . . 24,924 57.98
December 31, 1992 . . . . . . . . . . . . . . . . . . 4,546 10.57
Certificates maturing thereafter . . . . . . . . . . 3,775 8.78
Other . . . . . . . . . . . . . . . . . . . . . . . . -- --
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . $42,989 100.00%
======= =======
- ----------------------------
</TABLE>
Note: IRA accounts are included in certificate balances: Amounts are $4,691,
$4,465 and $4,251 for December 31, 1992, 1991 and 1990, respectively.
(1) At December 31, 1992, 1991 and 1990, jumbo certificates amounted to
$3,691, $5,199 and $3,542, respectively.
104
<PAGE> 114
The following table sets forth the savings activities of
Citizens Federal for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1992 1991 1990 1989
---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Net increase (decrease) before interest
credited . . . . . . . . . . . . . . . . . . . . . . $1,696 $(3,256) $(4,475) $(5,488)
Interest credited net . . . . . . . . . . . . . . . . . . 2,301 1,954 2,258 2,442
--------- ------- ------- -------
Net increase (decrease) in savings
deposits 3,997 (1,302) (2,217) (3,046)
--------- ------- ------ -------
Ending balance . . . . . . . . . . . . . . . . . . . . . $45,684 $41,687 $42,989 $45,206
========= ======= ======= =======
</TABLE>
TIME DEPOSITS BY RATES. The following table sets forth the time deposits
in Citizens Federal classified by rates as of the dates indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------------
1992 1991 1990
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Below 5.00% . . . . . . . . . . . . . . . . . . . $16,486 $ 1,149 $ --
5.00 - 6.99% . . . . . . . . . . . . . . . . . . . 7,965 18,174 264
7.00 - 8.99% . . . . . . . . . . . . . . . . . . . 5,803 11,104 29,084
9.00 - 10.99% . . . . . . . . . . . . . . . . . . 1,167 1,436 3,897
11.00 - 12.99% . . . . . . . . . . . . . . . . . . -- -- --
-------- ------- -------
$31,421 $31,863 $33,245
======== ======= =======
</TABLE>
The following table sets forth the amount and maturities of time deposits at
December 31, 1992.
<TABLE>
<CAPTION>
Amount Due
--------------------------------------------------------------------------------------------
Less Than 1-2 2-3 3-4 After 4 % of Total
One Year Years Years Years Years Total Certificates
--------- ----- ----- ----- ----- ----- ------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Under 5.00% . . . . . . . . . . . $ 9,818 $3,088 $1,320 $2,084 $176 $16,486 52.47%
5.00 - 6.99% . . . . . . . . . . . 4,743 1,492 637 1,008 85 7,965 25.35
7.00 - 8.99% . . . . . . . . . . . 3,456 1,087 464 735 61 5,803 18.47
9.00 - 10.99% . . . . . . . . . . 695 219 93 148 12 1,167 3.71
11.00 - 12.99% . . . . . . . . . . -- -- -- -- -- -- --
------- ------ ------ ------ ----- ------- -------
$18,712 $5,886 $2,514 $3,975 $334 $31,421 100.00%
======= ====== ====== ====== ===== ======= =======
</TABLE>
BORROWINGS. Savings deposits are the primary source
of funds for Citizens Federal's lending and investment activities and for
105
<PAGE> 115
its general business purposes. In the past, Citizens Federal has, on an
infrequent basis, obtained advances from the FHLB of Cincinnati to supplement
its supply of lendable funds and to meet deposit withdrawal requirements.
Advances from the FHLB are typically secured by Citizens Federal's first
mortgage loans. At December 31, 1992, Citizens Federal did not have any
advances from the FHLB of Cincinnati.
The FHLB functions as a central reserve bank providing
credit for savings and loan associations and certain other member financial
institutions. As a member, Citizens Federal is required to own capital stock
in the FHLB and is authorized to apply for advances on the security of such
stock and certain of its mortgage loans and other assets (principally
securities which are obligations of, or guaranteed by, the United States)
provided certain standards related to creditworthiness have been met. Advances
are made pursuant to several different programs. Each credit program has its
own interest rate and range of maturities. Depending on the program,
limitations on the amount of advances are based either on a fixed percentage of
an institution's net worth or on the FHLB's assessment of the institution's
creditworthiness. Under its current credit policies, the FHLB generally limits
advances to 20.0% of a member's assets, and short-term borrowings of less than
one year may not exceed 10.0% of the institution's assets. The FHLB determines
specific lines of credit for each member institution.
106
<PAGE> 116
The following table sets forth certain information regarding FNMA bonds
which were the only form of borrowing which Citizens Federal had outstanding at
the end of and during the periods indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------------
1992 1991
---- ----
(Dollars in thousands)
<S> <C> <C>
Amount of FNMA bonds payable
at end of period . . . . . . . . . . . . . . . . . . -- $1,368
<CAPTION>
During the Year
Ended December 31,
--------------------------------
1992 1991 1990
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Principal reductions during the year . . . . . . . . . $1,368 $ 976 $ 986
Maximum amount of borrowings at
month end(1) . . . . . . . . . . . . . . . . . . . . 1,368 2,344 3,330
<CAPTION>
During the Year
Ended December 31,
---------------------------------
1992 1991 1990
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Weighted average rate paid on
FNMA bonds payable . . . . . . . . . . . . . . . . . 10.73% 11.73% 11.72%
Approximate average borrowings
outstanding . . . . . . . . . . . . . . . . . . . . . $867 $1,688 $2,603
</TABLE>
- -----------------------------------
(1) Based on month-end balances.
PERSONNEL
As of December 31, 1992, Peoples Bank had 36 full-time employees and
four part-time employees. The employees are not by a collective bargaining
unit. Peoples Financial believes its with its employees to be excellent. As
of December 31, 1992, Federal had 20 full-time employees and one part-time
employee. The are not represented by a collective bargaining unit. Citizens
Federal believes its relationship with its employees to be excellent.
107
<PAGE> 117
PROPERTIES
The following table sets forth the location of Peoples Bank's and
Citizens Federal's offices and other facilities as well as certain additional
information relating to these offices and facilities as of December 31, 1992.
PEOPLES BANK'S OFFICE LOCATIONS
<TABLE>
<CAPTION>
Year Leased Approximate Net Book Value
Facility or Office Area at
Main Office Opened Owned (Square Feet) December 31, 1992
- ----------- -------- ------ ------------- ------------------
<S> <C> <C> <C> <C>
Two West Jackson 1989 Owned 7,200 $614,273
Cookeville, Tennessee
Other Offices
- -------------
105 N. Washington 1989 Owned 2,800 339,626
Cookeville, Tennessee
1824 North Main 1992 Owned 3,300 401,825
Crossville, Tennessee
</TABLE>
108
<PAGE> 118
CITIZENS FEDERAL'S OFFICE LOCATIONS
<TABLE>
<CAPTION>
Year Leased Approximate Net
Facility or Office Area Book Value
Main Office Opened Owned (Square Feet) at December 31, 1992
----------- -------- ---------- ------------- --------------------
<S> <C> <C> <C> <C>
134 N. Gateway(1) 1974 Owned 6,600 $311,905
Rockwood, Tennessee 37854
Other Offices
- -------------
421 North Kentucky Street 1979 Owned 2,400 (2) $288,084
Kingston, Tennessee
</TABLE>
______________________
(1) In August 1985, Citizens Federal purchased a house and lot adjoining
the main office for $40,000. The house is approximately 1,340 square
feet. Part of the lot has been used to expand parking facilities at
the main office; the house is used for Board meetings, training
sessions, office dinners, visiting examiners and auditors, and other
business functions. The net book value of the house and lot at
December 31, 1992 was $23,632.
(2) Does not include an unfinished basement area of approximately 2,400
square feet.
LEGAL PROCEEDINGS
Periodically, there are various claims and lawsuits involving Peoples
Financial, Peoples Bank and Citizens Federal and their respective subsidiaries
mainly as defendants, such as claims to enforce liens, condemnation proceedings
on properties in which Peoples Bank or Citizens Federal holds security
interests, claims involving the making and servicing of real property loans and
other issues incident to Peoples Bank's or Citizens Federal's business. In the
opinion of management and Peoples Financial's legal counsel, no material loss
is expected from any of such pending claims or lawsuits.
109
<PAGE> 119
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF
PEOPLES FINANCIAL
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH PEOPLES FINANCIAL'S CONSOLIDATED FINANCIAL STATEMENTS AND NOTES, ATTACHED
HERETO.
CHANGES IN FINANCIAL CONDITION
BETWEEN DECEMBER 31, 1992 AND SEPTEMBER 30, 1993:
At September 30, 1993, total assets were $119,918,260, an increase of
$7,708,402 from December 31, 1992. This increase is attributed primarily to
the expansion of the Crossville branch office. Cash and cash equivalents
increased to $10,530,639 from $9,708,654 at December 31, 1992.
Total investments increased $5,163,476 from a balance of $31,420,127
at December 31, 1992. This 16.43% increase in the portfolio value was due to
purchasing securities rather than investing excess funds in federal funds sold.
At the end of the third quarter of 1993, there was $3,778,440 of securities
available for sale for the purpose of managing interest rate risk and meeting
future liquidity needs. Determination is made at the time of purchase as to
whether an investment is to be held until maturity or available for sale.
Net loans receivable increased $1,873,669 to $67,953,649 at September
30, 1993 from $66,079,980 at December 31, 1992. Included in these amounts were
$1,868,297 in loans available for sale at September 30, 1993, and $758,935 at
December 31, 1992.
Loan originations in the three months ended September 30, 1993 were
$8,797,098 at Peoples Bank and $8,786,562 at Citizens Federal for total loan
originations of $17,583,660.
Loan originations in the nine months ended September 30, 1993 were
$25,298,599 at Peoples Bank and $20,506,609 at Citizens Federal for total
loan originations of $45,805,208.
Both institutions seek high quality loan receivables. Citizens
Federal's primary source of originations has been real estate mortgages while
Peoples Bank originations have been mainly commercial loans.
Deposits increased $5,396,832 to $107,521,482 at September 30, 1993
from $102,124,650 at December 31, 1992. This is credited to normal growth.
Total stockholders' equity increased $2,089,867 to $11,235,886 at
September 30, 1993 from $9,146,019 at December 31, 1992. In addition to net
income of $1,195,582, the increase is attributable
110
<PAGE> 120
to the sale of stock which resulted in net proceeds of $894,285. Total capital
as a percentage of total assets was 9.37% at September 30, 1993 as compared to
8.15% at December 31, 1992. For further discussion, refer to "LIQUIDITY AND
CAPITAL RESOURCES" below.
RESULTS OF OPERATIONS
Net income for the three months ended September 30, 1993 was $428,083
compared to $400,193 for the same period ended September 30, 1992, an increase
of $27,890, or 6.97%.
Net income for the nine months ended September 30, 1993 was $1,195,582
compared to $927,965 for the same period ended September 30, 1992, an increase
of $267,617, or 28.84%.
Although total non-interest expenses increased $570,856 over the first
nine months of 1992, this was offset by an increase in net interest income and
non-interest income. (Also, the cumulative effect of a change in accounting
principles had a positive impact on income for the second quarter in the amount
of $27,324). See note 6 of Notes to Unaudited Consolidated Financial
Statements.
Net interest income for the three months ended September 30, 1993 was
$1,333,955 compared to $1,130,357 for the three months ended September 30,
1992, an increase of $203,598, or 18.01%. This is the result of a reduction
in interest expense of $123,749, or 11.32%, and an increase in interest income
of 79,849, or 3.59%, as compared to the same time period in 1992. This was
due mainly to an overall reduction in the rates paid on deposits.
Net interest income for the nine months ended September 30, 1993 was
$3,863,875 compared to $3,295,084 for the nine months ended September 30, 1992,
an increase of $568,791, or 17.26%. This is the result of a reduction in
interest expense of $450,200, or 13.22%, and an increase in interest income of
$118,591, or 1.77%, as compared to the same time period in 1992. This was due
mainly to an overall reduction in the rates paid on deposits.
The increase in total interest income of $79,849 for the three-month
period and $118,591 for the nine-month period over the same periods in 1992
resulted from the net effects of an increase of $9.98 million in earning assets
outstanding ($115.00 million at September 30, 1993 as compared to $105.02
million at September 30, 1992) offset by a decrease in the yields on average
earning assets at both institutions.
Total interest expense for the three months ended September 30, 1993
was $969,195, a decrease of $123,749, or 11.32%, as compared to the same period
in 1992.
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<PAGE> 121
Total interest expense for the nine months ended September 30, 1993
was $2,954,935, a decrease of $450,200, or 13.22%, as compared to the same
period in 1992.
These changes resulted from the net effects of a decrease in the cost
of average interest-bearing liabilities from 4.68% for the nine months ended
September 30, 1992 to 3.72% for the same period in 1993, offset somewhat by an
increase of $8.9 million in the interest-bearing liabilities outstanding
($108.7 million at September 30, 1993 as compared to $99.8 million at September
30, 1992).
The provision for loan losses at September 30, 1993 was $157,166
compared to $284,233 at September 30, 1992, a decrease of $127,067. The
provision for loan losses is used to adjust the loan loss allowance to what
management believes is an acceptable level. The provision and allowance for
loan losses is based upon management's consideration of current and anticipated
economic conditions which may affect the ability of the borrowers in the loan
portfolio to repay the loans and on the prior loss experience, volume and type
of lending conducted by the institutions, industry standards and past due loans
in the portfolios. Management also reviews individual loans for which
collectibility may not be reasonably assured and considers, among other
matters, the net realizable value of the underlying collateral.
Non-interest income totaled $328,785 for the three months ended
September 30, 1993, an increase of $164,344, or 99.94%, as compared to $164,441
for the same period in 1992. The majority of this was due to an increase in
service charge income on deposits of $21,536 and an increase in gain on sale of
loans receivable of $122,161.
Non-interest income totaled $858,879 for the nine months ended
September 30, 1993, an increase of $332,601, or 63.20%, as compared to $526,278
for the same period in 1992. The majority of this was due to an increase in
service charge income on deposits of $77,543, an increase in gain on sale of
loans receivable of $92,545, and an increase in gain on call and sale of
investment securities of $102,012.
Non-interest expense for the three months ended September 30, 1993 was
$928,966, an increase of $361,718, or 63.77%, from $567,249 for the same period
in 1992. This was primarily due to an increase in various general and
administrative expenses offset by a decrease in the provision for loss on
investments held for sale.
Non-interest expense for the nine months ended September 30, 1993 was
$2,617,480, an increase of $570,856, or 27.89%, from
112
<PAGE> 122
$2,046,624 for the same period in 1992. This was primarily due to an increase
in various general and administrative expenses offset by a decrease in the
provision for loss on investments held for sale. Employee compensation,
occupancy, and equipment expense accounted for approximately half of the
increase.
Income tax expense for the three-month period ended September 30, 1993
was $299,025 compared to $203,397 for the same period in 1992. Income tax
expense for the nine-month period ended September 30, 1993 was $779,850
compared to $562,540 for the same period in 1992. These increases in income tax
expense were due primarily to increases in income before income taxes.
Effective January 1, 1993, Peoples Financial adopted Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes," which requires a change from the deferred method of accounting for
income taxes of Accounting Principles Board Opinion No. 11 to the asset and
liability method of accounting for income taxes. The tax benefit of deductible
temporary differences, under SFAS No. 109, is recorded as an asset to the
extent that management estimates that such assets "more likely than not" will
be realized. In accordance with SFAS No. 109, the realization of tax benefits
of deductible temporary differences depends upon whether Peoples Financial has
sufficient taxable income to allow for utilization of the deductible amounts.
As of January 1, 1993, Peoples Financial had net deductible temporary
differences of $344,075. Management believes that sufficient taxable income
will be generated from operations in order to realize these assets. A
valuation allowance of $44,489 at January 1, 1993 was established for the
portion of the deductible temporary differences that is not expected to be
realized.
LIQUIDITY AND CAPITAL RESOURCES
In accordance with Federal regulations, Citizens Federal and Peoples
Bank are required to maintain liquid assets of 5% or more of net withdrawable
deposits plus short term borrowings. The liquidity ratios at September 30,
1993 for Peoples Bank and Citizens Federal were 41.23% and 29.45%,
respectively, as compared to 39.95% and 15.14% at December 31, 1992. The
institutions' most liquid assets are cash and cash equivalents. The
institutions anticipate that they will have sufficient funds available to meet
all current commitments. At September 30, 1993, commitments to originate
loans and to fund unused lines of credit were $8,791,349 at Peoples Bank and
$2,570,655 at Citizens Federal for a total of $11,362,004.
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<PAGE> 123
Of primary importance to depositors, creditors, and regulators is the
ability to have readily available funds sufficient to repay fully maturing
liabilities. Peoples Financial's liquidity, represented by cash and cash
equivalents, is a result of its operating, investing, and financing activities.
Peoples Financial devotes resources to projecting on a monthly basis the amount
of funds which will be required and maintains relationships with a diversified
customer base so funds are accessible. The principal sources of funds are cash
flows from operations, investing and financing activities, consisting mainly of
commercial, mortgage and consumer loan payments, repayments of mortgage-backed
securities and retail customer deposits. Liquidity requirements also can be
met through short-term borrowings or the disposition of short-term assets,
which are generally matched to correspond to the maturity of liabilities.
Operating activities provided positive cash flows for the nine months
ended September 30, 1993, which was primarily a result of purchases of
securities available for sale. For the nine month period ended September 30,
1992, operating activities provided positive cash flows as a result of proceeds
from sales of securities available for sale and payment of a receivable from
the Resolution Trust Corporation. The primary investing activity of the
institutions continued to be the origination of loans and purchase of
mortgage-backed and related securities and federal agency securities.
Cash flows from financing activities are generally most significantly
impacted by deposit activity. A net increase in total deposits during the nine
months ended September 30, 1993 was offset by an increase in loan receivables
and investment securities.
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<PAGE> 124
At September 30, 1993, Citizens Federal's capital position exceeded
minimum regulatory capital requirements as indicated by the following table
(dollars in thousands):
<TABLE>
<CAPTION>
Tier 1 Total
Core/ Risk - Risk-
GAAP Tangible Tangible Leverage Based Based
Capital Capital Equity Capital Capital Capital
<S> <C> <C> <C> <C> <C> <C>
Equity capital $ 3,132 $ 3,132 $ 3,132 $ 3,132 $ 3,132 $ 3,132
General valuation allowances 269
Regulatory capital measure 3,132 3,132 3,132 3,132 3,401
Total assets 49,777
Adjusted total assets 49,777 49,777 49,777
Risk-weighted assets 49,777 21,537
Capital ratios 6.29 6.29 6.29 6.29 6.29 15.79
Regulatory capital category:
Adequately capitalized,
equal to or greater than 1.50% 8.00%
Not critically
undercapitalized, equal to or
greater than 4.00% 4.00% 4.00%
</TABLE>
At September 30, 1993, Peoples Bank's capital position exceeded minimum
regulatory capital requirements as indicated by the following table (dollars in
thousands):
<TABLE>
<CAPTION>
(Dollars in thousands) Amount Ratio
<S> <C> <C>
Tier 1 Capital $8,065 11.50%
Tier 1 Capital
minimum requirement 2,806 4.00%
Excess 5,259 7.50%
Total Primary Capital 8,774 12.51%
Total Primary Capital
minimum requirement 5,611 8.00%
Excess 3,163 4.51%
</TABLE>
115
<PAGE> 125
FOR THE YEARS ENDED DECEMBER 31 1992, 1991 AND 1990
ASSET AND LIABILITY MANAGEMENT
Peoples Bank's principal financial objective is to maintain long-term
profitability while reducing exposure to increases in rates. The principal
elements of Peoples Bank's asset liability plan are to increase the interest
rate sensitivity of Peoples Bank's assets by the origination of variable rate
commercial loans, which fluctuate with Wall Street Prime, and to purchase
adjustable rate securities while maintaining a portfolio of a short duration.
Peoples Bank also maintains a consumer loan portfolio of a short maturity
range.
Peoples Bank's profitability is significantly dependent upon the
difference between total interest income on interest-earning assets and
interest expense on deposits. The management of Peoples Bank believes that
steps have been taken to reduce vulnerability to interest rate risk.
The matching of assets and liabilities may be analyzed by examining the
extent to which such assets and liabilities are "interest rate sensitive" and
by monitoring an institution's interest rate "gap." An asset or liability is
said to be interest rate sensitive within a specific time period if it will
mature or reprice within that time period. The interest rate sensitivity gap
is defined as the difference between the amount of interest-earning assets
maturing or repricing within a specific 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 rate sensitive liabilities. A gap is considered
negative when the amount of interest rate sensitive liabilities exceeds the
amount of interest rate sensitive assets. During a period of rising interest
rates, a negative gap would tend to affect adversely net interest income while
a positive gap would tend to result in an increase to net interest income.
During a period of falling interest rates, a negative gap would tend to result
in an increase in net interest income while a positive gap would tend to affect
adversely net interest income.
At December 31, 1992, Peoples Financial had a negative gap. A negative
gap indicates that Peoples Financial's earnings for 1992 were favorably
affected by the decline in market interest rates. The negative repricing gap
also indicates that Peoples Bank's future earnings may be affected adversely
by a rise in market interest rates, and such impact would be felt primarily in
the six-month period after such a rise in interest rates.
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<PAGE> 126
The following table sets forth the estimated
repricing or maturity of Peoples Bank's assets and liabilities at December 31,
1992. This table does not necessarily indicate the effect of general interest
rate movements on Peoples Bank's net interest income because the repricing of
certain assets and liabilities is subject to competitive and other pressures.
As a result, assets and liabilities indicated as repricing within the same
period may in fact reprice at different times and at different rate levels.
<TABLE>
<CAPTION>
Within
six Six months One year to Three years to Five years to Over
months to one year three years five years ten years ten years Total
------ ----------- ----------- -------------- ------------- --------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Fixed rate loans . . . . . . . $ 2,224 $ 4,318 $ 9,969 $2,492 $2,131 $ 455 $21,589
Variable rate loans . . . . . . 16,604 5,725 30 -- -- -- 22,359
Investment securities and
fixed rate securities . . . . . 285 4,574 4,694 372 2,544 23 12,492
Floating rate securities . . . 1,554 -- -- -- -- -- 1,554
------- -------- ------- ------ ------ ------ -------
Total rate sensitive assets. . $ 20,667 $ 14,617 $14,693 $2,864 $4,675 $478 $57,994
======== ======== ======= ====== ====== ====== =======
Interest-bearing liabilities:
Deposits:
Regular savings and NOW
accounts . . . . . . . . . . . $ 14,046 $ -- $ -- $ -- $ -- $ -- $14,046
Money market deposit accounts. 3,417 -- -- -- -- -- 3,417
Certificates of deposit . . . 24,313 4,296 1,902 208 14 -- 30,733
Other . . . . . . . . . . . -- -- -- -- -- -- --
-------- -------- ------- ------ ------ ------ -------
Total rate sensitive liabilities $ 41,776 $ 4,296 $ 1,902 $ 208 $ 14 $ -- $48,196
======== ======== ======= ====== ====== ====== =======
Excess (deficiency) of interest
sensitive assets over interest
sensitive liabilities . . . . $(21,109) $ 10,321 $12,791 $2,656 $4,661 $ 478 $9,798
Cumulative excess (deficiency)
of interest sensitive assets . $(21,109) $(10,788) $ 2,003 $4,659 $9,320 $9,798 $9,798
Ratio of cumulative gap to
total assets . . . . . . . . . (32.8)% (16.7)% 3.1% 7.2% 14.5% 15.2% 15.2%
</TABLE>
- --------------------
Note: All interest-bearing deposits other than certificates of deposit have
been included in the within six months category because these accounts are
subject to immediate withdrawal.
117
<PAGE> 127
YIELDS EARNED AND RATES PAID
The earnings of Peoples Bank depend largely on the spread between the
yield on interest-earning assets (primarily loans and securities) and the cost
of interest-bearing liabilities (primarily deposit accounts and borrowings), as
well as the relative size of Peoples Bank's interest-earning assets and
interest-bearing liability portfolios. The following table sets forth, for the
periods indicated, information regarding average balances of assets and
liabilities as well as the total dollar amounts of interest income from average
interest-earning assets and interest expense on average interest-bearing
liabilities, resultant yields, interest rate spread, ratio of interest-earning
assets to interest-bearing liabilities and net interest margin. Average
balances for a period have been calculated using the average daily balances for
such period.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------
1992 1991 1990
------------------------------ ------------------------------- ---------------------------
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost Balance Dividends Costs
------- --------- ----- ------- --------- --------- ------- --------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans . . . . . . . . . . $ 7,583 $1,403 18.50% $ 5,175 $ 632 12.21% $ -- $ -- --%
Consumer loans . . . . . . . . . . 13,101 1,517 11.58 12,094 1,678 13.87 7,818 1,027 13.14
Commercial business loans . . . . 17,940 1,487 8.29 13,945 1,432 10.27 11,119 1,249 11.23
------- ------ ----- ------- ----- ----- ------ ----- -----
Total loans . . . . . . . . . . $ 38,624 $4,407 11.41 $31,214 $3,742 11.99 $ 18,937 $ 2,276 12.02
Mortgage-backed securities . . . . 2,591 197 7.60 2,502 229 9.15 2,291 219 9.56
Securities . . . . . . . . . . . . 10,829 895 8.26 8,269 727 8.79 5,561 490 8.81
Daily interest-bearing deposits . 2,997 100 3.33 2,237 122 5.45 2,442 183 7.49
Other earning assets . . . . . . . -- -- -- -- -- -- 500 37 7.40
------- ----- ------ ------- ----- ----- ------ ----- -----
Total interest-earning assets . $ 55,041 $5,599 10.17 $44,222 $4,820 10.90 $ 29,731 $ 3,205 10.78
------- ----- ------ ------- ----- ----- ------ ----- -----
Non-interest earning assets:
Office properties and
equipment, net . . . . . . . . . $ 1,442 $ 1,240 $ 1,187
Other non-interest-earning
assets . . . . . . . . . . . . . 2,973 2,038 1,162
------- ------- -------
Total assets . . . . . . . . . . $59,456 $47,500 $32,080
======= ======= =======
Interest-earning liabilities:
Passbook accounts . . . . . . . . $ 7,757 $355 4.58% $ 4,375 $ 285 6.51% $ 2,875 $ 196 6.82%
NOW accounts . . . . . . . . . . . 4,637 171 3.69 2,684 145 5.40 1,758 90 5.12
Money market accounts . . . . . . 4,344 165 3.80 1,740 95 5.46 790 42 5.32
Certificates of deposit . . . . . 30,333 1,454 4.79 28,457 2,022 7.11 18,311 1,457 7.96
------ ----- ---- ------ ----- ---- ------ ----- ----
Total interest-bearing
liabilities . . . . . . . . . . $47,071 $2,145 4.56% $37,256 $2,547 6.84% $23,734 $1,785 7.52%
======= ====== ===== ======= ====== ===== ======= ====== =====
</TABLE>
(table continued on following page)
118
<PAGE> 128
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------------
1992 1991 1990
---------------------------- ------------------------------- ---------------------------
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost
------- --------- ----- ------- --------- --------- ------- --------- ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest-bearing
liabilities:
Non-interest-bearing deposits . . $ 5,140 $ 3,491 $ 2,588
Other liabilities . . . . . . . . 577 966 396
-------- --------- ---------
Total liabilities . . . . . . . 52,788 41,713 26,719
Stockholders' equity . . . . . . . 6,668 5,787 5,361
-------- --------- ---------
Total liabilities and
retained earnings . . . . . . . $ 59,456 $47,500 $32,080
======== ======= =======
Net interest income . . . . . . . . $3,454 $2,273 $1,420
====== ====== ======
Interest rate spread . . . . . . . 5.61% 4.06% 3.26%
Net interest margin . . . . . . . . 6.28% 5.14% 4.77%
Ratio of average interest-
earning assets to average
interest-bearing
liabilities . . . . . . . . . . . 116.93% 118.70% 125.27%
</TABLE>
The following table sets forth (on a consolidated basis) for the
periods and at the dates indicated, the weighted average yields earned on
Peoples Bank's assets, the weighted average interest rates paid on Peoples
Bank's liabilities, together with the net yield on interest-earning assets.
<TABLE>
<CAPTION>
For the Year Ended December 31,
-----------------------------------------
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Weighted average yield on loan
portfolio . . . . . . . . . . . . . . . . . . . . . . . . 11.41% 11.99% 12.02%
Weighted average yield on mortgage-
backed securities . . . . . . . . . . . . . . . . . . . . 7.60 9.15 9.56
Weighted average yield on securities
portfolio . . . . . . . . . . . . . . . . . . . . . . . . 8.26 8.79 8.81
Weighted average yield on
all interest-earning assets . . . . . . . . . . . . . . 10.17 10.90 10.78
Weighted average rate paid on
deposits . . . . . . . . . . . . . . . . . . . . . . . . 4.56 6.84 7.52
Interest rate spread (spread between
weighted average rate on all interest-
earning assets and all interest-
bearing liabilities) . . . . . . . . . . . . . . . . . . 5.61 4.06 3.26
Net interest margin (net interest income
as a percentage of average
interest-earning assets) . . . . . . . . . . . . . . . . 6.28 5.14 4.77
</TABLE>
119
<PAGE> 129
The following table sets forth the effects of changing rates
and volumes on net interest income of Peoples Bank. Information is provided
with respect to (i) effects on interest income attributable to changes in
volume (changes in volume multiplied by prior rate); (ii) effects on interest
income attributable to changes in rate (changes in rate multiplied by prior
volume); and (iii) changes in rate/volume (change in rate multiplied by change
in volume).
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------------------
1992 Compared to 1991 1991 Compared to 1990 1990 Compared to 1989
Increase (Decrease) Increase (Decrease) Increase (Decrease)
Due to Due to Due to
---------------------------- ---------------------------- ----------------------------
Rate/ Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net Rate Volume Volume Net
---- ------ ------ --- ---- ------ ------ --- ---- ------ ------ ---
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Mortgage loans(1) . . . . . . $326 $294 $151 $771 $ -- $ -- $ 632 $632 $ -- $ -- $ -- $ --
Consumer loans(1) . . . . . . (278) 140 (23) (161) 58 562 31 651 8 406 5 419
Commercial business loans(1) . (276) 410 (79) 55 (107) 317 (27) 183 (25) 743 (33) 685
---- ----- ----- ---- ---- ----- ----- ---- ---- ------ ----- ----
Total loans(1) . . . . . . . (228) 844 49 665 (49) 879 636 1,466 (17) 1,149 (28) 1,104
Mortgage-backed securities . . (39) 8 (1) (32) (9) 20 (1) 10 -- 144 -- 144
Investment Securities . . . . (44) 225 (13) 168 (1) 239 (1) 237 (4) 118 (2) 112
Daily interest-bearing deposits (47) 41 (16) (22) (50) (15) 4 (61) (12) (42) 2 (52)
Other earning assets . . . . . -- -- -- -- (37) (37) 37 (37) 7 7 2 16
---- ----- ----- ---- ---- ----- ----- ---- ---- ------ ----- ----
Total net change in income
on interest-earning assets . . (358) 1,118 19 779 (146) 1,086 675 1,615 (26) 1,376 (26) 1,324
Interest-bearing liabilities:
NOW . . . . . . . . . . . . . (46) 106 (33) 27 5 47 3 55 (16) (5) 1 (20)
MMDA . . . . . . . . . . . . . (29) 142 (43) 70 1 51 1 53 (1) (7) -- (8)
Savings/Christmas . . . . . . (85) 220 (66) 69 (9) 102 (4) 89 1 84 1 86
Time deposits . . . . . . . . (658) 133 (43) (568) (156) 807 (86) 565 (31) 871 (42) 798
---- ----- ----- ---- ---- ----- ----- ---- ---- ------ ----- ----
Total net change in expense
on interest-bearing
liabilities . . . . . . . . . (818) 601 (185) (402) (159) 1,007 (86) 762 (47) 943 (40) 856
Net change in net interest
income . . . . . . . . . . . . 460 517 204 1,181 13 79 761 853 21 433 14 468
</TABLE>
_______________
(1) Does not include interest on nonaccrual loans.
120
<PAGE> 130
FINANCIAL CONDITION
At December 31, 1992, Peoples Financial's assets totaled $64.2 million,
an increase of $6.4 million, or 11.2%, from December, 1991 asset levels of
$57.8 million. The net increase in asset levels was due primarily to the
addition of the Crossville branch as well as to growth due to normal operations.
In the area of cash and cash equivalents, federal funds sold decreased
$875,000. This was partially due to the utilization of idle funds to assist
in funding an increase in investment securities as well as increase in the
loan portfolio.
From December 31, 1991 to December 31, 1992, securities increased
$4.2 million, with an increase in U.S. Government securities of $2.7 million
and an increase in mortgage backed securities in the amount of $1.5 million.
The increase in securities occurred due to management's effort to increase
yield over federal funds yield while investing in short- term, high quality
securities. The securities purchased generally have maturities or repricing
opportunities of five years or less. At December 31, 1992, Peoples Bank did
not have securities classified as held for sale. Management feels that it can
structure a portfolio that it can adequately manage by acquiring certain types
of securities that could be used to help meet liquidity needs and assist in
asset and liability restructuring as well as interest rate risk.
An increase in net loans receivable of $4.1 million to $41.6 million at
December 31, 1992 compared to $37.5 million at December 31, 1991 was due
primarily to continued growth in commercial loans, which increased $5.3 million
and continued growth in consumer loans of $1.2 million. However, these
increases were offset by substantial accelerated repayments of mortgage loans
due to a lower interest rate environment which contributed to a decrease of
$2.8 million from December 31, 1991 to December 31, 1992 in total mortgage
loans. Peoples Bank has taken the position from inception that its main
emphasis was primarily in the consumer and commercial lending area. Longer
term mortgage loans are generally originated through a correspondent
relationship; therefore, these loans are not funded with Peoples Bank's
funds, nor do these loans show up on Peoples Bank's records. The mortgage
loans in Peoples Bank's portfolio primarily resulted from the acquisition
of such assets in 1991.
Peoples Bank's allowance for loan losses increased by $120,007 to
$573,128 at December 31, 1992 compared to $453,121 at December 31, 1991. The
increase was primarily due to provision for losses and possible losses arising
from normal loan growth. Peoples Bank elected to continue to increase its
allowance to cover the inherent risk involved with a larger loan portfolio.
Net charge-offs for Peoples Bank increased slightly from $102,879 in 1991 to
$119,993 in 1992.
Asset quality, as measured by the level of nonperforming assets
(delinquent loans greater than 90 days and non-accrual loans) improved during
the year ended December 31, 1992. Specifically, nonperforming assets decreased
from $162,000, or .28% of total assets, at December 31, 1991 to $120,000, or
.19% of total assets, at December 31, 1992.
The decrease in the amount due from the RTC of $2.5 million at December
31, 1992 compared to December 31, 1991 reflects the receipt of the amount
receivable from the RTC due in conjunction with Peoples Financial's acquisition
of certain assets and assumption of certain liabilities of Tennessee Federal.
The receivable represented the amount due from the RTC for liabilities assumed
greater than the value of the assets acquired and other miscellaneous amounts
due from the RTC.
As of December 31, 1992, Peoples Bank experienced an increase in
deposits of $5.3 million or 10.3% for a total of $56.4 million compared to a
total of $51.1 million as of December 31, 1991. The primary increase in these
deposits was due to the Crossville branch expansion. The Crossville branch had
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a total deposit base at December 31, 1992 of $2.4 million. Additionally,
customers have shifted from longer-term, less liquid deposits to shorter term,
more liquid deposits as represented by a decrease in certificates of deposit of
$2.7 million, an increase in non-interest bearing demand deposits of $4.0
million, an increase in regular savings of $2.4 million and an increase in NOW
accounts and money market accounts in the amount of $1.6 million. This was
primarily attributable to an interest rate environment in which rates paid to
customers have been less attractive compared to other financial instruments and
investment alternatives as well as depositors being more reluctant to invest
for an extended period of time.
Peoples Financial's stockholders' equity increased by $1.1 million at
December 31, 1992 for a total of $7.2 million, as compared to a total of $6.1
million at December 31, 1991, which represents net earnings for the twelve
month period ended December 31, 1992. Peoples Bank's regulatory capital
exceeds all current and fully phased-in requirements. On February 1, 1993, the
holding company sold an additional 31,225 shares of its stock.
ACQUISITIONS
CITIZENS FEDERAL SAVINGS BANK. On February 1, 1993, Peoples Financial
acquired Citizens Federal, which is located in Rockwood, Tennessee and has a
branch in Kingston, Tennessee. Peoples Financial issued 31,225 shares of its
common stock with proceeds being used to acquire Citizens Federal and to
convert Citzens Federal from a mutual to a stock thrift institution which was
necessary to comply with a supervisory agreement then in effect issued by the
OTS requiring an increase in Citizens Federal's capital base.
In connection with the acquisition, Peoples Financial and Citizens
Federal adopted a Plan of Conversion/Acquisition whereby Citizens Federal was
converted from a federally chartered mutual institution to a federally
chartered stock institution. This business combination was accounted for
as a pooling-of-interests combination in 1993. As a result of the stock
offering, gross proceeds of approximately $1,405,125 were generated. All
conversion costs were netted against the proceeds of the stock offering
infusing a total of approximately $896,000 of net proceeds to Citizens Federal
to assist in building the capital base.
Peoples Financial sought the acquisition of Citizens Federal because
the acquisition would allow Peoples Bank to better compete with its competitors
in secondary market residential lending through a close business relationship
with Citizens Federal. Citizens Federal's primary emphasis had been in
residential lending, giving Peoples Financial the benefit of the expertise of
Citizens Federal. Peoples Financial also gained a presence in the
Rockwood and Kingston market areas as a result of this acquisition.
On December 31, 1992, Citizens Federal had total assets of $47.9
million. This represented an increase of $2.4 million, or 5.14%, from December
31, 1991 asset levels of $45.4 million. The primary increase in total assets
was due to the receipt of the funds held in escrow deposits for the acquisition
of the stock sold to complete the conversion of Citizens Federal to a stock
institution from a mutual thrift as well as to consummate the acquisition of
Citizens Federal by Peoples Financial. The total of funds held at year-end for
the stock sale was $1.7 million. In the area of cash and cash equivalents,
interest bearing deposits increased by $2.0 million to a total of $3.0 million
on December 31, 1992 from its December 31, 1991 balance of $1.0 million. This
increase was primarily the result of the stock escrow funds being invested in
federal funds sold.
From December 31, 1991 to December 31, 1992, investment securities
increased by $4.8 million, or 78.6%, to a total of $11.0 million from a total
of $6.1 million. The increase came from purchases of U.S. Government and
agency obligations. Citizens Federal was not carrying any of its investment
portfolio in held for sale at December 31, 1992, but elected to acquire
certain securities throughout 1993 that
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were to be held in this category.
A decrease of $2.4 million, or 27.7%, in mortgage-backed securities at
December 31, 1992, represented a total of $6.4 million compared to a total of
$8.8 million in 1991. The decrease came from principal reductions through
accelerated repayments due to refinances primarily created by the lower
interest rate environment.
Net loans increased by approximately $695,000, or 2.9%, for a December
31, 1992 balance of $24.4 million compared to a balance of $23.7 million on
December 31, 1991, due primarily to Citizens Federal being competitive in its
market area in attracting new mortgage loans.
Residential loans accounted for on a non-accrual basis increased to
$153,000 as of December 31, 1992 from $123,000 as of December 31, 1991.
Consumer loans accounted for on a nonaccrual basis increased to $42,000 on
December 31, 1992 from $20,000 as of December 31, 1991. This represents a
percentage of nonaccrual loans to total loans of .80% as of December 31, 1992,
as compared to .60% as of December 31, 1991. Total nonperforming assets to
total assets at December 31, 1992 totalled 2.27% compared to a percentage of
2.41% as of December 31, 1991.
Deposits increased by $4.0 million, or 9.6%, for a total of $45.7
million on December 31, 1992 compared to a total of $41.7 million on December
31, 1991. This was primarily due to normal operating growth as well as the
addition of the stock escrow account of $1.7 million.
Citizens Federal had net income in the amount of $117,332 for the year
ended December 31, 1992 compared to $37,121 for the year ended December 31,
1991. Net income increased total retained earnings to $1.9 million on December
31, 1992, from $1.8 million on December 31, 1991.
Total interest income decreased from $4.2 million in 1991 to $3.7
million in 1992. This was primarily due to a reduction in the yield on
mortgage-backed securities and loan receivables, as well as a reduction in the
average balance of mortgage-backed securities.
Total interest expense decreased from $3.0 million to $2.3 million from
1991 to 1992. This was primarily from a reduction in yields paid to depositors
through a lower interest rate environment. Many depositors shifted their
investments from longer term time deposits to lower yielding and shorter term
investments.
Citizens Federal reduced the provision for loan losses from $158,509 in
1991 to $23,436 in 1992. This provision accompanied with net charge-offs of
$57,187 from 1992 resulted in an ending balance for loan loss allowance of
$348,725. Citizens made a greater provision in 1991 to its loan loss allowance
due to the deterioration of certain assets, primarily in loan participations.
Citizens Federal is required under Federal regulations to maintain a
minimum amount of liquid assets and is also permitted to make certain other
securities investments. The balance of Citizens Federal's investment in
short-term securities in excess of regulatory requirements reflects
management's response to the state of the thrift industry. At December 31,
1992, Citizens Federal's regulatory liquidity was 25.07%, which was well in
excess of the required 5.0%. The principle sources of funds to Citizens
Federal are cash flows from operations, consisting mainly of mortgage and
consumer loan payments, retail customer deposits and loan sales.
Citizens Federal had total tangible and core capital as of December 31,
1992 of $1.9 million, or 3.99% of total assets. This was in excess of minimum
required core capital of $1.4 million as well as the minimum required tangible
capital of $720,000.
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Citizens Federal was subject to a tangible capital requirement of five
percent of assets, or $2,396,843, as of December 31, 1992 pursuant to a
supervisory agreement with the OTS entered into on September 13, 1991.
Citizens Federal's tangible capital of $1,911,141 was under the required
amount by $485,702 at December 31, 1992. On February 1, 1993, in conjunction
with the acquisition and conversion, Citizens Federal received additional
capital sufficient to meet the five percent requirement. The OTS released the
supervisory agreement on November 17, 1993, and its terms and conditions are
therefore no longer in effect.
TENNESSEE FEDERAL SAVINGS BANK. In May 1991, Peoples Financial
acquired certain assets and certain liabilities of the former Tennessee Federal
Savings Bank, Bartlett, Tennessee ("Tennessee Federal") which was taken over by
the Resolution Trust Corporation ("RTC") in September 1990. The liabilities
assumed from the RTC totaled approximately $18.8 million, consisting of
deposits and accrued interest payable. The fair value of the assets acquired
amounted to $15.9 million plus a receivable due from the RTC of $2.9 million.
This receivable represented Peoples Financial's net shortfall in the fair value
of assets acquired compared to liabilities assumed. The receivable was paid in
full by the RTC by February 1992, and there was no goodwill resulting from the
transaction due to the payment of the net shortfall by the RTC.
The acquisition of the Tennessee Federal assets and liabilities was
accounted for using the purchase method of accounting whereby assets acquired
and liabilities assumed were recorded at their estimated fair market value as
of the acquisition date. Peoples Bank recorded a discount on loans in
connection with this acquisition of $2.0 million. This discount on loans
represented the excess of the unpaid principal balances of the loans acquired
over their fair values at the date of acquisition. Fair value was determined
by the RTC and Peoples Financial by comparing the contractual interest rates,
lives and types of loans acquired to the estimated market interest rates, terms
of similar loans, and age and location of the loans, among other things, using
estimated prepayments at the date of acquisition. The loan discounts are being
accreted into income over the remaining contractual lives of the loans,
adjusted for estimated prepayments using the interest method.
The following table sets forth, for the periods indicated, the effects
of the purchase accounting adjustments from the acquisition of certain assets
and liabilities of Tennessee Federal. Amounts shown through December 31, 1992
are based on actual results; amounts beginning January 1, 1993 were projected.
<TABLE>
<CAPTION>
Accretion Increase
of Discount (Decrease) in
on Loans Pre-Tax Earnings
---------- ----------------
<S> <C> <C>
Year Ending December 31, 1991
(actual) . . . . . . . . . . . . . . . . . . . . . . . $174 $174
Year Ending December 31, 1992
(actual) . . . . . . . . . . . . . . . . . . . . . . . 476 476
Years Ending December 31,
1993 (projected) . . . . . . 372 372
1994 (projected) . . . . . . 273 273
1995 (projected) . . . . . . 200 200
1996 - 2000 (projected) . . . 460 460
2001 - 2009 (projected) . . . 100 100
------ ------
Total . . . . . . . . . . . . $2,055 $2,055
====== ======
</TABLE>
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COMPARISON OF YEAR ENDED DECEMBER 31, 1992
TO YEAR ENDED DECEMBER 31, 1991
GENERAL. Peoples Financial's net earnings for the year ended December
31, 1992 were $1.1 million compared to $540,228 for the same period in 1991.
The substantial increase is generally attributable to the increase in spread
between interest income and interest expense paid on deposits, which was also
affected by the loan discount accretion. Market rates of interest declined and
the spreads increased between the rates paid on deposits and the interest rates
received on interest earning assets. An analysis of the specific factors
contributing to the increase follows.
NET INTEREST INCOME. The increase of $1.2 million, or 52.0%, in net
interest income was primarily the result of a declining interest rate
environment and the resulting increase in the weighted average interest rate
spread and an increase in the average balances of loan receivables. Also, the
recognition of loan discount accretion due to accelerated mortgage loan
repayments was primarily attributed to refinances which was caused by the lower
interest rate environment. Total interest income increased $779,000 over the
year ended 1991 to $5.6 million for the year ended December 31, 1992, due
primarily to an increase in the average balance of loans of $7.4 million, or
23.7%, to a total of $38.6 million. This was offset slightly by a decrease in
loan yield of .58% to 11.41%. The yield of the loan portfolio was affected by
accretion of discount on loans purchased, which amounted to $476,000 for the
year ended 1992. This accretion represented 123 basis points of the yield on
average loans.
Interest income on securities increased to $1.1 million for the year
ended December 31, 1992 from $955,666 for the year ended December 31, 1991, or
14.3%, due primarily to an increase in the average balance of securities of
$2.6 million, or 24.6%, to a total average of $13.4 million. This was offset
slightly by a decrease in securities yield of .74% to a total of 8.14% due to
the lower interest rate environment.
Interest expense on deposits decreased by $401,865, or 15.8%, in 1992
due primarily to a significant decrease in the yield paid on deposits of 2.28%
to a total average yield of 4.56%. This was offset by an increase in average
balance of $9.8 million, or 26.3%, to a total average balance of $47.0 million.
The allowance for loan losses of December 31, 1992 was $573,128. Net
charge-offs were $119,993 in 1992 compared to $102,879 in 1991. The provision
charged to income in 1992 was $240,000 for a decrease of $71,000 over 1991.
The allowance for loan losses as a percentage of total loans outstanding
increased
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from 1.13% on December 31, 1991 to 1.30% on December 31, 1992. The allowance
for loan losses increased due primarily to management's intent to increase the
allowance for loan losses as the loan portfolio experienced significant growth.
Provision for loan losses are charged to earnings to bring the total allowance
to a level considered adequate by management to provide for potential loan
losses.
The provision and allowance for loan losses is based upon management's
consideration of current and anticipated economic conditions which may affect
the ability of the borrowers in the loan portfolio to repay the loans and on
the prior loss experience, volume and type of lending conducted by Peoples
Bank, industry standards and past due loans in Peoples Bank's portfolio.
Management also reviews individual loans for which collectibility may not be
reasonably assured and considers among other matters, the net realizable value
of the underlying collateral.
OTHER OPERATING INCOME. The increase in other operating income of
$19,080, or 4.41% in 1992 as compared to the year ended 1991 primarily
consisted of an increase in service charges on deposit accounts from $288,670
in 1991 to $324,370 in 1992. Service charges increased due to an increase in
the volume of transaction accounts due primarily from the increase in accounts
generated from the Crossville expansion and through normal operating growth of
the Bank. Other loan fees increased by $6,757 in 1992 for a total of $40,442 as
to a total of $33,685 in 1991. This was primarily due to an increase in late
charges collected on loan receivables. Other miscellaneous operating income
decreased from $92,784 in 1991 to $58,347 in 1992. A decrease in commissions
on credit life of $15,164 represented the significant decrease in other
operating income.
The increase in other operating expenses of $352,591, or 23.2%, in 1992
primarily consisted of an increase in compensation and benefits, federal
deposit insurance premiums and data processing service fees. Compensation and
benefits increased by $189,019, or 28.8% to a total of $844,201. The number of
full time equivalent employees increased from 30 in 1991 to 39 in 1992 due
primarily to the addition of the staff in the Crossville branch. Federal
deposit insurance premiums increased by $43,315, or 51.9% to a total of
$126,746 due to a growth in the deposit base of Peoples Bank. Data processing
service fees increased a total of $9,150 or 6.14% to a total of $157,978.
Peoples Bank is charged data processing fees by transaction volume; therefore
continued growth increases fees assessed by the outside service center.
Stationery and supplies increased by $25,045, or 28.1% for a total of $114,293
in 1992 as compared to 1991 due primarily to the Crossville expansion. Other
operating expenses increased by $52,801, or 16.2% for a total of $378,578 in
1992 as compared to a total of $325,777 in 1991 due primarily to the Crossville
expan-
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sion. The primary increase in other operating expenses was attributed to an
increase in advertising expenses as well as an increase in postage and freight.
Advertising increased by $13,141 or 47.9% for a total of $40,551 in 1992 as
compared to a total of $27,410 in 1991. Postage and freight increased by
$16,516, or 33.4% for a total of $66,015 in 1992 compared to a total of $49,499
in 1991 due primarily to the Crossville expansion. Income taxes increased from
$336,685 in 1991 to $684,992 in 1992 due to the significant increase in taxable
income.
COMPARISON OF YEAR ENDED DECEMBER 31, 1991
TO YEAR ENDED DECEMBER 31, 1990
GENERAL. Peoples Financial's net earnings for the year ended December
31, 1991 were $540,000 compared with $388,000 for the same period in 1990. The
substantial increase was generally attributable to the growth in Peoples Bank
between the two periods. Market rates of interest declined and the spreads
increased between the rates paid on deposits and the interest rates received on
interest-earning assets. An analysis of the specific factors contributing to
the increase follows.
NET INTEREST INCOME. The increase of $854,000, or 60.15%, in net
interest income was primarily the result of a declining interest rate
environment and the resulting increase in the weighted average interest rate
spread and an increase in the average balances. Total interest income
increased $1.6 million over the year ended 1990 to $4.8 million for the year
ended December 31, 1991, due to the significant increase in loans from the
acquisition of selected loans from Tennessee Federal. Interest and fees on
loans increased by $1.5 million, or 64.4%, in 1991 to a total of $3.7 million.
Average loans for 1991 increased $12.3 million, or 64.83%, over 1990 levels.
Yields earned on loans fell only three basis points from 1990 to 1991. The
yield on the loan portfolio was also affected by accretion of discount on loans
purchased, which amounted to $174,000 for the year ended 1991. This accretion
represented 56 basis points of the yield on total loans of 11.99% for the year
ended 1991.
Interest income on securities increased to $956,000 for the year ended
December 31, 1991 from $709,000 for the year ended December 31, 1990, or 34.8%,
due to an increase in the average balance on securities, offset slightly by a
decrease of two basis points in rates earned on these securities between the
two periods.
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<PAGE> 137
Interest expense on deposits increased by $762,000, or 42.7%, in 1991
due primarily to an increase in the average interest-bearing deposits balance
of $13.5 million, or 56.9%. However, average rates paid decreased from 7.52%
in 1990 to 6.84% in 1991 due to the declining interest rate environment.
PROVISION AND ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses
on December 31, 1991 was $453,000. Net charge-offs were $103,000 in 1991 as
compared to $36,000 in 1990. The provision charged to income in 1991 was
$311,000 for an increase of $188,000 over 1990. The allowance for loan losses
as a percentage of total loans outstanding increased from 1.04% in 1990 to
1.13% in 1991. The loan loss provision increased due primarily to management's
intent to increase the allowance for loan losses as the loan portfolio
experienced significant growth. Provisions for loan losses are charged to
earnings to bring the total allowance to a level considered adequate by
management to provide for potential loan losses.
The provision and allowance for loan losses is based upon management's
consideration of current and anticipated economic conditions which may affect
the ability of the borrowers in the loan portfolio to repay the loans and on
the prior loss experience, volume and type of lending conducted by Peoples
Bank, industry standards and past due loans in Peoples Bank's portfolio.
Management also reviews individual loans for which collectibility may not be
reasonably assured and considers, among other matters, the net realizable value
of the underlying collateral.
OTHER OPERATING INCOME. The increase in other operating income of
$131,000, or 43.4%, in 1991 as compared to the year ended 1990 primarily
consisted of an increase in service charges on deposit accounts from $214,000
in 1990 to $289,000 in 1991. Service charges increased due to a significant
increase in the volume of transaction accounts. Other operating income also
increased from $65,000 in 1990 to $93,000 in 1991, due to a $9,000 increase in
credit life insurance commissions and a $16,000 increase in miscellaneous
income. Also, other loan fees increased $14,000 as loan originations increased
over the prior year.
OTHER OPERATING EXPENSES. The increase in other operating expenses of
$546,000, or 56.2%, in 1991 primarily consisted of an increase in compensation
and benefits, Federal deposit insurance premiums and data processing service
fees. Compensation and benefits increased by $211,000, or 47.6%, to a total of
$655,182. The number of full-time equivalent employees increased from 20 in
1990 to 30 in 1991 due to overall growth of Peoples Bank. Federal deposit
insurance premiums
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<PAGE> 138
increased by $53,000, or 175.1% to a total of $83,000 due to growth in the
deposit base and to increased assessment rates by the FDIC. Data processing
service fees increased by $49,000, or 49.3%, to a total of $148,829. Peoples
Bank is charged data processing fees by transaction volume; therefore,
continued growth increases fees assessed by the outside service center. Other
operating expenses increased $175,000, or 116.1%, due to increased growth of
the Bank. Postage and freight increased $23,000, or 86.3%, telephone expense
increased $16,000, or 99.5%, and dues increased $15,000, or 117.2%, all due to
the Bank's significant growth in volume. The remaining increase was due to an
increase in professional fees and normal inflationary factors.
INCOME TAXES. Income taxes increased $99,000 in 1991, from $238,000 in
1990 to a total of $337,000 in 1991. Income tax expense represented 38.4% of
pre-tax earnings for 1991 compared with 38.0% of pre-tax earnings for 1990.
This increase in the effective tax rate was primarily due to the difference
between the provision for loan losses for financial statement purposes and the
bad debt deduction allowed for income tax purposes in computing taxable income.
LIQUIDITY AND CAPITAL RESOURCES. Peoples Bank's liquidity, as measured
by the ratio of cash, cash equivalents (not committed, pledged or required to
liquidate specific liabilities) and securities, to the sum of total deposits
was 35.8% at December 31, 1992. Repayments on mortgage-backed securities,
maturities of securities and payments on loans receivable are important sources
of liquidity for Peoples Bank and may be used to fund deposit withdrawals or to
meet increased loan demand. This will also enable the Bank to meet its
unfunded loan commitments in the amount of $4.2 million at December 31, 1992 as
compared to $3.7 million at December 31, 1991.
Of primary importance to depositors, creditors, and regulators is the
ability to have readily available funds sufficient to repay fully maturing
liabilities. Peoples Bank's liquidity, represented by cash and cash
equivalents, is a result of its operating, investing and financing activities.
Peoples Bank devotes resources to projecting on a monthly basis the amount of
funds which will be required and maintains relationships with a diversified
customer base so funds are accessible. The principal sources of funds to
Peoples Bank are cash flows from operations, investing and financing
activities, consisting mainly of commercial, mortgage and consumer loan
payments, repayments of mortgage-backed securities and retail customer
deposits. Liquidity requirements also can be met through short-term borrowings
or the disposition of short-term assets, which are generally matched to
correspond to the maturity of liabilities.
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The principal use of cash flows is the origination of loans receivable
and purchases of securities. Peoples Bank originated loans of $19.7 million,
$29.1 million and $33.2 million for the years ended December 31, 1990, 1991 and
1992, respectively. Such loan originations were financed partially through
loan principal repayments, which amounted to $11.6 million, $25.4 million and
$29.4 million for the years ended December 31, 1990, 1991 and 1992,
respectively.
Peoples Bank has recognized an increase in its deposit base since its
inception in 1988. Peoples Bank increased its deposit base from $31.0 million
to $51.0 million and then to $56.4 million for the years ended December 31,
1990, 1991 and 1992, respectively. This was primarily created by normal
operating growth, the Crossville expansion and the acquisition of certain
deposits from Tennessee Federal.
At December 31, 1992, Peoples Bank had $28.6 million of certificates of
deposit which were due to mature within one year. Based upon previous
experience, Peoples Bank believes that a major portion of these certificates
will be redeposited. In the opinion of management, Peoples Bank's liquidity
levels are adequate. Peoples Bank is not subject to any specific regulation
regarding liquidity requirements. Management does not know of any other trends
or demands which are reasonably likely to result in liquidity increasing or
decreasing in any material manner.
Peoples Financial's primary capital was $7.2 million at December 31,
1992, compared to $6.6 million at year end 1991 and $5.8 million at year end
1990. Peoples Financial's primary capital ratio was 12.15% at December 31,
1992 compared to 11.37% at year end 1991. The current guidelines of the
Federal Reserve Board established for bank holding companies require a minimum
ratio of primary capital to total adjusted assets of 8.00%. Primary capital for
Peoples Financial, as defined, includes total stockholders' equity and the
allowance for loan losses.
Peoples Financial measures how effectively it utilizes capital by two
widely used performance ratios: return on average assets and return on average
stockholders' equity. The return on average assets was 1.87% and 1.14% for the
year ended December 31, 1992 and year ended December 31, 1991, respectively.
Average stockholders' equity returned was 16.66% and 9.33% for the years ended
December 31, 1992 and 1991, respectively.
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At December 31, 1992, Peoples Financial's core capital was $7.2 million
and total qualifying capital was $7.8 million. The core and total qualifying
capital amounts substantially exceed the minimum and fully phased-in capital
requirements. Peoples Financial complied with all applicable regulatory
capital requirements as of December 31, 1992.
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A summary of regulatory capital for Peoples Financial as of December
31, 1992 is shown below based on the capital guidelines in effect at December
31, 1992.
<TABLE>
<CAPTION>
1992
Actual
--------------------------
Amount Ratio
------ -----
(Dollars in thousands)
<S> <C> <C>
Tier 1 Capital. . . . . . . . . . . . . . . . $7,223 11.24%
Tier 1 Capital minimum
requirement . . . . . . . . . . . . . . . . 2,571 4.00
------- -------
Excess . . . . . . . . . . . . . . . . . . . $4,652 7.24%
====== =======
Total Primary Capital . . . . . . . . . . . . $7,796 12.13%
Total Primary Capital
minimum requirement . . . . . . . . . . . . 5,142 8.00%
------- ------
Excess . . . . . . . . . . . . . . . . . . . $2,654 4.13%
======= =======
</TABLE>
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data
presented herein have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars, without considering the
changes in relative purchasing power of money over time due to inflation. The
primary impact of inflation on the operations of Peoples Bank is reflected in
increased operating costs. Unlike most industrial companies, virtually all the
assets and liabilities of a financial institution are monetary in nature. As a
result, interest rates generally have a more significant impact on a financial
institution's performance than do general levels of inflation. Interest rates
do not necessarily move in the same direction or to the same extent as the
prices of goods and services.
IMPACT OF NEW ACCOUNTING STANDARDS AND REGULATORY POLICIES
Accounting for Post Retirement Health Care Benefits. Statement of
Financial Accounting Standard ("SFAS") No. 106, "Employer's Accounting for Post
Retirement Benefits Other Than Pensions" establishes accounting standards for
employer's accounting for post retirement benefits other than pensions.
Peoples Bank has no post retirement benefits, and accordingly, Peoples Bank
believes there will be no effect on the financial condition or results of
operations of Peoples Financial from the issuance of this statement.
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Disclosure about Fair Value of Financial Instruments. SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments," requires financial
instruments, whether recognized or not recognized on the balance sheet, to be
disclosed at their fair value at which the instruments could be traded between
willing parties. These disclosures will begin for the years ending after
December 15, 1995 for Peoples Financial. As Peoples Bank's business deals
primarily in various types of financial instruments, some of which are not
readily marketable, these disclosures could reveal either significant or
insignificant differences between the historical costs disclosed by
institutions on the face of the balance sheet and the estimated fair values of
those assets or liabilities. The marketable financial instruments, such as
most of the investment security portfolio, can be valued at their fair market
value as of balance sheet dates. The fair value of the non-readily marketable
financial instruments, such as loans, some investment securities, customer
deposits and certain types of debt, must be estimated based on current interest
rates, the quality of those instruments, and general economic conditions within
an industry, group of industries, or consumers. Those instruments will be
grouped based on risk factors and then a calculation performed based on the
present value of the anticipated cash flows. The discount rate will be based
on the perceived quality of the instrument and the current interest rates
charged customers on loans or paid to depositors. These disclosures will
depend to a great extent on arbitrary assumptions and may not be comparable
from institution to institution. In addition, changes in anticipated cash flow
estimates, interest rates, or economic conditions from the balance sheet date
to the report date could impact these disclosures. Management expects to
comply with SFAS No. 107 by the year ending December 31, 1995.
Accounting for Income Taxes. In February 1992, the Financial
Accounting Standards Board ("FASB") issued SFAS No. 109, "Accounting for Income
Taxes." SFAS No. 109 supersedes almost all existing authoritative
pronouncements relating to income tax accounting. SFAS No. 109 is effective
for fiscal years beginning after December 15, 1992 and accordingly will be
adopted in the first quarter of 1993 through a cumulative effect of change in
accounting principle. Under SFAS No. 109, the measurement of deferred tax
assets and liabilities will be simplified and deferred tax assets will be
recognized based on the likelihood of realization of a tax benefit in future
years. The expected effect of adoption of SFAS No. 109 is included in Note 1
to Peoples Financial's Notes to Consolidated Financial Statements.
Employers' Accounting for Postemployment Benefits. During November
1992, SFAS No. 112 was issued and requires employers to recognize a liability
for postemployment benefits under certain circumstances. The statement is
effective for fiscal years beginning after December 15, 1993. At this time,
Peoples Financial
133
<PAGE> 143
has not yet determined the effect, if any, of the adoption of this statement.
Accounting for Certain Investments in Debt and Equity Securities. On
September 9, 1992, the FASB issued an exposure draft of a statement on
accounting for certain investments in debt and equity securities. The proposal
would expand the required use of fair value accounting for investments in debt
and equity securities, and allow debt securities to be classified as "held to
maturity" and reported in financial statements at amortized cost only if the
reporting entity has the positive intent and ability to hold those securities
to maturity. This is in contrast to the current rule that allows the use of
amortized cost accounting where there is the intent and ability to hold
securities for the foreseeable future. Furthermore, the proposal makes clear
that securities, which might be sold in response to changes in market interest
rates, changes in the security's prepayment risk, increases in loan demand, or
other similar factors, cannot be classified as "held to maturity." Debt and
equity securities held for current resale would be classified as "trading
securities." Such securities would be reported at fair value, and unrealized
gains and loses on such securities would be included in earnings. Debt and
equity securities not classified as either "held to maturity" or "trading
securities" would be classified as "securities available for sale." Such
securities would be reported at fair value and unrealized gains and losses on
such securities would be excluded from earnings and reported as a net amount in
a separate component of stockholders' equity. The proposed statement would be
effective for fiscal years beginning after December 15, 1993.
134
<PAGE> 144
EXPERTS
The consolidated financial statements of Trans Financial and its
subsidiaries as of December 31, 1992 and 1991, and for each of the years in the
three-year period ended December 31, 1992, incorporated by reference herein and
elsewhere in the Registration Statement, have been incorporated by reference
herein and in the Registration Statement in reliance upon the report of KPMG
Peat Marwick, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
The consolidated financial statements of Peoples Financial and
subsidiary as of December 31, 1992 and 1991, and for each of the years in the
three-year period ended December 31, 1992, included herein and elsewhere in the
Registration Statement, have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Citizens Federal Savings Bank
and subsidiaries as of December 31, 1992 and 1991, and for each of the years in
the three-year period ended December 31, 1992, included herein and elsewhere in
the Registration Statement, have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick, independent
certified public accountants, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The report of KPMG Peat Marwick covering the December 31, 1992
consolidated financial statements of Citizens Federal Savings Bank and
subsidiaries contains an emphasis paragraph which states that Citizens Federal
entered into a supervisory agreement with the OTS in 1991. To comply with the
agreement's requirement to increase regulatory capital ratios, Citizens Federal
entered into an acquisition agreement under which Citizens Federal would
convert from mutual to stock form and be acquired by Peoples Financial, as
discussed in note 15 to the consolidated financial statements of Citizens
Federal. The conversion and acquisition was consummated on February 1, 1993,
and resulted in an increase of capital above the requirement set forth in the
supervisory agreement. Failure to comply with the remaining provisions of the
agreement could expose Citizens Federal to possible further regulatory
sanctions and enforcement actions.
The consolidated financial statements of KCB and its subsidiaries as
of December 31, 1992 and 1991 and for each of the years in the three-year
period ended December 31, 1992, incorporated by reference herein and elsewhere
in the Registration Statement, have been incorporated by reference herein and
in the Registration Statement in reliance upon the report of KPMG Peat Marwick,
135
<PAGE> 145
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of FGC as of December 31, 1992
and the year then ended, incorporated by reference herein and elsewhere in the
Registration Statement, have been incorporated by reference herein and in the
Registration Statement in reliance upon the report of Eskew and Gresham, PSC,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
LEGAL OPINION
The validity of the shares of Trans Financial Common Stock to be
issued to the shareholders of Peoples Financial pursuant to the Merger will be
passed upon by Wyatt, Tarrant & Combs, Louisville, Kentucky.
MANAGEMENT AND ADDITIONAL INFORMATION
Certain information relating to the directors and executive officers,
executive compensation, various benefit plans (including stock option plans),
voting securities and the principal holders thereof, certain relationships and
related transactions and other related matters as to Trans Financial is
incorporated by reference or set forth in Trans Financial's Annual Report on
Form 10-K for the year ended December 31, 1992 which is incorporated herein by
reference. Shareholders of Peoples Financial desiring copies of such documents
may contact Trans Financial at its address or phone number indicated under
"INCORPORATION OF CERTAIN INFORMATION BY REFERENCE."
136
<PAGE> 146
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Financial Statements
December 31, 1992 and 1991
(With Independent Auditors' Report Thereon)
F-1
<PAGE> 147
Independent Auditors' Report
The Board of Directors
Peoples Financial Services, Inc.:
We have audited the accompanying consolidated balance sheets of Peoples
Financial Services, Inc. and subsidiary as of December 31, 1992 and 1991, and
the related consolidated statements of earnings, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1992.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 1991, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1992, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick
Nashville, Tennessee
February 4, 1993
F-2
<PAGE> 148
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Balance Sheets
December 31, 1992 and 1991
<TABLE>
<CAPTION>
ASSETS 1992 1991
------ ---- ----
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 4,783,758 2,328,953
Federal funds sold 1,350,000 2,225,000
----------- -----------
Total cash and cash equivalents 6,133,758 4,553,953
----------- -----------
Securities (note 2):
Investment (approximate market value of $14,442,000 and
$10,430,000 at December 31, 1992 and 1991, respectively) 14,045,896 9,839,612
Available for sale (approximate market value of $1,533,000
at December 31, 1991) - 1,500,000
----------- -----------
Total securities 14,045,896 11,339,612
Loans receivable, net (note 3) 41,635,724 37,490,203
Accrued interest receivable 584,184 586,123
Premises and equipment, net (note 5) 1,692,198 1,245,079
Due from Resolution Trust Corporation (note 6) - 2,507,853
Other assets (notes 6 and 8) 181,230 86,466
----------- -----------
$ 64,272,990 57,809,289
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Deposits (note 7) 56,441,121 51,190,992
Accrued interest payable 205,962 293,301
Current income taxes payable (note 8) 344,168 92,726
Accrued expenses and other liabilities 46,861 108,521
----------- -----------
Total liabilities 57,038,112 51,685,540
----------- -----------
Stockholders' equity (notes 6, 9, 10, and 11):
Common stock, par value $10.00, authorized 1,000,000
shares; issued 205,552 shares 2,055,520 2,055,520
Capital surplus 3,083,280 3,083,280
Retained earnings 2,096,078 984,949
----------- -----------
Total stockholders' equity 7,234,878 6,123,749
----------- -----------
Commitments and contingencies (notes 4, 6, and 11)
$ 64,272,990 57,809,289
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 149
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Earnings
Years ended December 31, 1992, 1991 and 1990
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 4,407,436 3,741,589 2,275,543
Interest on securities 895,486 726,848 490,124
Interest on mortgage-backed securities 196,668 228,818 219,017
Interest on Federal funds sold 99,956 122,437 183,090
Interest on deposits with banks - - 36,739
------------ ------------ ------------
Total interest income 5,599,546 4,819,692 3,204,513
Interest expense on deposits (note 7) 2,145,124 2,546,989 1,785,408
------------ ------------ ------------
Net interest income 3,454,422 2,272,703 1,419,105
Provision for loan losses (note 3) 240,000 311,000 123,296
------------ ------------ ------------
Net interest income after provision for loan losses 3,214,422 1,961,703 1,295,809
------------ ------------ ------------
Other operating income:
Service charges on deposit accounts 324,370 288,670 214,418
Other loan fees 40,442 33,685 19,350
Gain on sale of securities, net 28,868 17,808 3,374
Other operating income 58,347 92,784 64,840
------------ ------------ ------------
Total other operating income 452,027 432,947 301,982
------------ ------------ ------------
Other operating expenses:
Compensation and benefits 844,201 655,182 443,992
Occupancy and equipment 248,532 215,270 177,793
Federal deposit insurance premiums 126,746 83,431 30,325
Data processing service fees 157,978 148,829 99,698
Stationery and supplies 114,293 89,248 69,368
Professional Fees 75,639 75,388 7,813
Postage 66,015 49,499 26,564
Other operating expenses 236,924 200,890 116,381
------------ ------------ ------------
Total other operating expenses 1,870,328 1,517,737 971,934
------------ ------------ ------------
Earnings before income taxes 1,796,121 876,913 625,857
Income tax expense (note 8) 684,992 336,685 238,083
------------ ------------ ------------
Net earnings $ 1,111,129 540,228 387,774
============ ============ ============
Per share data:
Weighted average common shares outstanding 205,552 205,552 205,552
============ ============ ============
Earnings per common share $ 5.41 2.63 1.89
============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 150
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Years ended December 31, 1992, 1991 and 1990
<TABLE>
<CAPTION>
TOTAL
COMMON CAPITAL RETAINED STOCKHOLDERS'
STOCK SURPLUS EARNINGS EQUITY
--------- --------- -------- ---------
<S> <C> <C> <C> <C>
Balance at December 31, 1989 $ 2,055,520 3,083,280 56,947 5,195,747
Net earnings for 1990 - - 387,774 387,774
--------- --------- ---------- ----------
Balance at December 31, 1990 2,055,520 3,083,280 444,721 5,583,521
Net earnings for 1991 - - 540,228 540,228
--------- --------- ---------- ----------
Balance at December 31, 1991 2,055,520 3,083,280 984,949 6,123,749
Net earnings for 1992 - - 1,111,129 1,111,129
--------- --------- ---------- ----------
Balance at December 31, 1992 $ 2,055,520 3,083,280 2,096,078 7,234,878
========= ========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 151
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
Years ended December 31, 1992, 1991 and 1990
<TABLE>
<CAPTION>
1992 1991 1990
------ ------ ------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 1,111,129 540,228 387,774
Adjustments to reconcile net earnings to net cash and cash
equivalents provided (used) by operating activities:
Amortization of deferred loan origination fees (18,247) (17,566) (20,095)
Amortization (accretion) of premiums
or discounts on securities 1,260 3,656 (9,115)
Accretion of discount on loans acquired (476,315) (173,743) -
Provision for loan losses 240,000 311,000 123,296
Gain on sale of securities, net (28,868) (17,808) (3,374)
Depreciation and amortization of premises and equipment 118,401 108,795 104,400
Proceeds from sale of securities available for sale 4,536,809 - -
Purchases of securities available for sale (2,509,735) - -
Decrease (increase) in accrued interest receivable 1,939 (89,400) (209,973)
Decrease (increase) in other assets (94,764) 7,426 (35,900)
(Decrease) increase in accrued interest payable (87,339) 4,792 54,780
(Decrease) increase in income taxes payable 251,442 (60,894) 127,759
Decrease in accrued expenses and other liabilities (61,660) (414,771) (17,903)
---------- --------- ---------
Total adjustments 1,872,923 (338,513) 113,875
---------- --------- ---------
Net cash and cash equivalents provided by
operating activities 2,984,052 201,715 501,649
---------- --------- ---------
Cash flows from investing activities:
Net increase in loans (3,890,959) (3,278,538) (8,017,650)
Principal payments on mortgage-backed securities 1,165,949 212,776 203,829
Proceeds from sales of mortgage-backed securities - 1,389,846 1,087,585
Purchases of mortgage-backed securities (2,668,334) (1,285,700) (1,911,120)
Purchases of investment securities (4,703,365) (4,407,891) (6,744,297)
Proceeds from maturities and calls of investment securities 1,500,000 - 1,350,000
Proceeds from sales of investment securities - 1,755,313 2,944,522
Purchases of premises and equipment (565,520) (176,638) (74,273)
Net cash and cash equivalents received from purchase of assets
and liabilities 2,507,853 4,798,807 -
---------- --------- ---------
Net cash and cash equivalents used by investing activities (6,654,376) (992,025) (11,161,404)
---------- --------- ---------
Cash flows from financing activities:
Net increase in deposits 5,250,129 1,789,803 10,199,805
---------- --------- ----------
Net increase (decrease) in cash and cash equivalents 1,579,805 999,493 (459,950)
Cash and cash equivalents at beginning of period 4,553,953 3,554,460 4,014,410
---------- --------- ---------
Cash and cash equivalents at end of period $ 6,133,758 4,553,953 3,554,460
========== ========== ==========
</TABLE>
F-6
<PAGE> 152
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows, Continued
<TABLE>
<CAPTION>
1992 1991 1990
------ ------ -------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 767,658 1,572,965 1,225,079
Income taxes 451,519 284,042 105,091
========== ========== ===========
Supplemental disclosures of noncash investing
and financing activities:
Foreclosures of loans during
the period $ - 70,396 -
Interest credited to deposits 1,670,766 1,262,533 794,058
Investment securities transferred to securities available for sale 506,532 1,500,000 -
========== ========== ===========
</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
----------
Liabilities assumed $ 18,788,000
==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 153
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
December 31, 1992 and 1991
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Peoples Financial Services, Inc. (the "Company") was organized in
March, 1990, for the purpose of becoming a holding company for
Peoples Bank and Trust of the Cumberlands (the "Bank"). The
Bank is a state chartered bank organized in June 1988. The
accounting and reporting policies of Peoples Financial
Services, Inc. and subsidiary 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.
(a) PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include
the accounts of Peoples Financial Services, Inc. and
Peoples Bank and Trust of the Cumberlands, its
wholly-owned subsidiary. All significant intercompany
transactions and balances are eliminated in
consolidation.
(b) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash
equivalents include cash, interest-bearing deposits in
other banks, 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 $204,000 and $67,000 at
December 31, 1992 and 1991, respectively.
(c) SECURITIES
Securities are classified as investment securities or
securities available 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
classified as investments and 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 available for sale and carried at the
lower of cost or market value. 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.
Premiums and discounts are amortized using the
straight-line method, which approximates the interest
method, over the remaining period to contractual
maturity, adjusted for prepayments. Gains and losses on
the sale of securities available 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.
(Continued)
F-8
<PAGE> 154
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(d) LOANS RECEIVABLE
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.
The allowance for loan losses is based upon analyses of the
loans receivable 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
experiences, and results of reviews of the portfolio.
The 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 Bank's 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.
(e) LOAN ORIGINATION AND COMMITMENT FEES AND RELATED COSTS
Loan 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 estimated prepayments
based on the Bank's historical prepayment experience.
Commitment fees and costs relating to commitments whose
likelihood of exercise is remote are recognized over the
commitment period on a straight-line basis. If the
commitment is subsequently exercised during the
commitment period, the remaining unamortized commitment
fee at the time of exercise is recognized over the life
of the loan as an adjustment of yield. Deferred fees
relating to loans on nonaccrual status are not
amortized.
(f) INCOME TAXES
Deferred income taxes are recognized for income and expense
items that are reported in different years for financial
reporting purposes and income tax purposes using the tax
rate applicable to the year of the calculation.
In February 1992, the Financial Accounting Standards Board
(FASB) issued SFAS No. 109, Accounting for Income Taxes.
SFAS No. 109 requires a change from the deferred method
to the asset and liability method of accounting for
income taxes. Under the asset and liability method,
deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying
enacted statutory tax rates applicable to future years
to differences between the financial statement carrying
amounts and the tax basis of existing assets and
liabilities. Under SFAS No. 109, the effect on deferred
taxes of a change in tax rates is recognized in income
in the period that includes the enactment date. If
necessary, deferred tax assets are reduced by a
valuation allowance to an amount that is more likely
than not to be realized.
(Continued)
F-9
<PAGE> 155
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
The Company will adopt SFAS No. 109 in the first quarter of
1993. Upon adoption, the principles of this statement
may be applied retroactively through restatement of
previously issued statements, or on prospective basis
through a cumulative effect of change in accounting
principle. It is estimated that adoption of SFAS No.
109 will result in an incremental increase in the net
deferred tax asset of approximately $80,000, subject to
any valuation allowance, the precise amount of which has
not been determined. It is expected that this amount
will be reported separately as the cumulative effect of
a change in accounting principle in the consolidated
statement of earnings and will result in an increase in
net earnings for the year ending December 31, 1993.
(G) PREMISES AND EQUIPMENT
Premises and equipment are carried at cost, less
accumulated depreciation and amortization. These assets
are depreciated using accelerated methods under the
guidelines of the Internal Revenue Service. The
difference between depreciation calculated using the
accelerated method and that under generally accepted
accounting principles is insignificant.
(2) SECURITIES
THE AMORTIZED COST AND ESTIMATED MARKET VALUES OF INVESTMENT SECURITIES ARE AS
FOLLOWS:
<TABLE>
<CAPTION>
DECEMBER 31, 1992
----------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 152,935 - (1,935) 151,000
U.S. Government agency securities 10,385,725 412,900 (70,625) 10,728,000
Mortgage-backed securities 3,417,236 48,225 (3,461) 3,462,000
Other securities 90,000 11,000 - 101,000
---------- -------- --------- ----------
Total investment securities $ 14,045,896 472,125 (76,021) 14,442,000
========== ======== ======== ==========
DECEMBER 31, 1991
----------------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ----------
U.S. Government agency securities $ 7,858,762 484,238 - 8,343,000
Mortgage-backed securities 1,890,850 100,150 - 1,991,000
Other securities 90,000 6,000 - 96,000
---------- -------- --------- ----------
Total investment securities $ 9,839,612 590,388 - 10,430,000
========== ======== ========= ==========
</TABLE>
(Continued)
F-10
<PAGE> 156
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
The carrying values and estimated market values of securities available for
sale are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1991
--------------------------------------------------------------
GROSS GROSS ESTIMATED
CARRYING UNREALIZED UNREALIZED MARKET
VALUE GAINS LOSSES VALUE
-------- ---------- --------- ---------
<S> <C> <C> <C> <C>
U.S. Government agency securities
available for sale $ 1,500,000 33,000 - 1,533,000
========= ====== ======== =========
</TABLE>
The amortized cost and estimated market value of investment debt securities at
December 31, 1992, 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>
ESTIMATED
AMORTIZED MARKET
COST VALUE
--- ----
<S> <C> <C>
U.S. Treasury, government agency and other securities:
Maturing within one to five years 2,804,430 2,896,000
Maturing within five to ten years 7,824,230 8,084,000
---------- ----------
10,628,660 10,980,000
---------- ----------
Mortgage-backed securities 3,417,236 3,462,000
---------- ----------
Totals $ 14,045,896 14,442,000
========== ==========
</TABLE>
Proceeds from sales of debt securities during 1992 were $4,536,809.
Gross gains of $28,868 were realized on those sales. Proceeds from sales of
debt securities during 1991 were $3,145,159. Gross losses of $985 and gross
gains of $18,793 were realized on those sales. Proceeds from sales of debt
securities during 1990 were $4,032,107. Gross losses of $14,876 and gross gains
of $18,250 were realized on those sales.
Certain securities with an amortized cost of approximately $3,000,000
at December 31, 1992 and $2,750,000 at December 31, 1991, were pledged to
secure certain savings deposits.
(Continued)
F-11
<PAGE> 157
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(3) LOANS RECEIVABLE
Loans receivable at December 31, are summarized as follows:
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Commercial $ 21,403,108 16,026,858
Real estate mortgage 8,287,117 11,118,296
Consumer 14,257,831 13,060,674
------------ ------------
43,948,056 40,205,828
Less:
Allowance for loan losses (573,128) (453,121)
Discount on loans purchased (1,425,908) (1,880,735)
Unearned discounts (297,594) (347,820)
Net deferred loan origination fees (15,702) (33,949)
----------- -----------
$ 41,635,724 37,490,203
=========== ===========
</TABLE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
1992 1991 1990
------ ------- -------
<S> <C> <C> <C>
Balance at beginning of period $ 453,121 245,000 157,500
Provision charged to income 240,000 311,000 123,296
Loan losses, net:
Loans charged off (129,575) (106,790) (37,484)
Recoveries 9,582 3,911 1,688
--------- -------- -------
Net loan losses (119,993) (102,879) (35,796)
--------- -------- -------
Balance at end of period $ 573,128 453,121 245,000
========= ======== =======
</TABLE>
At December 31, 1992 and 1991, loans on which the accrual of interest had been
discontinued totaled $98,000 and $71,074, respectively. During the
years ended December 31, 1992 and 1991, 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, 1990 $ 2,451,604
Advances 1,861,509
Repayments (2,094,133)
Decrease due to resignation of director (452,959)
---------
Balance at December 31, 1991 1,766,021
Advances 2,426,617
Repayments (2,319,318)
---------
Balance at December 31, 1992 $ 1,873,320
=========
</TABLE>
(Continued)
F-12
<PAGE> 158
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(4) 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.
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 to customers.
Outstanding standby letters of credit as of December 31,
1992 and 1991, amounted to $142,000 and $190,000,
respectively. Outstanding commitments to lend at
fixed and variable rates were $530,000 and $623,000
at December 31, 1992. Outstanding commitments to
lend at variable rates were $1,600,000 at December
31, 1991. The fixed-rate commitments at December 31,
1992 ranged from 6.5% To 9.0%. Undisbursed advances
on customer lines of credit were $4,275,000 at
December 31, 1992 and $3,700,000 at December 31,
1991. The outstanding standby letters of credit,
commitments and undisbursed customer lines of credit
generally have terms of one year or less. The Bank
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 flow or proceeds
from the sale of selected assets of the borrowers.
The Company grants residential, consumer, and
commercial loans to customers primarily throughout
east Tennessee.
(CONTINUED)
F-13
<PAGE> 159
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(5) PREMISES AND EQUIPMENT
Premises and equipment, less accumulated depreciation at December
31, are summarized as follows:
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Land $ 592,233 452,233
Buildings 859,734 605,109
Land improvements 58,836 56,186
Furniture, fixtures, and equipment 597,091 435,116
Automobile 5,000 -
--------- ---------
2,112,894 1,548,644
Less accumulated depreciation 420,696 303,565
--------- ---------
$1,692,198 1,245,079
========= =========
</TABLE>
(6) ACQUISITIONS
On February 1, 1993, the Company sold 31,225 shares of
newly-issued common stock in connection with 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 subscription to
eligible members of CFSB and to certain other persons as
of specified dates and subject to various subscription
priorities as provided in 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 will be
accounted for as a pooling-of-interests and, accordingly, the
Company's historical financial statements presented in future
reports will be 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. As
of December 31, 1992, the Company had incurred costs of
$96,856 associated with the offering, which are included
in other assets. All costs incurred associated with the
sale of stock and acquisition were deferred and deducted
from the proceeds of the sale of stock.
The following unaudited pro forma data summarizes the combined
results of operations of the Company and CFSB as if the
combination had been consummated on December 31, 1992.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Net interest income $ 4,793,760 3,437,359 2,424,185
Net interest income after provision
for loan losses 4,455,324 2,967,850 2,149,560
Net earnings 1,228,461 577,349 409,925
Earnings per share $ 4.69 2.28 1.64
========= ======== ========
</TABLE>
Earnings per share is based upon the number of shares of the Company's stock
outstanding for each period and the earnings of the Company. Earnings per
share will include the earnings from CFSB beginning from February 1, 1993, the
date of conversion of CFSB to a stock institution.
(Continued)
F-14
<PAGE> 160
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
On May 31, 1991, the Company's Bank subsidiary 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, the Bank's excess in the fair
value of liabilities assumed from the RTC over the fair value of
assets acquired is funded by the RTC. The Bank has recorded a
receivable of $2,507,853 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 the Bank 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 Bank with
respect to the purchase and assumption agreement.
The 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.
(7) DEPOSITS
Deposits at December 31, are summarized as follows:
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Noninterest bearing demand $ 8,245,238 4,236,509
NOW accounts 6,515,722 5,030,690
Money Market accounts 3,417,311 3,292,310
Regular savings 7,530,218 5,178,973
Certificates of deposit of $100,000 or more 5,651,855 5,732,998
Other certificates of deposit 25,080,777 27,719,512
---------- ----------
$56,441,121 51,190,992
=========== ==========
</TABLE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
NOW $ 171,156 144,906 89,652
Money market 165,076 94,878 42,273
Regular savings 354,481 285,040 195,817
Certificates of deposit of
$100,000 or more 215,000 421,384 553,092
Other certificates of deposit 1,239,411 1,600,781 904,574
--------- --------- ---------
$2,145,124 2,546,989 1,785,408
========= ========= =========
</TABLE>
F-15
<PAGE> 161
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(8) INCOME TAXES
Income tax expense is summarized as follows:
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Federal:
Current $ 590,750 289,151 219,592
Deferred (17,201) (10,887) (19,972)
-------- -------- -------
573,549 278,264 199,620
State current 111,443 58,421 38,463
-------- -------- -------
Total $ 684,992 336,685 238,083
======== ======== =======
</TABLE>
Deferred income taxes included in other assets result from
timing differences in the recognition of income and expense for
tax and financial statement purposes. Included in other assets
are deferred income tax benefits of $48,060, $30,859 and $19,972
at December 31, 1992, 1991 and 1990, respectively. The
sources of these timing differences and their tax effects are
as follows:
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Loan loss provision in excess of amount allowed
for tax purposes $ (22,109) (13,151) (36,986)
Other, net 4,908 2,264 17,014
-------- -------- -------
Deferred income tax benefit $ (17,201) (10,887) (19,972)
======== ======= ========
</TABLE>
The actual income tax expense amounts differ from the "expected"
tax expense as follows:
<TABLE>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Computed "expected" income tax expense $ 610,681 298,150 212,791
Increases (reductions) in taxes resulting from:
State income tax, net of Federal income tax effect 73,552 38,558 25,386
Other, net 759 (23) (94)
-------- ------- -------
Total income tax expense $ 684,992 336,685 238,083
======== ======== =======
</TABLE>
(9) RESTRICTIONS ON DIVIDENDS
Dividends paid by the Bank are the primary source of funds
available for payment of normal operating expenses of
the Company. Applicable Tennessee statutes and regulations
impose restrictions on the amounts that may be declared by a
subsidiary bank. Under the most restrictive of the statutes
and regulations, the subsidiary bank could declare dividends up
to approximately $3,700,000 and $2,900,000 at December 31, 1992
and 1991, respectively.
(Continued)
F-16
<PAGE> 162
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(10) CAPITAL REQUIREMENTS
Regulatory capital guidelines of the Federal Reserve Board for
bank holding companies which were in effect at December
31, 1992, required a minimum of 5.5 percent for a primary
capital ratio (essentially equity plus the allowance for
loan losses), 6.0 percent for a total capital ratio
(primary capital plus qualifying debt), and 8.0 percent
risk-based capital. 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, 1992.
(11) 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.
(12) PARENT COMPANY ONLY FINANCIAL INFORMATION
Condensed financial information of Peoples Financial Services,
Inc. (Parent Company organized in March, 1990) is as
follows:
<TABLE>
<CAPTION>
BALANCE SHEETS
ASSETS 1992 1991
--------- -------- ---------
<S> <C> <C>
Cash $ 2,266 11,488
Investment in bank subsidiary 7,222,766 6,097,828
Other assets 9,846 14,433
--------- ---------
Total assets $ 7,234,878 6,123,749
========= =========
STOCKHOLDERS' EQUITY
--------------------
Common stock $ 2,055,520 2,055,520
Capital surplus 3,083,280 3,083,280
Retained earnings 2,096,078 984,949
--------- ---------
Total stockholders' equity $ 7,234,878 6,123,749
========= =========
</TABLE>
F-17
<PAGE> 163
PEOPLES FINANCIAL SERVICES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
<TABLE>
<CAPTION>
STATEMENTS OF EARNINGS 1992 1991 1990
---------------------- ---- ---- ----
<S> <C> <C> <C>
Income:
Dividends from subsidiary $ - 10,000 25,000
--------- -------- --------
Expenses:
Miscellaneous operating expenses 13,809 5,984 3,096
--------- -------- --------
Income (loss) before equity in undistributed
earnings of subsidiary (13,809) 4,016 21,904
Equity in undistributed earnings of subsidiary 1,124,938 536,212 365,870
--------- --------- ---------
Net earnings $ 1,111,129 540,228 387,774
========= ========= =========
STATEMENTS OF CASH FLOWS 1992 1991 1990
------------------------ ---- ---- ----
Cash flows from operating activities:
Net earnings $ 1,111,129 540,228 387,774
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Undistributed earnings of subsidiary (1,124,938) (536,212) (365,870)
Decrease in other assets - 1,238 (22,932)
Amortization of deferred organization
cost 4,587 4,587 2,675
--------- -------- --------
Net cash (used) provided by
operating activities (9,222) 9,841 1,647
--------- -------- --------
Net (decrease) increase in cash
and cash equivalents (9,222) 9,841 1,647
Cash and cash equivalents at
beginning of period 11,488 1,647 -
--------- --------- ---------
Cash and cash equivalents at end of period $ 2,266 11,488 1,647
========= ========= =========
</TABLE>
F-18
<PAGE> 164
PEOPLES FINANCIAL SERVICES, INC.
Consolidated Balance Sheets at September 30, 1993 and December 31, 1992
(unaudited)
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1993 1992
------------ ------------
ASSETS
<S> <C> <C>
Cash and cash equivalents:
Cash and due from banks $ 4,530,703 $ 5,364,730
Interest-earning deposits 988,908 2,863,642
Federal funds sold 5,011,028 1,480,282
------------ ------------
Total cash and cash equivalents 10,530,639 9,708,654
Securities:
Investments (approximate market value
of $33,522,423 at Sept. 30, 1993;
$32,314,000 at Dec. 31, 1992) 32,805,163 31,420,127
Investments available for sale
(market value of $3,911,943
at September 30, 1993) 3,778,440 -
------------ ------------
Total securities 36,583,603 31,420,127
Loans receivable, net 66,085,352 65,321,045
Loans held for sale, at book value
which approximates market value 1,868,297 758,935
Accrued interest receivable 1,027,326 923,341
FHLB - Cincinnati stock 244,000 268,600
Real estate owned, net 875,082 892,535
Premises and equipment, net 2,331,263 2,355,461
Other assets 372,698 561,160
------------ ------------
TOTAL ASSETS $119,918,260 $112,209,858
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits $107,521,482 $102,124,650
Advance payments by borrowers for
property taxes and insurance 402,132 107,447
Accrued interest payable 331,920 239,579
Accrued income taxes payable 148,540 344,168
Accrued expenses and other liabilities 278,300 247,995
------------ ------------
TOTAL LIABILITIES 108,682,374 103,063,839
------------ ------------
STOCKHOLDERS' EQUITY:
Common Stock, par value $10, authorized 1,000,000
shares; issued 236,777 at September 30, 1993
and 205,552 shares at December 31, 1992 2,367,770 2,055,520
Capital Surplus 3,665,315 3,083,280
Retained earnings 5,202,801 4,007,219
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 11,235,886 9,146,019
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $119,918,260 $112,209,858
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 165
PEOPLES FINANCIAL SERVICES, INC.
Consolidated Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
1993 1992 1993 1992
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Interest Income:
Interest and fees on loans $1,689,363 $1,627,791 $5,010,825 $5,076,213
Interest on mortgage-backed
securities 162,983 178,216 539,929 429,462
Interest on deposits
with banks 7,214 11,636 24,937 30,106
Interest on securities
and federal funds sold 443,590 405,658 1,243,119 1,164,438
--------- ---------- ---------- ----------
Total interest income 2,303,150 2,223,301 6,818,810 6,700,219
Interest expense 969,195 1,092,944 2,954,935 3,405,135
--------- ---------- ---------- ----------
Net interest income 1,333,955 1,130,357 3,863,875 3,295,084
Provision for loan losses 6,666 123,420 157,166 284,233
--------- ---------- ---------- ----------
Net interest income after
provision for loan losses 1,327,289 1,006,937 3,706,709 3,010,851
--------- --------- ---------- ----------
Non-interest income:
Service charges on deposits 135,189 113,653 388,666 311,123
Gain on sale
of loans receivable 89,603 79,423 153,638 61,093
Gain (loss) on call and sale
of investment securities 25,875 (96,286) 53,451 (48,561)
Other loan fees 48,714 42,104 132,270 131,983
Other operating income 29,404 25,547 130,854 70,640
--------- ---------- ---------- ----------
Total non-interest income 328,785 164,441 858,879 526,278
--------- --------- ---------- ----------
Non-interest expenses:
Compensation and benefits 395,334 305,319 1,130,859 877,100
Occupancy and equipment 130,019 123,309 363,507 291,327
Federal deposit
insurance premiums 76,184 61,223 213,648 182,771
Data processing
servicing fees 79,678 70,213 217,787 212,170
Professional fees 22,142 9,316 111,886 82,729
Stationery and supplies 45,028 37,636 138,120 98,385
Provision for loss on
investments held for sale - - - 166,270
Other 180,580 (39,768) 441,673 135,872
--------- ---------- ---------- ----------
Total non-interest expenses 928,965 567,248 2,617,480 2,046,624
--------- ---------- ---------- ----------
Earnings before income taxes 727,108 604,130 1,948,108 1,490,505
--------- --------- ---------- ---------
Income tax expense 299,025 203,937 779,850 562,540
--------- ---------- ---------- ----------
Earnings before cumulative
effect of change in
accounting principle 428,083 400,193 1,168,258 927,965
Cumulative effect of change
in accounting principle - - 27,324 -
--------- ---------- ---------- ----------
Net earnings $ 428,083 $ 400,193 $1,195,582 $ 927,965
========== ========== ========== ==========
Per share data:
Weighted average shares
outstanding 233,308 205,552 233,308 205,552
Net earnings per share (1) $1.83 $1.95 $5.01 $4.51
- ------------------
</TABLE>
(1) Earnings per share includes the earnings of Citizens Federal beginning
February 1, 1993, the date of the conversion of Citizens
Federal to a stock institution.
See accompanying notes to consolidated financial statements.
F-20
<PAGE> 166
Peoples Financial Services, Inc.
Consolidated Statements of Stockholders' Equity
For the Nine Months Ended September 30, 1993 and 1992
(unaudited)
<TABLE>
<CAPTION>
- Common Stock- Capital Retained
Shares Amount Surplus Earnings Total
------ ------ ------- -------- -----
<S> <C> <C> <C> <C> <C>
Balance at
December 31,1992 205,552 $2,055,520 $3,083,280 $4,007,219 $9,146,019
Net income for the
nine months ended
September 30, 1993 - - - 1,195,582 1,195,582
Shares issued in
connection with
acquisition 31,225 312,250 582,035 - 894,285
------ -------- ------- ---------- -------
Balance at
September 30, 1993 236,777 $2,367,770 $3,665,315 $5,202,801 $11,235,886
======= ========== ========== ========== ==========
Balance at
December 31,1991 205,552 $2,055,520 $3,083,280 $2,779,832 $7,918,632
Net income for the
nine months ended
September 30,1992 - - - 927,965 927,965
--------- --------- --------- ---------- ---------
Balance at
September 30, 1992 205,552 $2,055,520 $3,083,280 $3,707,797 $8,846,597
======= ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE> 167
PEOPLES FINANCIAL SERVICES, INC.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
Increase (decrease) in cash and due from banks 1993 1992
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $1,195,582 927,965
Adjustments to reconcile net earnings to net cash
provided (used) by operating activities:
Depreciation and amortization - premises and equipment 228,409 129,228
Amortization of deferred loan origination points (8,694) 33,187
Amortization (accretion) of premiums or discounts on securities (147,311) (34,623)
Accretion of discount on loans acquired (527,901) (464,221)
Provision for loan losses 157,166 284,233
Mortagage loans originated for resale (8,270,676) (8,379,440)
Proceeds from sale of loans 7,314,952 8,379,440
(Gain) loss on sale of securities 53,451 (48,561)
Gain on sale of loans (153,638) (61,093)
Proceeds from sale of real estate owned 17,453 -
Purchases of securities available for sale (5,535,489) (3,925,344)
Principal payments and disposals of securities available for sale 1,703,598 4,548,070
Provision for loss on securities available for sale - 166,270
Repayment of amount due from Resolution Trust Corporation - 2,507,853
Decrease in other assets 84,477 283,360
Increase in other liabilities 221,703 97,564
---------- ----------
Net cash provided (used) by operating activities (3,666,918) 4,443,888
---------- ----------
Cash flows from investing activities:
Increase in federal funds sold (3,530,746) (4,104,758)
(Increase) decrease in interest-bearing deposits in financial institutions 1,874,734 (969,867)
Proceeds from maturities and redemptions of investment securites 10,737,080 3,786,058
Proceeds from sale of investment securities 1,799,675 9,070,572
Purchases of investment securities (13,774,480) (16,047,214)
Redemptions of Federal Home Loan Bank stock 24,600 8,400
Net increase in portfolio loans (384,878) 191,301
Purchases of premises and equipment (204,211) (560,723)
---------- ----------
Net cash used by investing activities (3,458,226) (8,626,231)
---------- ----------
Cash flows from financing activities:
Proceeds from sale of common stock 894,285 -
Increase in deposits 5,396,832 6,919,491
Principal payments on bonds payable - (1,368,000)
Net cash provided by financing activities 6,291,117 5,551,491
---------- ----------
Net increase (decrease) in cash (834,027) 1,369,148
Cash and due from banks at beginning of period 5,364,730 2,803,660
---------- ----------
Cash and due from banks at end of period $4,530,703 4,172,808
========== ==========
Cash paid during period for:
Interest $2,862,594 3,399,798
Income taxes 1,481,650 489,419
========== =========
Non-cash activities:
Real estate acquired in settlement of loans $ 75,201 -
========== =========
</TABLE>
F-22
<PAGE> 168
Notes to Unaudited Consolidated Financial Statements
(1.) Peoples Financial Services, Inc.
Peoples Financial Services, Inc. (the Company), chartered by the state
of Tennessee, was formed in 1989 for the purpose of becoming a holding company
for Peoples Bank & Trust of the Cumberlands (Peoples). Peoples is a state
chartered bank organized in June, 1988. On February 1, 1993, the Company
consummated the acquisition of Citizens Federal Savings Bank (CFSB) of
Rockwood, Tennessee, upon its conversion from a federal mutual to a federal
stock savings bank, resulting in CFSB being held as a wholly owned subsidiary
of the Company. The acquisition of CFSB was accounted for as a pooling of
interest. See note 4.
(2.) Basis of Presentation
The accompanying unaudited consolidated financial statements were
prepared in accordance with instructions for Form 10-Q and therefore do not
include all disclosures necessary for a complete presentation of financial
condition, results of operations, and statement of cash flows in conformity
with generally accepted accounting principles. However, all adjustments which
are, in the opinion of management, necessary for the fair presentation of the
interim financial statements have been included. All such adjustments are of a
normal and recurring nature. The results of operations for the interim periods
are not necessarily indicative of the results which may be expected for the
entire year.
(3.) Earnings per Share
Earnings per share is calculated by dividing earnings of the company
by the weighted-average common shares outstanding of the company's stock.
Earnings per share includes the earnings from CFSB beginning February 1, 1993,
the date of conversion of CFSB to a stock institution.
The following is a calculation of weighted-average shares:
<TABLE>
<CAPTION>
<S> <C>
Shares outstanding at December 31, 1992 205,552
Weighted-average common shares
issued February 1, 1993 27,756
Weighted-average common shares 233,308
</TABLE>
F-23
<PAGE> 169
(4.) Acquisition
On February 1, 1993, the Company sold 31,225 shares of newly-issued
common stock at $45 per share in connection with the acquisition of 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 subscription to eligible members of CFSB and to certain other
persons as of specified dates and subject to various subscription priorities as
provided in 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. All of the gross proceeds raised in the offering were used in
the acquisition of CFSB. This business combination has been accounted for as a
pooling-of-interests and, accordingly, the Company's historical consolidated
financial statements for the periods prior to the combination have been
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 offering raised
gross proceeds of $1,405,125. All costs incurred associated with the sale of
stock were deferred and deducted from the proceeds of the sale of the stock and
totalled $510,840. Costs associated with the acquisition in the amount of
$30,248 were charged to operations during the year ended December 31, 1992.
The results of operations previously reported by the separate
enterprises and the combined amounts presented in the accompanying consolidated
financial statements are summarized below.
<TABLE>
<CAPTION>
One Month Years ended
Ended December 31,
--------------------------------
January 31, 1993 1992 1991
---------------- --------- ---------
(unaudited)
<S> <C> <C> <C>
Net interest income:
Peoples Financial $277,494 $3,454,422 $2,272,703
CFSB 124,437 1,279,117 1,164,656
-------- ---------- ----------
Combined 401,931 4,733,539 3,437,359
======== ========== ==========
Net interest income after
provision for loan losses:
</TABLE>
F-24
<PAGE> 170
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Peoples Financial 257,494 3,214,422 1,961,703
C F S B 116,937 1,255,681 1,006,147
------- --------- ---------
Combined 374,431 4,470,103 2,967,850
======= ========= =========
Net earnings:
Peoples Financial 81,162 1,111,129 540,228
C F S B 26,235 117,332 37,121
------- --------- ---------
Combined 107,397 1,228,461 577,349
======= ========= =========
</TABLE>
For the purpose of granting eligible members of CFSB a priority in the
unlikely event of future liquidation, CFSB at the time of conversion
established a liquidation account equal to its retained earnings as of the date
of the latest consolidated balance sheet used in the Company's final conversion
prospectus. In the event of future liquidation of the converted 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 of
deposit accounts held at that time before any liquidation distributions may be
made with respect to capital stock. After the conversion, no dividends may be
paid to the stockholder of CFSB (Peoples Financial) if such dividends reduce
retained earnings of CFSB below the amount required for the liquidation
account.
(5.) Loans Receivable
Loans receivable at September 30, 1993 and December 31, 1992 are
summarized as follows:
<TABLE>
<CAPTION> <S> <C> <C>
Sept. 30, Dec. 31,
1993 1992
--------- ---------
Commercial 21,362,000 $21,766,000
Real estate mortgage 40,148,000 26,871,000
Consumer 8,909,000 20,194,000
---------- ----------
Sub-total 70,419,000 $68,831,000
</TABLE>
F-25
<PAGE> 171
<TABLE>
<CAPTION>
<S> <C> <C>
Less:
Allowance for loan losses $1,075,000 $ 922,000
Discount on loans purchased 1,059,000 1,425,000
Unearned discounts 304,000 373,000
Net deferred loan
origination fees 27,000 31,000
----------- -----------
Loans receivable, net $67,954,000 $66,080,000
=========== ===========
</TABLE>
Activity in the allowance for loan losses is summarized as follows:
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1993 1992
--------- --------
<S> <C> <C>
Balance at beginning of period
$ 922,000 $835,000
Provision charged to income 157,000 263,000
Loan losses, net:
Loans charged off -21,000 -190,000
Recoveries 17,000 14,000
Net loan losses -4,000 -176,000
---------- --------
Balance at end of period $1,075,000 $922,000
========== ========
</TABLE>
At September 30, 1993 and December 31, 1992, loans on which the
accrual of interest had been discontinued totaled $160,718 and $161,429,
respectively. During the nine months ended September 30, 1993 and the fiscal
year ended December 31, 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.
(6.) Income Taxes
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income Taxes,"
which requires a change from the deferred method of accounting for income taxes
of Accounting Principles Board Opinion No. 11, to the asset and liability
method of accounting for income taxes. Under the asset and liability method of
SFAS No. 109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between
F-26
<PAGE> 172
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Under SFAS 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment
date.
The cumulative amount, net of a valuation allowance in the amount of
$44,489, is $27,324, or $.12 per share, and is shown as the cumulative effect
of change in accounting principle in the consolidated income statements. Prior
years' financial statements have not been restated to apply the provisions of
SFAS No. 109.
At September 30, 1993, deferred tax assets, net of a valuation
allowance of $44,489, were $175,086, and deferred tax liabilities were $9,164.
The Company believes that the deferred tax assets, net of the valuation
allowance, will be realized.
F-27
<PAGE> 173
CITIZENS FEDERAL SAVINGS BANK
AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Consolidated Financial Statements
December 31, 1992 and 1991
(With Independent Auditors' Report Thereon)
F-28
<PAGE> 174
Independent Auditors' Report
The Board of Directors
Citizens Federal Savings Bank
Rockwood, Tennessee
We have audited the accompanying consolidated Balance Sheets Of Citizens
Federal Savings Bank and subsidiaries (the Bank) as of December 31,
1992 and 1991, and the related consolidated statements of operations, retained
earnings, and cash flows for each of the years in the three-year period then
ended. These consolidated financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
consolidated 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.
As discussed in note 16, the Bank entered into a supervisory agreement with the
Office of Thrift Supervision in 1991. To comply with the agreement's
requirement to increase regulatory capital ratios, the Bank entered into an
acquisition agreement under which the Bank would convert from mutual to stock
form and be acquired by Peoples Financial Services, Inc., as discussed in note
15. The conversion and acquisition was consummated on February 1, 1993, and
resulted in an increase of capital above the requirement set forth in the
supervisory agreement. Failure to comply with the remaining provisions of the
agreement could expose the Bank to possible further regulatory sanctions and
enforcement actions.
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 at December 31, 1992 and 1991, and the
results of their operations and their cash flows for each of the years in
the three-year period then ended, in conformity with generally accepted
accounting principles.
/s/ KPMG Peat Marwick
February 26, 1993
Nashville, Tennessee
F-29
<PAGE> 175
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Consolidated Balance Sheets
December 31, 1992 and 1991
<TABLE>
<CAPTION>
ASSETS 1992 1991
------ ---- ----
<S> <C> <C>
Cash $ 580,972 474,707
Interest bearing deposits in other banks 2,993,924 1,022,373
Investments held for sale (note 17) - 2,232,661
Investment securities (note 2):
U.S. Government and agency obligations, at amortized cost
(approximate market value of $11,148,000 in 1992 and
$6,219,000 in 1991) 11,012,304 6,164,660
Mortgage-backed securities (estimated market value of
$6,724,000 in 1992 and $9,138,000 in 1991) (notes 3 and 9) 6,361,927 8,800,812
Loans held for sale (note 4) 758,935 -
Loans receivable, net (note 4) 23,685,321 23,748,624
Accrued interest receivable, net:
Loans 141,311 215,512
Investments 149,510 71,630
Mortgage-backed securities 48,336 38,864
Funds held by trustee (note 9) - 614,510
Real estate owned, net (note 5) 892,535 952,297
Office properties and equipment (note 7) 663,263 678,444
Investment in Federal Home Loan Bank stock, at cost 268,600 271,200
Other assets 379,930 186,468
---------- -----------
$47,936,868 45,472,762
=========== ===========
LIABILITIES AND RETAINED EARNINGS
---------------------------------
Liabilities:
Savings deposits (note 8) 45,683,529 41,686,576
Bonds payable (note 9) - 1,368,000
Accrued interest payable 33,617 130,194
Advance payments by borrowers for property taxes and insurance 107,447 58,456
Accrued expenses and other liabilities 201,134 435,727
---------- ----------
Total liabilities 46,025,727 43,678,953
Retained earnings - restricted (notes 10, 12, 13, 15 and 16) 1,911,141 1,793,809
---------- ----------
Commitments (notes 11, 14, 15, and 16)
$47,936,868 45,472,762
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE> 176
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Consolidated Statements of Operations
Years ended December 31, 1992, 1991 and 1990
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Interest income:
First mortgage loans $ 1,637,361 1,840,722 1,901,419
Consumer and other loans 686,374 852,093 1,149,458
Investments 602,307 600,682 580,540
Mortgage-backed securities 648,956 754,237 796,921
Other interest-bearing assets 48,502 120,268 93,160
------------ --------- ---------
Total interest income 3,623,500 4,168,002 4,521,498
------------ --------- ---------
Interest expense:
Deposits (note 8) 2,281,026 2,805,030 3,210,980
Other borrowed money 63,357 198,316 305,438
------------ ---------- ----------
Total interest expense 2,344,383 3,003,346 3,516,418
Net interest income 1,279,117 1,164,656 1,005,080
Provision for loan losses (note 4) 23,436 158,509 151,329
------------ ---------- ----------
Net interest income after provision for loan losses 1,255,681 1,006,147 853,751
------------ ---------- ----------
Non-interest income:
Loan fees and service charges 132,508 129,432 128,264
Income from real estate operations, net 1,754 128,484 236,512
Deposit servicing fees 107,785 92,784 104,585
Gain on sale of loans 81,371 26,349 -
Gain on sale of office properties and equipment 750 25,581 -
Gain (loss) on sale of real estate owned - (582) (65,559)
Gain (loss) on sale of investments and
mortgage-backed securities (51,896) - 10,928
Other operating income 24,237 24,104 31,877
------------ ---------- ----------
Total non-interest income 296,509 426,152 446,607
------------ ---------- ----------
Non-interest expense:
Compensation and benefits 473,722 495,786 480,526
Occupancy and equipment 172,644 174,406 205,644
Supplies, communications, and other office expenses 80,957 56,184 60,528
Federal deposit insurance premiums 117,239 118,214 103,364
Data processing 127,399 121,521 133,745
Provision for losses on real estate owned (note 5) 75,000 46,191 97,000
Other operating expenses 281,104 284,914 263,809
------------ ---------- ----------
Total non-interest expense 1,328,065 1,297,216 1,344,616
------------ ---------- ----------
Earnings (loss) before income tax expense 224,125 135,083 (44,258)
Income tax expense (benefit) (note 10) 106,793 97,962 (66,409)
------------ ---------- ----------
Net earnings (note 12) $ 117,332 37,121 22,151
============ ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE> 177
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Consolidated Statements of Retained Earnings
Years ended December 31, 1992, 1991, and 1990
<TABLE>
<S> <C>
Balance at January 1, 1990 $ 1,734,537
Net earnings for 1990 22,151
---------
Balance at December 31, 1990 1,756,688
Net earnings for 1991 37,121
---------
Balance at December 31, 1991 1,793,809
Net earnings for 1992 117,332
---------
Balance at December 31, 1992 $1,911,141
==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE> 178
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Consolidated Statements of Cash Flows
Years ended December 31, 1992, 1991, and 1990
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 117,332 37,121 22,151
--------- --------- ---------
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Amortization of deferred loan origination fees (2,160) (3,509) (19,457)
Premiums and discounts on loans, mortgage-backed
securities and investment securities, net 99,992 (224,730) (179,049)
Accretion of discount on loans to
facilitate sales of real estate owned (15,569) (17,784) (26,365)
Provision for loan losses and losses on real estate 98,436 204,700 248,329
Loans originated for sale (11,849,151) (2,366,182) (1,994,431)
Proceeds from sale of loans 11,171,587 2,392,531 1,994,431
Gain on sale of loans (81,371) (26,349) -
Dividends on Federal Home Loan Bank stock (11,700) (16,800) (28,300)
Loss on sale of real estate owned - 582 65,559
Purchases of mortgage-backed securities - - (880,763)
Proceeds from sales of mortgage-backed securities - - 973,188
Net (gain) loss on sales of securities 51,896 - (10,928)
Net gain on sale of office properties and equipment (750) (25,581) -
Depreciation of office properties and equipment 59,167 64,780 83,031
Deferred income taxes 56,938 (15,408) -
(Decrease) increase in accrued expenses and other liabilities (291,531) 235,741 (53,638)
Decrease in accrued interest payable (96,577) (87,305) (62,545)
(Increase) decrease in:
Accrued interest receivable (13,151) 60,346 52,160
Funds held by trustee 614,510 56,765 27,451
Other assets (193,462) 48,189 60,797
Refundable federal income taxes - 20,128 78,814
---------- --------- ---------
Total adjustments (402,896) 300,114 328,284
---------- --------- ---------
Net cash and cash equivalents provided (used) by
operating activities (285,564) 337,235 350,435
---------- --------- ---------
Cash flows from investing activities:
Net repayments of loans 42,027 2,358,882 1,572,930
Purchases of office properties and equipment (43,986) (20,988) (500)
Purchases of investment securities (7,126,212) (2,675,000) -
Proceeds from sales of investment securities 3,060,700 - -
Proceeds from maturities of investment securities 1,300,000 2,000,000 -
Proceeds from sales of real estate owned - 31,985 796,901
Purchases of mortgage-backed securities (250,319) (1,155,816) -
Proceeds from sales of mortgage - backed securities 614,329 - -
Principal receipts on mortgage-backed securities 2,073,516 971,209 1,043,482
Principal receipts on loans to facilitate sales of real estate 331 3,766 -
Redemption of Federal Home Loan Bank stock 14,300 38,000 55,800
Proceeds from sale of office properties and equipment 750 288,356 -
---------- --------- ---------
Net cash and cash equivalents
provided (used) by investing activities (314,564) 1,840,394 3,468,613
---------- --------- ---------
</TABLE>
F-33
<PAGE> 179
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Consolidated Statements of Cash Flows (Continued)
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in savings deposits $ 3,996,953 (1,302,217) (2,217,328)
Net increase (decrease) in advance payments by borrowers 48,991 (58,336) (11,264)
Repayments of bonds (1,368,000) (976,000) (986,000)
---------- --------- ---------
Net cash and cash equivalents provided
(used) by financing activities 2,677,944 (2,336,553) (3,214,592)
---------- --------- ---------
Net increase (decrease) in cash and cash equivalents 2,077,816 (158,924) 604,456
Cash and cash equivalents at beginning of period 1,497,080 1,656,004 1,051,548
---------- --------- ---------
Cash and cash equivalents at end of period $ 3,574,896 1,497,080 1,656,004
========== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest $ 710,080 1,049,415 1,258,680
Cash paid for income taxes 122,405 66,000 12,500
========== ========= =========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES
Transfer of investment securities to investments held for sale $ 879,938 - -
Transfer of mortgage-backed securities to investments held
for sale 588,514
Real estate acquired in settlement of loans - - 36,492
Loans to facilitate sales of real estate owned:
Qualifying for recognition of sale - - 549,113
Not qualifying for recognition as a sale - - 1,135,572
========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE> 180
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Notes to Consolidated Financial Statements
December 31, 1992 and 1991
(1) Summary of Significant Accounting Policies
The accounting and reporting policies of Citizens Federal Savings Bank
and its subsidiaries (the Bank) conform to generally accepted
accounting principles and to general practice within the thrift
industry, where applicable, and to accounting rules prescribed by the
Office of Thrift Supervision. The following is a description of the
more significant of those policies which the Bank follows in
preparing and presenting its consolidated financial statements.
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
Citizens Federal Savings Bank and its wholly-owned subsidiaries,
Citizens Capital Corporation and Citizens Service Corporation. All
significant intercompany balances are eliminated in consolidation.
During 1992 and 1990, respectively, Citizens Capital Corporation and
Citizens Service Corporation, formerly wholly-owned subsidiaries,
were merged into Citizens Federal Savings Bank. Citizens Capital
Corporation and Citizens Service Corporation have been included in
the consolidated financial statements since their incorporation,
and the mergers do not affect the comparability of the accompanying
consolidated financial statements.
(B) CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents
consist of cash on hand and interest-bearing deposits with banks,
with original maturities of less than ninety days.
(C) INVESTMENT SECURITIES AND INVESTMENTS HELD FOR SALE
Investments consist of U.S. Government and agency obligations.
Management determines the appropriate classification of investments
at the time of purchase. If management has the intent and the Bank
has the ability at the time of purchase to hold securities until
maturity, they are classified as investment securities and 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 value. 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, the need to increase
regulatory capital, and other similar factors.
Discounts are accreted and premiums are amortized into interest
income by a method which approximates the interest method over the
remaining contractual terms of the respective securities. Gains
and losses from the sale of investments are determined using the
specific identification method.
(D) MORTGAGE-BACKED SECURITIES
Mortgage-backed securities represent participating interests in pools
of long-term first mortgage loans originated and serviced by the
issuers of the securities. These securities are carried at cost,
adjusted for accretion of discounts and amortization of premiums,
since it is management's intention and the Bank has the ability to
hold them to maturity. Discounts are accreted and premiums are
amortized into interest income by a method which approximates the
interest method over the remaining contractual terms of the
respective securities adjusted for actual prepayments. Gains and
losses from the sale of mortgage-backed securities are determined
using the specific identification method.
(Continued)
F-35
<PAGE> 181
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Notes to Consolidated Financial Statements
(E) LOANS RECEIVABLE AND LOANS HELD FOR SALE
Loans receivable are stated at unpaid principal balances, net of
discounts, deferred loan origination fees, and the allowance for
loan losses. Loans held for sale are carried at the lower of cost
or fair value. Management determines the appropriate
classification at the date of origination.
Unamortized discounts on consumer loans are recognized over the
contractual lives of the loans using a method which approximates
the interest method.
Uncollectible interest on loans that are contractually ninety days or
more past due is charged off or an allowance is established. The
allowance is established by a charge to interest income equal to
all interest previously accrued, and income is subsequently
recognized only to the extent cash payments are received until, in
management's judgment, the borrower's ability to make periodic
interest and principal payments is back to normal, in which case
the loan is returned to accrual status.
(F) 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.
(G) LOAN SERVICING FEES
Fees arising from servicing loans for others are recognized as earned.
(H) OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are stated at cost less accumulated
depreciation. Depreciation is computed primarily on a
straight-line basis over the estimated useful lives of the related
assets.
(I) 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.
(J) ALLOWANCE FOR LOSSES ON LOANS AND REAL ESTATE OWNED
Provisions for losses on loans and accrued interest are charged to
earnings when it is determined that the investment in such assets
is greater than their fair value.
(Continued)
F-36
<PAGE> 182
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Notes to Consolidated Financial Statements
The allowance for estimated loan losses is based upon analyses of the
loan receivable portfolio and is maintained at a level considered
adequate by management to provide for potential loan losses. The
analyses include management's consideration of such factors as
economic conditions, loan portfolio characteristics, prior loan
loss experiences, and results of reviews of the portfolio.
Management believes that the allowances for losses on loans and real
estate owned are adequate. While management uses available
information to recognize losses on loans and real estate owned,
future additions to the allowances may be necessary based on
changes in future economic conditions. In addition, various
regulatory agencies, as an integral part of their examination
process, periodically review the Bank's allowances for losses on
loans and real estate owned. Such agencies may require the Bank to
recognize additions to the allowances based on their judgments of
information available to them at the time of their examination.
(K) INVESTMENTS REQUIRED BY LAW
The Bank, 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.
(L) TAXES ON INCOME
Deferred income taxes are provided on items which are reported in
different years for tax purposes than for financial statement
purposes.
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes, was issued by the Financial Accounting Standards
Board in February 1992. Statement 109 requires a change from the
deferred method to the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred
income taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates applicable to
future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and
liabilities. Under Statement 109, the effect on deferred taxes of
a change in tax rates is recognized in income in the period that
includes the enactment date.
Statement 109 must be adopted in 1993. Upon adoption, the provisions
of the Statement may be applied without restating prior years'
financial statements or may be applied retroactively by restating
any number of consecutive prior years' financial statements. The
Bank has not determined the impact that Statement 109 will have on
its consolidated financial statements or the method that it will
use to initially apply the Statement.
(M) DEFERRED EXPENSES
Deferred debt issuance costs, adjusted for amortization, are
classified as other assets. These costs are recognized on a
straight-line method over the contractual term of the related debt.
As early retirement of the debt occurs, the amortization period is
adjusted to coincide with the expected term of the debt.
(Continued)
F-37
<PAGE> 183
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Notes to Consolidated Financial Statements
(2) INVESTMENT SECURITIES
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1992
--------------------------------------------------
APPROXIMATE GROSS GROSS
BOOK MARKET UNREALIZED UNREALIZED
VALUE VALUE GAINS LOSSES
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 9,052,840 9,210,000 174,358 17,198
Obligations of other U. S. government
agencies and corporations 1,959,464 1,938,000 3,627 25,091
----------- ---------- ---------- ----------
$11,012,304 11,148,000 177,985 42,289
=========== ========== ========== ==========
December 31, 1991
--------------------------------------------------
APPROXIMATE GROSS GROSS
BOOK MARKET UNREALIZED UNREALIZED
VALUE VALUE GAINS LOSSES
----------- ---------- ---------- ----------
U. S. Treasury securities $ 5,489,660 5,526,000 155,676 119,336
Obligations of other U. S. government
agencies and corporations 675,000 693,000 18,000 -
----------- ---------- ---------- ----------
6,164,660 6,219,000 173,676 119,336
=========== ========== ========== ==========
</TABLE>
Management expects to recover the full book value of these investment
securities upon their maturities.
Investment securities held at December 31, 1992, mature on the following
schedule:
APPROXIMATE
BOOK MARKET
VALUE VALUE
---------- ----------
Within 1 year $ 1,777,721 1,799,000
After 1 year through 5 years 8,468,613 8,585,000
After 5 years through 10 years 765,970 764,000
---------- ----------
$ 11,012,304 11,148,000
========== ==========
At December 31, 1992 and 1991, certain investment securities with par
values totaling $1,000,000 were pledged to secure savings deposits.
In addition, certain investments with par values totaling $1,500,000
at December 31, 1992, and $500,000 at December 31, 1991, were pledged
to secure a commitment of funds from the Federal Home Loan Bank.
(Continued)
F-38
<PAGE> 184
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Notes to Consolidated Financial Statements
(3) MORTGAGE-BACKED SECURITIES
Mortgage-backed securities consisted of the following:
<TABLE>
<CAPTION>
December 31, 1992
---------------------------------------------------
Estimated Gross Gross
Book market unrealized unrealized
value value gains losses
------- ---------- --------- ---------
<S> <C> <C> <C> <C>
GNMA certificates $1,877,366 1,942,000 70,896 6,262
FHLMC certificates 971,034 1,064,000 92,966 -
FNMA certificates (note 9) 3,513,527 3,718,000 204,473 -
--------- --------- ------- ------
Total mortgage-backed securities $6,361,927 6,724,000 368,335 6,262
========= ========= ======= ======
DECEMBER 31, 1991
---------------------------------------------------
Estimated Gross Gross
Book market unrealized unrealized
value value gains losses
---------- --------- ----------- ----------
GNMA certificates $2,643,587 2,809,000 165,413 -
FHLMC certificates 1,153,003 1,197,000 43,997 -
FNMA certificates (note 9) 5,004,222 5,132,000 138,854 11,076
--------- --------- ------- ------
Total mortgage-backed securities $8,800,812 9,138,000 348,264 11,076
========= ========= ======= ======
</TABLE>
The book value and approximate market value of mortgage-backed securities
by contractual maturity as of December 31, 1992 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>
Approximate
Book market
value value
------- -------
<S> <C> <C>
Maturing within five years $367,126 442,000
Maturing within five to ten years 56,356 57,000
Maturing after ten years 5,938,445 6,225,000
--------- ---------
$6,361,927 6,724,000
========== ==========
</TABLE>
Proceeds from the sales of mortgage-backed securities during the year
ended December 31, 1990 were $973,188. There were no sales in
1991. Gross gains recognized for 1990 were $10,928. No gross losses were
recognized in 1990.
(Continued)
F-39
<PAGE> 185
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Notes to Consolidated Financial Statements
(4) LOANS RECEIVABLE AND LOANS HELD FOR SALE
Loans receivable at December 31, are summarized as follows:
<TABLE>
<CAPTION>
1992 1991
----- -----
<S> <C> <C>
Loans secured by first mortgages on real estate:
Principal balances:
Secured by one-to-four family residences $ 15,318,049 14,627,301
Secured by other properties 936,193 1,405,062
Construction loans 1,867,000 858,918
Partially guaranteed by VA or insured by FHA - -
Commercial participation 1,274,918 1,280,865
---------- ----------
19,396,160 18,172,146
Less:
Loans held for sale 758,935 -
Loans in process 811,850 319,002
Net deferred loan origination fees 15,077 17,237
---------- ----------
Total first mortgage loans 17,810,298 17,835,907
---------- ----------
Consumer and other loans:
Consumer 5,411,573 5,703,038
Commercial 362,978 163,536
Loans on savings deposits 385,092 381,432
Signature 139,140 243,722
---------- ----------
6,298,783 6,491,728
Less:
Unearned income 75,035 196,535
---------- ----------
Total consumer and other loans 6,223,748 6,295,193
---------- ----------
Less allowance for loan losses 348,725 382,476
---------- ----------
$ 23,685,321 23,748,624
========== ==========
</TABLE>
Loans held for sale at December 31, 1992 are carried at book value, which
approximates market value.
(Continued)
F-40
<PAGE> 186
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Notes to Consolidated Financial Statements
Activity in the allowance for loan losses at December 31, is summarized as
follows:
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of period $ 382,476 309,846 323,437
Provisions charged against income 23,436 158,509 151,329
Chargeoffs (96,814) (159,877) (219,091)
Recoveries 39,627 73,998 54,171
------- ------- -------
Balance at end of period $ 348,725 382,476 309,846
======= ======= =======
</TABLE>
The following is a summary of the principal balances of loans on nonaccrual
status at December 31:
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Loans contractually past due 90 days or
more and/or on nonaccrual status:
Residential $ 153,000 123,000 221,000
Consumer and commercial 42,000 20,000 89,000
------- ------- -------
$ 195,000 143,000 310,000
======= ======= =======
</TABLE>
During the years ended December 31, 1992, 1991, and 1990, interest income of
approximately $10,365, $13,826, and $31,636, respectively, was not recorded
related to loans accounted for on a nonaccrual basis. No income was
recorded on loans in nonaccrual status during 1992, 1991, and 1990. As of
December 31, 1992, there were no commitments to extend additional credit to
borrowers who had loans in 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, 1990 $ 239,067
Repayments (64,388)
-------
Balance at December 31, 1991 174,679
Advances 150,819
Repayments (149,826)
-------
Balance at December 31, 1992 $ 175,672
=======
</TABLE>
(Continued)
F-41
<PAGE> 187
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Notes to Consolidated Financial Statements
(5) REAL ESTATE OWNED
Real estate owned at December 31, consists of the following:
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Foreclosed real estate $ 638,704 -
Loans to facilitate the sale of foreclosed real estate 550,831 1,174,297
Less allowance for losses (297,000) (222,000)
-------- --------
$ 892,535 952,297
======== ========
</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.
The activity in the allowance for estimated losses on real estate owned
consists of the following:
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Allowance at beginning of year $ 222,000 175,809 78,809
Provision for estimated losses 75,000 46,191 97,000
------- ------- ------
Allowance at end of year $ 297,000 222,000 175,809
======= ======= =======
</TABLE>
(6) LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of these
loans are $17,242,761 and $11,962,090 at December 31, 1992 and 1991,
respectively.
(7) OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment, less accumulated depreciation, consist of
the following at December 31:
<TABLE>
<CAPTION>
1992 1991
---- ----
<S> <C> <C>
Land $ 105,500 105,500
Office buildings and improvements 982,613 973,291
Furniture, fixtures, and equipment 505,214 470,550
Automobiles 10,184 16,884
--------- ---------
1,603,511 1,566,225
Less accumulated depreciation 940,248 887,781
--------- ---------
$ 663,263 678,444
========= =========
</TABLE>
(Continued)
F-42
<PAGE> 188
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Notes to Consolidated Financial Statements
(8) SAVINGS DEPOSITS
Savings deposit balances at December 31, are summarized as follows:
<TABLE>
<CAPTION>
1992 1991
-------------------- -------------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Noninterest-bearing demand deposits $ 127,709 0.3% 113,492 0.3%
N.O.W. accounts and Super N.O.W. accounts at 3.0% 3,687,614 8.1 2,893,897 6.9
Passbook savings at 3.75% 10,447,197 22.8 6,815,703 16.4
---------- ----- ---------- -----
14,262,520 31.2 9,823,092 23.6
---------- ----- ---------- -----
Certificates
3.0% to 3.9% 8,654,240 18.9 - -
4.0% to 4.9% 7,832,565 17.1 1,149,347 2.8
5.0% to 5.9% 3,960,991 8.7 10,990,229 26.4
6.0% to 6.9% 4,004,177 8.8 7,183,394 17.2
7.0% to 7.9% 2,852,780 6.2 6,420,260 15.4
8.0% to 8.9% 2,949,518 6.5 4,683,893 11.2
9.0% to 9.9% 993,181 2.2 1,262,804 3.0
10.0% to 10.9% 173,557 0.4 173,557 0.4
---------- ----- ---------- -----
Total Certificates 31,421,009 68.8% 31,863,484 76.4
---------- ----- ---------- -----
$45,683,529 100.0% 41,686,576 100.0%
========== ===== ========== =====
Weighted average cost
of savings deposits 5.21% 6.66%
==== ====
</TABLE>
Scheduled maturities of certificates are as follows:
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
1 month to 12 months $ 18,711,645 24,665,676 24,923,718
12 months to 24 months 5,885,905 3,721,646 4,545,742
24 months to 36 months 2,514,144 1,299,986 1,759,708
Over 36 months 4,309,315 2,176,176 2,015,884
----------- ----------- -----------
$ 31,421,009 31,863,484 33,245,052
=========== =========== ===========
</TABLE>
Certificates with face values greater than or equal to $100,000 were
$3,690,694 and $5,199,097 at December 31, 1992 and 1991, respectively.
(Continued)
F-43
<PAGE> 189
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Notes to Consolidated Financial Statements
Interest expense on deposits for the years ended December 31, 1992, 1991, and
1990, is summarized as follows:
<TABLE>
<CAPTION>
1992 1991 1990
------ ----- -----
<S> <C> <C> <C>
N.O.W. accounts and Super N.O.W. accounts $ 113,272 133,946 153,066
Passbook savings 342,693 337,408 338,522
Certificates of deposit 1,825,061 2,333,676 2,719,392
--------- --------- ---------
$ 2,281,026 2,805,030 3,210,980
========= ========= =========
</TABLE>
(9) BONDS PAYABLE
During 1985, the Bank initiated a long-range restructuring
program which resulted in the formation of
Citizens Capital Corporation, a wholly-owned
subsidiary. In conjunction with the
restructuring, the Bank 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, the Bank 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 the Bank.
(10) INCOME TAXES
Components of income tax expense (benefit) for the years
ended December 31, 1992, 1991, and 1990, are as
follows:
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Current $ 49,861 113,370 (66,409)
Deferred 56,932 (15,408) -
------ ------- -------
$ 106,793 97,962 (66,409)
======= ====== ========
</TABLE>
Net operating loss carryforwards available to offset
taxable income for state tax purposes in future years
amounted to approximately $946,000 at December 31,
1992. These carryforwards expire as follows:
<TABLE>
<S> <C>
Tax year ended December 31,
2003 $ 156,000
2004 725,000
2005 65,000
-----------
$ 946,000
===========
</TABLE>
(Continued)
F-44
<PAGE> 190
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Notes to Consolidated Financial Statements
Deferred income taxes result from timing differences in
the recognition of income and expenses for tax and
financial statement purposes. The sources of these
timing differences and their tax effects are as
follows:
<TABLE>
<CAPTION>
1992 1991 1990
----- ---- ----
<S> <C> <C> <C>
Deferred compensation $ 55,018 (18,572) (7,389)
Difference in recognition of loan fees 736 1,369 7,588
Interest income reported in different periods
for tax and financial statement purposes - - (10,513)
FHLB stock dividend not currently
recognized for tax purposes 2,958 6,600 11,037
Gain on FHLB stock redeemed (1,780) (4,805) (4,178)
Other, net - - 3,455
-------- ------- --------
Deferred income tax expense (benefit) $ 56,932 (15,408) -
======== ======= ========
</TABLE>
The reasons for the differences between actual income tax expense
(benefit) and the amounts computed by applying the U.S. Federal income tax rate
to the earnings (loss) before income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
1992 1991 1990
---- ---- ----
<S> <C> <C> <C>
Computed "expected" federal income tax expense (benefit) $ 76,202 45,931 (15,048)
Increase (reduction) in taxes resulting from:
Tax bad debt deduction (greater) less than
financial statements 30,591 52,031 (51,361)
-------- ------- --------
Actual income tax expense (benefit) $ 106,793 97,962 (66,409)
======== ======= ========
</TABLE>
The Bank 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.
The Bank used the experience method in 1992, 1991, and
1990. If the amounts that qualify as deductions for
Federal income tax purposes under the percentage 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, 1992 and 1991, includes approximately
$550,000 and $475,000, respectively, for which federal
income tax has not been provided.
(11) EMPLOYEE BENEFITS AND DEFERRED COMPENSATION
The Bank has a noncontributory, defined-benefit retirement
plan for substantially all eligible employees. The
Bank 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 1992, 1991, and 1990. The Bank's
policy is to fund pension costs as accrued.
As of December 31, 1991 the Bank had recorded a liability
for deferred directors' compensation of $161,820. In
January 1992, the Bank paid its deferred compensation
obligation to its directors and terminated all deferred
compensation agreements. Deferred compensation expense
amounted to $0, $61,679 and $28,563 for the years ended
December 31, 1992, 1991 and 1990, respectively.
(Continued)
F-45
<PAGE> 191
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Notes to Consolidated Financial Statements
(12) RECONCILIATION OF RETAINED EARNINGS AND NET EARNINGS (LOSS)
To fairly state the accompanying consolidated financial
statements in accordance with generally accepted
accounting principles, certain adjustments are
reflected which had not been made in the Bank's books
and reports filed with the Office of Thrift
Supervision. The following reconciliation provides
details of the nature and amount of such adjustments.
<TABLE>
<CAPTION>
RETAINED NET EARNINGS FOR
EARINGS YEAR ENDED
-----------------------------------------
DECEMBER 31, DECEMBER 31,
1992 1992 1991 1990
---- ---- ---- ----
<S> <C> <C> <C> <C>
Per reports submitted to the Office of Thrift
Supervision $ 1,911,141 117,332 37,121 85,652
Adjustment of tax accounts - - - 69,038
To adjust provision for possible losses on loans
and real estate owned - - - (97,000)
To adjust deferred compensation liabilities - - - (10,943)
To record net loss on sale of real estate owned - - - (65,213)
To record accretion of discount on loans to
facilitate sales of real estate - - - 26,365
To reverse accrual of supervisory examination fee - - - 18,000
Other adjustments - - - (3,748)
---------- --------- ---------- ---------
Balance in accordance with generally accepted
accounting principles $ 1,911,141 117,332 37,121 22,151
========== ========= ========== =========
</TABLE>
(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 capitalize," 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
risked-based capital ratio of at least 8%. An
institution is deemed to be "critically
undercapitalized" if it has a tangible equity ratio of
2% or less.
After consideration of the capital infusion received on
February 1, 1993, as discussed in note 15, the Bank
meets the criteria for "adequately capitalized" as
defined by FDICIA and the minimum capital level
required by the supervisory agreement discussed in note
16.
(Continued)
F-46
<PAGE> 192
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Notes to Consolidated Financial Statements
(14) FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND
SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK
The Bank 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 consist of
commitments to extend credit and undisbursed lines of
credit. The commitments involve elements of credit and
interest rate risk in excess of the amount recognized
in the consolidated balance sheets. The contract or
notional amounts of those instruments reflect the
extent of involvement the Bank has in particular
classes of financial instruments.
The Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial
instrument for commitments to extend credit and unused
lines of credit is represented by the contractual
notional amount of those instruments. The Bank uses
the same credit policies in making these commitments
and conditional obligations as it does for
on-balance-sheet instruments.
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 many of the commitments are expected to expire
without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements.
The Bank evaluates each customer's credit worthiness on
a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Bank upon extension
of credit is based on management's credit evaluation of
the borrower. Collateral held varies but may include
property, plant, or equipment.
The Bank had outstanding commitments to originate loans of
approximately $633,000 at December 31, 1992. The
commitments were composed entirely of fixed rate loans
with interest rates ranging from 7.5% to 8.875%. The
Bank had undisbursed advances on customer lines of
credit of approximately $594,000 and $215,000 at
December 31, 1992 and 1991, respectively. There were
no commitments to purchase or sell loans at December
31, 1992.
Most of the Bank's business activity is with customers
located within Roane County and adjacent counties in
East Tennessee. A majority of the loans are secured by
residential or commercial real estate or other
commercial property. The loans are expected to be
repaid from cash flow or proceeds from the sale of
selected assets of the borrower. The Bank grants
residential, consumer, and commercial loans to
customers in Roane County and adjacent counties.
The Bank has four loans with an aggregate net carrying
value of $2,122,771 at December 31, 1992 that are
secured by commercial real estate located in Texas,
Mississippi, Virginia, and Florida.
(continued)
F-47
<PAGE> 193
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Notes to Consolidated Financial Statements
(15) CONVERSION/ACQUISITION
In order to increase its regulatory capital levels to
comply with the supervisory agreement described in note
16, on May 20, 1992, the Bank entered into an
acquisition agreement under which the Bank would
convert from mutual to stock form and be acquired by
Peoples Financial Services, Inc. (Peoples).
Previously, in April 1992, the Bank filed an
application with the OTS to convert from mutual to
stock form under the modified conversion regulations,
but the OTS determined that the Bank could not utilize
the modified conversion regulations. Under the terms
of the agreement with Peoples, shares of Peoples common
stock were offered to eligible members of Citizens
Federal. Any shares not purchased by eligible members
of Citizens Federal were sold through a direct
community offering by Peoples. At the time of the
acquisition by Peoples, Citizens Federal converted from
a Federally-chartered mutual savings bank to a
Federally-chartered stock savings bank. The
acquisition by Peoples received approval from all
required regulatory authorities and was consummated on
February 1, 1993. As a result of the stock offering,
gross proceeds of approximately $1,405,000 were
generated.
As of December 31, 1992, the Bank had incurred $367,567 of
costs associated with the conversion / acquisition, of
which $30,248 was charged to operations and $337,219
had been deferred. All deferred conversion costs have
been netted against the proceeds of the stock offering
by Peoples subsequent to the conversion / acquisition.
After netting deferred conversion costs against the
proceeds of the stock offering, the Bank increased its
capital by approximately $896,000. As a result of the
capital infusion, the Bank increased its tangible
capital above the level required by the supervisory
agreement.
For the purpose of granting eligible members of the Bank a
priority in the event of future liquidation, the Bank
at the time of conversion established a liquidation
account equal to its retained earnings as of the date
of the latest consolidated balance sheet used in the
final conversion offering circular. In the event of
future liquidation of the converted bank (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. After the conversion, no dividends
may be paid to stockholders if such dividends reduce
retained earnings of the Bank below the amount required
for the liquidation account.
(16) SUPERVISORY AGREEMENT
The Bank entered into a supervisory agreement with the
Office of Thrift Supervision in September 1991. The
agreement requires the Bank to:
o Plan for an increase in tangible capital to at least
five percent of total assets by December 31, 1992.
o Plan for the reduction of classified assets, which are
principally comprised of loans secured by commercial
real estate located outside Tennessee (note 14), to
less than 100% of tangible capital plus general
valuation allowances by December 31, 1992.
o Modify certain lending and operating practices. None
of the required modifications is expected to
significantly impact operations or earnings.
Management has taken substantive steps to comply with each
of the requirements discussed above.
(Continued)
F-48
<PAGE> 194
CITIZENS FEDERAL SAVINGS BANK AND SUBSIDIARIES
ROCKWOOD, TENNESSEE
Notes to Consolidated Financial Statements
(17) INVESTMENTS HELD FOR SALE
At December 31, 1991, investments held for sale were
carried at their cost of $2,232,661, which approximated
their market value. These securities were sold in
January, 1992; gross proceeds from these sales were
$2,243,922, and gross gains of $11,261 were recognized.
Proceeds from the sale of securities during the year ended
December 31, 1992 were $3,060,700. Gross gains of
$37,076 and gross losses of $88,972 were recognized on
such sales. There were no sales of investments during
1991 or 1990.
F-49
<PAGE> 195
APPENDIX A-1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION ("Agreement") is
made and entered into as of this 27th day of December, 1993 between TRANS
FINANCIAL BANCORP, INC., a Kentucky corporation ("Corporation"), and PEOPLES
FINANCIAL SERVICES, INC., a Tennessee corporation ("PFS").
W I T N E S S E T H :
The Boards of Directors of Corporation and PFS have approved,
and deem it advisable and in their respective shareholders' best interests to
consummate, the business combination transaction (the "Merger") provided for
herein and in the Plan of Merger between Corporation and PFS executed of even
date herewith and incorporated by reference herein as if fully set out herein
(the "Plan of Merger" or the "Plan");
Corporation and PFS are willing to make certain
representations, warranties and agreements in connection with the Merger and
also to prescribe various conditions to the Merger.
For federal income tax purposes, it is intended that the
Merger qualify as a reorganization under the provisions of Section 368 of the
Internal Revenue Code of 1986, as amended.
NOW, THEREFORE, in consideration of the premises and of the
respective representations, warranties, agreements and undertakings herein
contained, the parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
"BHCA" shall mean the Bank Holding Company Act of 1956, as
amended.
"Closing" shall mean the closing of the transactions
contemplated herein and in the Plan of Merger, and "Closing Date" shall mean
the date and time specified pursuant to Section 2.2 hereof as the date of the
Closing.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Commission" shall mean the Securities and Exchange Commission.
<PAGE> 196
"Corporation Common Stock" shall mean the common stock, no par
value, of Corporation.
"Corporation Financial Statements" shall mean (i) the audited
consolidated balance sheets (including related notes) of Corporation as of
December 31, 1992, 1991 and 1990 and the related audited consolidated
statements of income, changes in shareholders' equity and cash flows (including
related notes) for the years ended December 31, 1992, 1991 and 1990, and the
unaudited consolidated balance sheet as of September 30, 1993 and the related
unaudited consolidated statements of income, changes in shareholders' equity
and cash flows (including related notes) of Corporation for the nine months
ended September 30, 1993, and (ii) the consolidated balance sheets and related
consolidated statements of income, changes in shareholders' equity and cash
flows (including related notes) of Corporation with respect to periods ending
subsequent to September 30, 1993.
"Corporation Subsidiary" shall mean each company or other
organization of which at least a majority of the securities or other interests
is directly or indirectly owned or controlled by Corporation.
"Effective Time" is defined at Section 2.1.
"Federal Reserve" shall mean the Board of Governors of the
Federal Reserve System.
"KCBA" shall mean the Kentucky Business Corporation Act.
"KDFI" shall mean the Kentucky Department of Financial
Institutions.
"OTS" shall mean the Office of Thrift Supervision.
"PFS Common Stock" is defined at Section 4.1.B.
"PFS Financial Statements" shall mean (i) the audited
consolidated balance sheets (including related notes) of PFS as of December 31,
1992, 1991 and 1990, the related audited consolidated statements of income,
changes in shareholders' equity, and statements of cash flows (including
related notes) for the years ended December 31, 1992, 1991 and 1990, and the
unaudited balance sheet as of September 30, 1993 and the consolidated
statements of income, changes in shareholders' equity and cash flows (including
related notes) of PFS for the nine months ended September 30, 1993, (ii) the
audited balance sheets (including related notes) of Citizens Federal Savings
Bank as of December 31, 1992, 1991 and 1990, the related audited statements of
income, changes in retained earnings, and the statements of cash flows
(including related notes) for the years ended December 31, 1992, 1991 and 1990,
and (iii) the consolidated balance sheet and related consolidated
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statements of income, changes in shareholders' equity and cash flows (including
related notes) of PFS with respect to periods ending subsequent to September
30, 1993.
"PFS Subsidiary" is defined at Section 4.1C.
"Previously Disclosed" shall mean disclosed prior to the
execution hereof in the letter dated of even date herewith from the party
making such disclosure and delivered to the other party contemporaneously with
the execution hereof.
"Proxy Statement/Prospectus" shall mean the proxy
statement/prospectus together with any supplements thereto sent to the
shareholders of PFS to solicit their votes in connection with this Agreement
and the Plan of Merger.
"Registration Statement" shall mean the registration statement
with respect to the Corporation Common Stock to be issued in connection with
the Merger as declared effective by the Commission under the Securities Act of
1933, as amended.
"Securities Laws" shall mean /i/ the Securities Act of 1933,
as amended (the "Securities Act"); the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); the Investment Company Act of 1940, as amended;
the Trust Indenture Act of 1939, as amended; and the rules and regulations of
the Commission promulgated thereunder, and /ii/ all applicable state securities
laws.
"TBCA" shall mean the Tennessee Business Corporation Act.
"TDFI" shall mean the Tennessee Department of Financial
Institutions.
ARTICLE 2
The Merger
2.1 Effective Time of Merger. Upon the terms and conditions set
forth in this Agreement and the Plan of Merger, Articles of Merger (the
"Articles of Merger") shall be duly prepared and executed by Corporation and
PFS, and thereafter delivered to the Secretary of State of the Commonwealth of
Kentucky and the Secretary of State of the State of Tennessee for filing, as
provided in the KCBA and the TBCA, on the Closing Date. The Merger shall
become effective upon the filing with the Kentucky Secretary of State and with
the Tennessee Secretary of State, or at such time and date thereafter as is
provided in the Articles of Merger (the "Effective Time").
2.2 Closing. The closing of the Merger (the "Closing") will take
place at 10:00 a.m. on a date to be specified by Corporation
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(the "Closing Date"), which shall be no later than the fifth business day
following the last to occur of /i/ the effective date of the last order,
approval, or exemption of any federal or state regulatory agency approving or
exempting the Merger if such action is required, and /ii/ the expiration of all
required waiting periods after the filing of all notices to all federal or
state regulatory agencies required for consummation of the Merger, at the
offices of Wyatt, Tarrant & Combs, 2800 Citizens Plaza, Louisville, Kentucky,
or at such other date and time, and at such other place, as may be mutually
agreed upon by Corporation and PFS.
ARTICLE 3
COVENANTS
3.1 Shareholders' Meeting. This Agreement and the Plan of Merger
shall be submitted for approval to the shareholders of PFS at a meeting to be
called and held in accordance with the applicable provisions of law and the
Articles of Incorporation and Bylaws of PFS (the "Meeting"). PFS shall cause
the Meeting to be held as promptly as practicable and shall disseminate to its
shareholders all materials required of it under law to be disseminated in
connection with the consideration by the shareholders of this Agreement and the
Plan. The Board of Directors of PFS shall recommend that its shareholders
adopt and approve this Agreement and the Plan of Merger at the Meeting and
shall take all action necessary or helpful to secure a vote of shareholders in
favor of the Merger. Immediately after the Meeting, PFS shall notify
Corporation of the results of the Meeting.
3.2 Proxy Statement/Prospectus. As promptly as practicable after
the date hereof, Corporation and PFS shall prepare the Proxy
Statement/Prospectus to be mailed to the shareholders of PFS in connection with
the Merger and to be filed by Corporation as part of the Registration
Statement. Corporation and PFS shall cooperate with each other in order to
facilitate the preparation, filing and clearance of the Registration Statement
and the Proxy Statement/Prospectus under the Securities Laws. Each of
Corporation and PFS will promptly advise the other if it determines that any
information furnished by it to the other specifically for use in the
Registration Statement, including the Proxy Statement/Prospectus included
therein, is or becomes false or misleading in any material respect. In no
event shall either party hereto be liable for, and each party shall indemnify
and hold the other harmless from, any untrue statement of a material fact or
omission to state a material fact in the Registration Statement made in
reliance upon, and in conformity with, written information concerning the other
party furnished by such other party specifically for use in the Registration
Statement. Corporation will advise PFS, promptly after it receives notice
thereof, of the time when the Registration Statement or any post-effective
amendment
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thereto has become effective or any supplement or amendment has been filed, of
the issuance of any stop order, of the suspension of the qualification of the
Corporation Common Stock issuable in connection with the Merger or offering or
sale in any jurisdiction, or the initiation or threat of any proceeding for any
such purpose, or of any request by the Commission for the amendment or
supplement of the Registration Statement or for any additional information.
Corporation shall take all actions necessary to register or qualify the shares
of Corporation Common Stock to be issued in the Merger pursuant to all
applicable state "blue sky" or securities laws and shall maintain such
registrations or qualifications in effect for all purposes hereof.
3.3 Cooperation. PFS and Corporation shall proceed expeditiously
and cooperate fully in making application for all necessary regulatory
approvals, in the procurement of any other consents and approvals, and in the
taking of any other action and the satisfaction of all other requirements
prescribed by law or otherwise, necessary for consummation of the Merger on the
terms provided herein and in the Plan of Merger. Corporation shall, and PFS
shall, and shall cause each PFS Subsidiary to, use all reasonable efforts (i)
to take, or cause to be taken, all actions necessary to comply promptly with
all legal requirements which may be imposed on such party with respect to the
Merger and to consummate the transactions contemplated by this Agreement and
the Plan of Merger, and (ii) to obtain (and to cooperate with the other party
to obtain) any consent, authorization, order or approval of, or any exemption
by, any governmental entity or any other public or private third party which is
required to be obtained or made by such party in connection with the Merger and
the transactions contemplated by this Agreement and the Plan of Merger. Each of
PFS and Corporation shall cooperate fully with, and provide true, complete and
accurate information to, the other in connection with their requests and
applications for consents and governmental clearance, approvals, licenses or
permits, if any, which are necessary for the Merger and Corporation's ownership
and operation of PFS's business following the Merger.
3.4 Conduct of Business Prior to Closing. Except with the prior
written consent of Corporation or as expressly contemplated or permitted by
this Agreement, during the period from the date of this Agreement and
continuing until the earlier of the Effective Time or the date this Agreement
is terminated, neither PFS nor any PFS Subsidiary shall:
A. conduct its business other than in the usual, regular
and ordinary course or fail to use its best efforts to preserve its business
organization intact or to keep available to Corporation the services of its
present officers and employees or to preserve the good will of its customers
and others having business relations with it;
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B. fail to comply in all material respects with all
applicable laws and regulations which relate to the conduct of its business;
C. amend its articles of incorporation or association or
bylaws;
D. except upon the exercise of outstanding options to
purchase 3,111 shares of PFS Common Stock, issue any shares of authorized
capital stock or securities convertible into such shares, or purchase, redeem,
retire or otherwise acquire any of its outstanding shares, or sell or give any
option or right to purchase, hypothecate, pledge or otherwise encumber or
dispose of any such shares or any shares held in treasury, if any, make or
effect any other change in the structure or composition of its capital stock or
agree to do any of the foregoing;
E. in the case of PFS only, declare or pay any dividends
or otherwise make distributions with respect to its capital stock;
F. except as Previously Disclosed, enter into, adopt,
amend or terminate any employee benefit plan, except as required by law, or
enter into any employment agreement with any person or, except in a manner
consistent with past practices, grant any increase in the compensation
(including bonus and benefit plans and all other non-cash compensation) of any
of its employees;
G. solicit or encourage (including by way of furnishing
nonpublic information) inquiries, or authorize or permit any of its officers,
directors, employees, advisors or representatives to solicit or encourage, or
take any other action to facilitate any inquiries or the making of any proposal
which constitutes, or may reasonably be expected to lead to, any takeover
proposal (as defined below) or agree to or endorse any takeover proposal, or
participate in an discussions or negotiations, or provide third parties with
any nonpublic information, relating to any such inquiry or proposal. As used
in this Agreement, "takeover proposal" shall mean any tender or exchange offer,
proposal for a merger, consolidation or other business combination involving
PFS or any PFS Subsidiary or any proposal or offer to acquire in any manner a
substantial equity interest in, or a substantial portion of the assets of, PFS
or any PFS Subsidiary other than the transactions contemplated by this
Agreement;
H. borrow or agree to borrow any amount of funds or
incur any obligation or liability except in the ordinary course of business
consistent with prior practice, or guarantee or agree to guarantee any material
obligations of others except for letters of credit and guaranties of signatures
in the ordinary course of business;
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I. except in the ordinary course of business, cancel any
indebtedness owing to it or any claims that it might have possessed, waive any
material rights of substantial value or sell, lease, encumber, otherwise
dispose of, or agree to sell, lease, encumber or otherwise dispose of any of
its assets;
J. except as Previously Disclosed, amend, modify or
terminate any material agreement or contract other than in the ordinary course
of business or commit any act or omit to do any act that would cause a breach
of any lease, contract or commitment to which it is a party or by which its
property or business is bound or affected, or which would have a material
adverse effect on its financial condition, operations or assets; or
K. enter into or agree to enter into any agreement or
contract that would have been required to be Previously Disclosed pursuant to
this Agreement, other than such contracts and agreements entered into in the
ordinary course of business.
3.5 Access to Information. Upon reasonable notice, Corporation
and PFS shall each (and shall cause each of their respective subsidiaries to)
afford to the officers, employees, accountants, counsel and other
representatives of the other, access, during normal business hours during the
period prior to the Effective Time, to all its properties, books, contracts,
commitments and records and, during such period, each of Corporation and PFS
shall (and shall cause each of their respective subsidiaries to) make available
to the other (i) a copy of each report, schedule, registration statement and
other document filed or received by it during such period pursuant to the
requirements of the Securities Laws or federal or state banking laws (other
than reports or documents that such party is not permitted to disclose under
applicable law) and (ii) all other information concerning its business,
properties and personnel as such other party may reasonably request.
Corporation and PFS shall each, and each shall cause its directors, officers,
attorneys and advisors to, maintain the confidentiality of all information
obtained in such investigation (including information obtained prior to the
date hereof) which is not otherwise publicly disclosed, other than as a result
of a disclosure by the other party or the other party's representatives (unless
such information (i) thereafter becomes lawfully obtainable from other sources
or (ii) is required to be disclosed in any application required to be filed
hereunder with any governmental agency or authority and confidential treatment
of such information is requested), and to return all such information, and not
retain any copies, extracts, or other reproductions in whole or in part, if
this Agreement is terminated pursuant to Article 6, said undertakings to
survive any termination of this Agreement pursuant to Article 6. No
investigation by either Corporation or PFS shall affect the representations and
warranties to the other except to the extent such representations and
warranties are by their terms qualified by disclosures made to the other party.
The
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undertakings in this Section 3.5 shall survive any termination of this
Agreement.
3.6 Press Releases. All parties to this Agreement agree that any
press release or other public announcement by either party pertaining to the
Merger shall be coordinated with the other parties hereto; provided, however,
that nothing contained herein shall prohibit either party from making any
disclosure required by law which its counsel deems necessary, provided the
other party is given written notice thereof.
3.7 Updating of Information by PFS. PFS will furnish Corporation
with all reports and statements filed by it or any PFS Subsidiary with any
regulatory authority and the PFS Financial Statements, such reports and
statements to be furnished promptly after their filing or the preparation
thereof. Each such report and statement shall have been prepared in accordance
with and shall comply in all material respects with applicable law and the
regulations governing its preparation.
3.8 Accounting Treatment. PFS shall not intentionally take or
cause to be taken any action, whether before or after the Effective Time, that
would disqualify the Merger as a "pooling of interests" for accounting purposes
and neither Corporation nor PFS shall intentionally take or cause to be taken
any action, whether before or after the Effective Time, that would disqualify
the Merger as a "reorganization" within the meaning of Section 368(a) of the
Code.
3.9 PFS Affiliates. PFS shall, prior to the Closing Date, cause
to be delivered to Corporation a list, reviewed by PFS's counsel, identifying
all affiliates of PFS (as such term is used in Rules 144 and 145 promulgated by
the Commission under the Securities Laws). PFS shall furnish such information
and documents as Corporation may reasonably request for the purpose of
reviewing such list. PFS shall cause each person who is identified as an
"affiliate" in the list furnished pursuant to this Section and who is to
receive any shares of Corporation Common Stock pursuant to the Merger to
execute a written agreement on or before the Closing Date, in substantially the
form attached hereto as Exhibit 3.9 (collectively, the "Affiliate Agreements"),
that such person will not dispose of any shares of Corporation Common Stock
received in the Merger until such time as financial results covering at least
30 days of combined operations of Corporation and PFS shall be published and
that such person, for a period of two years (or three years if that person
becomes an affiliate of Corporation) following the Effective Time, (i) will not
offer to sell or otherwise dispose of any of the shares of Corporation Common
Stock received pursuant to the Merger in violation of the Securities Laws, (ii)
will acknowledge the placement of a legend on the certificate(s) representing
the "affiliate's" shares of Corporation Common Stock referring to the issuance
of such shares in a transaction to which
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said Rule 145 is applicable, and (iii) will acknowledge the giving of
stop-transfer instructions to Corporation's transfer agent with respect to the
"affiliate's" certificates evidencing Corporation Common Stock received in the
Merger, which shall be effective absent evidence of compliance with said Rule
145. Corporation shall during the period any "affiliates" hold shares of
Corporation Common Stock so restricted comply with the requirements of Rule
144(c) under the Securities Act of 1933 to allow such shares of Corporation
Common Stock held by such "affiliates" to be transferrable by the "affiliates"
in compliance with paragraphs (c), (e), (f) and (g) of Rule 144.
3.10 Employee Benefits. At, or as soon as administratively
feasible after, the Effective Time, employees and officers of PFS and each PFS
Subsidiary shall be provided with such employee benefits as Corporation from
time to time generally provides to employees and officers of a Corporation
Subsidiary, including, but not limited to, participation in Corporation's
Employee Stock Ownership Plan, Savings Investment Plan, life, medical and
hospitalization and disability insurance, and sick pay, vacation, personal
leave and severance benefits, on a non-discriminatory and substantially similar
basis. For purposes of providing such benefits to employees and officers of
PFS or any PFS Subsidiary after the Effective Time, the Corporation shall
credit such employees and officers for years of service at PFS or any PFS
Subsidiary prior to the Effective Time for purposes of eligibility, vesting,
and benefit amounts paid or privileges provided.
3.11 Dividends. Beginning with the second calendar
quarter of 1994 and for each succeeding calendar quarter thereafter prior to
the calendar quarter in which the Effective Time shall occur, PFS may declare
and pay dividends on shares of PFS Common Stock in an amount not to exceed $.72
per share of PFS Common Stock; provided, however, except as hereinbelow
provided, PFS shall not declare or pay any dividends or make any distributions
in any amount on PFS Common Stock in the quarter in which the Effective Time
shall occur and in which the shareholders of PFS Common Stock are entitled to
receive regular quarterly dividends on the shares of Corporation Common Stock
into which the shares of PFS Common Stock have been converted. It is the
intent of this Section 3.11 to provide that the holders of PFS Common Stock
will receive either the payment of cash dividends on their shares of PFS Common
Stock or the payment of cash dividends as the holders of shares of Corporation
Common Stock received in the Exchange for the calendar quarter in which the
Effective Time shall occur, but will not receive and will not become entitled
to receive for the same calendar quarter both the payment of a cash dividend as
a holder of PFS Common Stock and the payment of a cash dividend as a holder of
Corporation Common Stock.
3.12 Additional Agreements. In case at any time after the
Effective Time any further action is necessary or desirable to
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carry out the purposes of this Agreement and the Plan of Merger, each party to
this Agreement shall take all such necessary action.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
WITH RESPECT TO PFS AND CORPORATION
4.1 PFS's Representations and Warranties. PFS hereby represents
and warrants to Corporation as follows:
A. Corporate Standing; Authorization.
/i/ PFS is a bank holding company registered
under the BHCA and a savings and loan holding company registered under
the Savings and Loan Holding Company Act. PFS and each PFS Subsidiary
is a Tennessee corporation or banking corporation, duly organized,
validly existing under the laws of the State of Tennessee, or federal
savings bank, duly organized, validly existing and in good standing
under the laws of the United States of America. PFS and each PFS
Subsidiary organized under the laws of the State of Tennessee has paid
all fees due and owing to the Office of the Tennessee Secretary of
State, has delivered to that office its most recent annual report as
required by the Act, and has never filed articles of dissolution with
the Tennessee Secretary of State or the TDFI. PFS has delivered to
Corporation true and correct copies of the Charter and Bylaws of PFS
and all amendments thereto through the date hereof. PFS and each PFS
Subsidiary has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being
conducted and is duly qualified and in good standing to do business in
each jurisdiction in which the nature of its business or the ownership
or leasing of its properties makes such qualification necessary.
/ii/ The execution and delivery of this Agreement
and the Plan of Merger do not, and the consummation of the
transactions contemplated hereby and thereby will not, conflict with,
or result in any violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or the loss of a
material benefit under, or the creation of a lien, pledge, security
interest, charge or other encumbrance on assets (any such conflict,
violation, default, right of termination, cancellation or
acceleration, loss or creation, shall be deemed hereunder a
"Violation") pursuant to, any provision of the articles of
incorporation or articles of association or bylaws of PFS or any PFS
Subsidiary, or, subject to obtaining or making the consents,
approvals, orders, authorizations, registrations, declaration
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and filings referred to in paragraph /iii/ below, or result in any
Violation of any loan or credit agreement, note, mortgage, indenture,
lease, Benefit Plan (as defined in Section 4.1L) or other agreement,
obligation, instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to PFS or any PFS Subsidiary or their respective properties
or assets.
/iii/ Except (a) for consents, approvals, orders, and
authorizations from the Federal Reserve, the OTS and the TDFI, and (b)
for the filing of Articles of Merger with the Kentucky Secretary of
State and the Tennessee Secretary of State, no consent, approval,
order or authorization of, or registration, declaration or filing
with, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, is
required by or with respect to PFS or any PFS Subsidiary in connection
with the execution and delivery of this Agreement and the Plan of
Merger, or the consummation by PFS of the transactions contemplated
hereby and thereby.
/iv/ PFS has all requisite corporate power and
authority to enter into and, subject to the approval of its
shareholders, to consummate the transactions contemplated by this
Agreement and the Plan of Merger. The execution and delivery of this
Agreement and the Plan of Merger and the consummation of the
transactions contemplated hereby and thereby have been duly authorized
by all necessary corporate action on the part of PFS, subject to the
approval of this Agreement and the Plan of Merger by the shareholders
of PFS. This Agreement and the Plan of Merger have been duly executed
and delivered by PFS, and constitute the legal, valid and binding
obligations of PFS enforceable against it in accordance with their
terms.
B. Capital Structure of PFS. The authorized capital
stock of PFS consists of 100 shares of organizational common stock with $10.00
par value per share ("PFS Organizational Common Stock") and 1,000,000 shares of
common stock without par value ("PFS Common Stock"). At the date hereof, (i)
no shares of PFS Organizational Common Stock are issued or outstanding, and
(ii) 236,777 shares of PFS Common Stock are validly issued and outstanding and
fully paid and nonassessable, no shares are held by PFS in treasury, and 3,111
shares are reserved for issuance upon the exercise of outstanding options.
There is outstanding no subscription, option, warrant, call or commitment of
any character relating to shares of PFS's capital stock or any instruments that
can be converted into shares of PFS's capital stock. None of the shares of PFS
Common Stock have been issued in violation of any preemptive right. There are
no outstanding contractual obligations of PFS or any PFS Subsidiary to
repurchase, redeem or otherwise acquire any shares of capital stock of PFS. No
bonds, debentures, notes or other indebtedness
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having the right to vote (or convertible into or exercisable for securities
having the right to vote) on any matters on which stockholders of PFS may vote
are issued or outstanding.
C. Subsidiaries. PFS has Previously Disclosed each
company or other organization, whether incorporated or unincorporated, of which
PFS is a general partner or at least a majority of the securities or other
interests is directly or indirectly owned or controlled by PFS (each such
company or other organization Previously Disclosed by PFS is referred to in
this Agreement as a "PFS Subsidiary"). PFS has delivered to Corporation true
and correct copies of the Articles of Incorporation or Charter and Bylaws of
each PFS Subsidiary, as amended through the date hereof, and has Previously
Disclosed the authorized, issued and outstanding capital stock of each PFS
Subsidiary. No shares of capital stock of any PFS Subsidiary are held in
treasury. All of the outstanding shares of capital stock of each PFS
Subsidiary are validly issued and outstanding and are fully paid and
nonassessable and such shares are wholly owned by PFS directly, free and clear
of all liens, claims and encumbrances. There is outstanding no subscription,
option, warrant, call or commitment of any character relating to or any
instruments that can be converted into shares of the capital stock of any PFS
Subsidiary. No bonds, debentures, notes or other indebtedness having the right
to vote (or convertible into or exercisable for securities having the right to
vote) of any PFS Subsidiary are issued or outstanding.
D. SEC Documents. PFS has made available to Corporation
a true and complete copy of each report, schedule, and registration statement
filed by PFS with the Commission since January 1, 1993 through the date hereof
(as such documents have since the time of their filing been amended, the "PFS
SEC Documents"), which are all the documents that PFS was or will be required
to file with the Commission since such date. As of their respective dates, the
PFS SEC Documents complied in all material respects with the requirements of
the Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the Commission thereunder applicable to such PFS SEC Documents,
and none of the PFS SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of PFS included
in the PFS SEC Documents comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the Commission with respect thereto, have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto or, in
the case of the unaudited statements, as permitted by Form 10-Q of the
Commission) and fairly present the consolidated financial position of PFS and
its consolidated subsidiaries as at the dates thereof
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and the consolidated results of their operations and cash flows for the periods
then ended. All material agreements, contracts or other documents required to
be filed as exhibits to any of the PFS SEC Documents have been or will be so
filed. All reports, schedules and statements hereafter filed by PFS with the
Commission which PFS shall deliver to Corporation pursuant to Section 3.5
hereof will comply in all material respects with the requirements of the
Securities Laws, and none of such reports, schedules or statements will contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of PFS included in such reports, schedules and statements
will comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the Commission
with respect thereto, will be prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Form 10-Q of the Commission) and will
fairly present the consolidated financial position of PFS and its consolidated
subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended.
E. Information Supplied. None of the information
supplied or to be supplied by PFS for inclusion in (i) the Registration
Statement to be filed with the Commission by the Corporation in connection with
the issuance of shares of Corporation Common Stock in the Merger will, at the
time the Registration Statement is filed with the Commission and at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, and (ii) the Proxy
Statement/Prospectus will, at the date of mailing to shareholders of PFS and at
the time of the meeting of such shareholders to be held in connection with the
Merger, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Proxy Statement/Prospectus will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
F. PFS Financial Statements. The PFS Financial
Statements were and will be prepared in accordance with generally accepted
accounting principles, applied on a consistent basis, and fairly present and
will fairly present the financial condition of PFS and the PFS Subsidiaries at
the respective dates indicated therein, the results of operation of PFS and the
PFS Subsidiaries for the periods covered thereby and the other financial
information
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purported to be shown thereon. The business of PFS has been conducted only in
the ordinary course of business since December 31, 1992.
G. Absence of Undisclosed Liabilities. Except as
disclosed in the PFS Financial Statements or the PFS SEC Documents, neither PFS
nor any PFS Subsidiary has any obligations or liabilities (contingent or
otherwise) that might reasonably be expected to have, individually or in the
aggregate, a material adverse effect on the business, assets, results of
operations or financial condition of PFS and the PFS Subsidiaries taken as a
whole.
H. Loans and Allowance for Credit Losses. All loans
reflected on the books and records of each PFS Subsidiary have been /i/ made
for good, valuable and adequate consideration in the ordinary course of
business and /ii/ evidenced by notes or other evidences of indebtedness that
are true and genuine. The allowance for credit losses ("Allowance") shown on
the consolidated balance sheet of PFS as of September 30, 1993 included in the
PFS Financial Statements was, and the Allowance shown on the consolidated
balance sheets of PFS as of dates subsequent to the execution of this Agreement
included in the PFS Financial Statements will be, in each case as of the dates
thereof, adequate to provide for losses relating to or inherent in the loan and
lease portfolios of, and other extensions of credit (including letters of
credit and commitments to make loans or extend credit) made by, PFS and each
PFS Subsidiary.
I. Legal Proceedings. There are no claims of any kind
or any actions, suits, proceedings, arbitrations or investigations pending or,
to the best knowledge of PFS, threatened against PFS or any PFS Subsidiary or
against any asset, interest or right of any such company that might,
individually or in the aggregate, have a material adverse effect on the
financial condition, results of operation or business of PFS or any PFS
Subsidiary, nor is there any judgment, decree, injunction, rule or order of any
governmental entity or arbitrator outstanding against PFS or any PFS Subsidiary
having or which, insofar as reasonably can be foreseen, in the future could
have any such effect.
J. Agreements with Regulators. Except as Previously
Disclosed, neither PFS, any PFS Subsidiary, nor any officer or director of PFS
or any PFS Subsidiary, is a party to any written agreement or memorandum of
understanding with, or a party to any commitment letter or similar undertaking
to, or is subject to any order or directive by, or is a recipient of any
extraordinary supervisory letters from, any banking regulator, nor has PFS or
any PFS Subsidiary been advised by any banking regulator that it is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter or similar
submission. No investigation
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by any governmental entity with respect to PFS or any PFS Subsidiary is pending
or, to the best knowledge of PFS, threatened and neither PFS nor any PFS
Subsidiary has knowledge of any basis for the commencement of any regulatory or
enforcement action against PFS or any PFS Subsidiary by any governmental or
regulatory authority.
K. Compliance with Laws. PFS and each PFS Subsidiary
holds all permits, licenses, variances, exemptions, orders and approvals of all
governmental entities which are material to the operation of the businesses of
PFS and each PFS Subsidiary and is in compliance in all material respects with
the terms thereof. PFS and each PFS Subsidiary has complied with in all
material respects and is not in any default under (and has not been charged
with or received notice with respect to nor are threatened with or under
investigation with respect to, any charge concerning any violation of any
provision of) any federal, state or local law, regulation, ordinance, rule or
order (whether executive, judicial, legislative or administrative) or any
order, writ, injunction or decree of any court, agency or instrumentality,
except for possible violations or defaults that, individually or in the
aggregate, would not have a material adverse effect on PFS and its Subsidiaries
taken as a whole. There are no uncured violations or violations with respect
to which refunds or restitution may be required cited in any report concerning
PFS or any PFS Subsidiary as a result of examination by any regulatory
authority and neither PFS nor any PFS Subsidiary has knowledge of any basis on
which refunds or restitution may be required by any regulatory authority.
L. Employee Benefit Plans.
/i/ Since the date of the most recent PFS Financial
Statements, there has not been any adoption or amendment in any
material respect by PFS or any PFS Subsidiary of any collective
bargaining agreement, or any bonus, pension, profit sharing, deferred
compensation, incentive compensation, stock ownership, stock purchase,
stock option, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, medical or other plan,
arrangement or understanding (whether or not legally binding) providing
benefits to any current or former employee or director of PFS or any
PFS Subsidiary (collectively, "Benefit Plans"). Except as Previously
Disclosed, there exist no employment, consulting, severance,
termination or indemnification agreements, arrangements or
understandings between PFS or any PFS Subsidiary and any officer,
director or key employee of PFS or any PFS Subsidiary.
/ii/ PFS has Previously Disclosed a list and brief
description of all "employee pension benefit plans" (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA")) (sometimes
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referred to herein as "Pension Plans"), all "employee welfare benefit
plans" (as defined in Section 3(1) of ERISA) and all other Benefit
Plans maintained, or contributed to, by PFS or any PFS Subsidiary for
the benefit of any officers or employees of PFS or any PFS Subsidiary.
PFS has delivered to Corporation true, complete and correct copies of
(1) each Benefit Plan (or, in the case of any unwritten Benefit Plans,
descriptions thereof), (2) the most recent annual report on Form 5500
filed with the Internal Revenue Service with respect to each Benefit
Plan, (if any such report was required), (3) the most recent summary
plan description for each Benefit Plan for which such summary plan
description is required, and (4) each trust agreement and group
annuity contract relating to any Benefit Plan. No Benefit Plan
provides medical or hospitalization benefits to retirees or other
former employees, other than medical benefits required to be provided
to qualified beneficiaries under the provisions of Section 4980B(f) of
the Code and paid for entirely by the individual electing such
coverage under Section 4980B(f) of the Code.
/iii/ Each Benefit Plan has been administered in all
material respects in accordance with its terms. Except as Previously
Disclosed, PFS, each PFS Subsidiary and all the Benefit Plans are in
compliance with the applicable provisions of ERISA and the Code. All
reports, returns and similar documents with respect to the Benefit
Plans required to be filed with any governmental agency or distributed
to any Benefit Plan participant have been duly and timely filed or
distributed. There are no investigations by any governmental agency,
termination proceedings or other claims (except claims for benefits
payable in the normal operation of the Benefit Plans), suits or
proceedings against or involving any Benefit Plan or asserting any
rights or claims to benefits under any Benefit Plan that could give
rise to any liability, and, to the best knowledge of PFS, there are
not any facts that could give rise to any liability in the event of
any such investigation, claim, suit or proceeding.
/iv/ All Pension Plans have been the subject of
determination letters from the Internal Revenue Service to the effect
that such Pension Plans are qualified and exempt from Federal income
taxes under Sections 401(a) and 501(a), respectively, of the Code. No
such determination letter has been revoked nor, to the best knowledge
of PFS, has revocation been threatened, nor has any such Pension Plan
been amended since the date of its most recent determination letter or
application therefor in any respect that would adversely affect its
qualification or materially increase its costs.
/v/ No Pension Plan that PFS, any PFS Subsidiary
or any other company under common control with PFS (within the meaning
of Section 4001(a)(14) of ERISA) maintains, or to
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which PFS, any PFS Subsidiary or any other company under common
control with PFS (within the meaning of Section 4001(a)(14) of ERISA)
is obligated to contribute, other than any Pension Plan that is a
"multiemployer plan" (as such term is defined in Section 4001(a)(3) of
ERISA) (collectively, the "Multiemployer Pension Plans"), had, as of
the respective last annual valuation date for each such Pension Plan,
an "unfunded benefit liability" (as such term is defined in Section
4001(a)(18) of ERISA). Except as Previously Disclosed, PFS is not
aware of any facts or circumstances that would change the funded
status of any such Pension Plan. None of the Pension Plans has an
"accumulated funding deficiency" (as such term is defined in Section
302 of ERISA or Section 412 of the Code), whether or not waived. All
contributions to, and payments from, the Benefit Plans required to be
made in accordance with the Benefit Plans and, when applicable,
Section 302 of ERISA or Section 412 of the Code, have been timely
made, and there has been no application for or waiver of the minimum
funding standards imposed by Section 412 of the Code with respect to
any Pension Plan. All such contributions to, and payments from, the
Benefit Plans (except those payments to be made from a trust qualified
under Section 401(a) of the Code), for any period ending before the
Effective Time that are not yet, but will be, required to be made,
will be properly accrued and reflected in the proper books and records
of PFS at the Effective Time. None of PFS, any PFS Subsidiary or any
officer of PFS or any PFS Subsidiary or any of the Benefit Plans of
PFS and any PFS Subsidiary which are subject to ERISA, including the
Pension Plans, or any trusts created thereunder, any administrator or,
to the best knowledge of PFS, any trustee thereof, has engaged in a
"prohibited transaction" (as such term is defined in Section 406 of
ERISA or Section 4975 of the Code) or any other breach of fiduciary
responsibility under Part 4, Subtitle B, Title I of ERISA that could
subject PFS, any PFS Subsidiary or any officer of PFS or any PFS
Subsidiary to the tax or penalty on prohibited transactions imposed by
such Section 4975 or to any liability under Section 502(i) or (1) of
ERISA. Neither any of such plans nor any of such trusts have been
terminated, nor has there been any "reportable event" (as that term is
defined in Section 4043 of ERISA) with respect thereto during the last
five years. Neither PFS, any PFS Subsidiary, any administrator, nor,
to the best knowledge of PFS, any trustee or other fiduciary, of any
Benefit Plan nor any agent of any of the foregoing has engaged in any
transaction or acted or failed to act in a manner that could subject
PFS or any PFS Subsidiary to any material liability for breach of
fiduciary duty under ERISA or any other applicable law. Neither PFS
nor any PFS Subsidiary (or any other employer that since September 2,
1974 has ever been treated as a "single employer" under Section
414(b)(c) or (m) of the Code with PFS or any PFS
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Subsidiary) has ever been required to contribute to any Multiemployer
Pension Plans.
/vi/ With respect to any Pension Plan subject to
Title IV of ERISA (including for purposes of clause (1) below, any
Pension Plan maintained or contributed to by PFS or any other company
under common control with PFS within the meaning of Section 414 of the
Code and, for purposes of clause (2) below, any Pension Plan
maintained or contributed to by PFS or any other company under common
control with PFS within the meaning of Section 4001(a)(14) of ERISA):
PFS has not incurred any material liability on or prior to the date
hereof (1) to such Pension Plan or (2) to the Pension Benefit Guaranty
Corporation other than for the payment of premiums, all of which have
been paid when due. PFS has furnished to Corporation the most recent
actuarial report or valuation with respect to each Pension Plan that
is a "defined benefit pension plan" (as defined in Section 3(35) of
ERISA). The information supplied to the actuary by PFS for use in
preparing those reports or valuations was complete and accurate and
PFS has no reason to believe that the conclusions expressed in those
reports or valuations are incorrect.
/vii/ With respect to any Benefit Plan that is an
employee welfare benefit plan: (1) no such Benefit Plan is unfunded or
funded through a welfare benefits fund, as such term is defined in
Section 419(e) of the Code, (2) each such Benefit Plan that is a group
health plan, as such term is defined in Section 5000(b)(1) of the
Code, complies with the applicable requirements of Section 4980B(f) of
the Code and (3) each such Benefit Plan (including any such Plan
covering retirees or other former employees) may be prospectively
amended or terminated without material liability to PFS or any PFS
Subsidiary on or at any time after the Effective Time.
/viii/ Each employee bonus or profit sharing plan
providing benefits to any current or former officer, director or
employee of PFS or any PFS Subsidiary is terminable by PFS or such PFS
Subsidiary without notice at any time.
M. Labor Matters.
/i/ PFS and each PFS Subsidiary is in compliance in
all material respects with all applicable laws respecting employment
and employment practices, terms and conditions of employment and wages
and hours and occupational safety and health;
/ii/ There is no unfair labor practice charge or
complaint or any other matter against or involving PFS or any PFS
Subsidiary pending or, to the knowledge of PFS, threatened
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before the National Labor Relations Board or any court of law;
/iii/ Neither PFS nor any PFS Subsidiary is a party
to or bound by any collective bargaining agreement or any similar
labor union arrangement;
/iv/ There are no charges, investigations,
administrative proceedings or formal complaints of discrimination
(including discrimination based upon sex, age, marital status, race,
color, religion, national origin, sexual preference, disability,
handicap or veteran status) pending or, to the knowledge of PFS
threatened, before the Equal Employment Opportunity Commission or any
federal, state or local agency or court against PFS or any PFS
Subsidiary;
/v/ There have been no governmental audits of the
equal employment opportunity practices of PFS or any PFS Subsidiary
and, to the knowledge of PFS, no basis for any such claim exists; and
/vi/ PFS and each PFS Subsidiary is in compliance in
all material respects with the requirements of the Americans With
Disabilities Act.
N. Brokers. Neither PFS, any PFS Subsidiary, nor any of
their respective officers, directors or employees, has employed any broker,
finder or financial advisor or incurred any liability for fees or commissions
payable to any broker, finder or financial advisor in connection with the
negotiations relating to or the transactions contemplated by this Agreement.
O. Assets. PFS and each PFS Subsidiary has good and
marketable title to all of the properties and assets, real and personal,
tangible and intangible, reflected on the PFS Financial Statements or acquired
after the dates thereof, free and clear of all liens, charges, security
interests, encumbrances and claims, except for /i/ liens for current taxes not
yet due and payable, /ii/ pledges to secure deposits and other liens incurred
in the ordinary course of its business, and /iii/ such imperfections or
irregularities of title, easements, claims, liens, charges, security interests
and encumbrances, if any, as do not materially affect the use of the properties
or assets subject thereto or affected thereby or otherwise materially impair
business operations at such properties. All leases by which either of PFS or
any PFS Subsidiary leases real or personal property as lessee (other than
leases that are the equivalent of extensions of credit) are valid without
default in any material respect thereunder by the lessee or, to the best
knowledge of PFS, the lessor, and are in full force and effect in accordance
with their respective terms.
P. Material Contracts. Except as Previously Disclosed,
neither PFS nor any PFS Subsidiary is a party to any:
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/i/ agreement, arrangement or commitment not made
in the ordinary course of business consistent with past practices;
/ii/ employment agreement or any bonus, incentive,
deferred compensation, severance pay, profit sharing, retirement,
stock purchase, stock option agreement or arrangement or employee
benefit plan for or in respect of any employee or former employee;
/iii/ collective bargaining agreement or other
agreement with any labor union or labor organization;
/iv/ material agreement, indenture or other
instrument relating to the borrowing of money, or the guaranty of any
obligation for the borrowing of money or any agreement that involves a
potential material liability (other than in the ordinary course of its
business);
/v/ any agreement, contract or commitment
containing any covenant materially limiting the freedom of PFS or any
PFS Subsidiary to engage in any line of business in any geographic
area or to compete with any person; or
/vi/ agreement for loans or the provision,
purchase or sale of goods, services or property, or other contract or
commitment with any director or officer.
Q. Good Standing of Contracts. No event or condition has
occurred or exists, or, to the best knowledge of PFS, is alleged by any of the
other parties thereto to have occurred or existed, which constitutes, or with
lapse of time or giving of notice or both might constitute, a default or breach
under any of the leases, contracts or agreements to which PFS or any PFS
Subsidiary is a party, which default is reasonably likely to result in a
material adverse change in the financial condition, results of operation or
business of PFS or any PFS Subsidiary.
R. Insurance. PFS has Previously Disclosed true and
complete copies of all policies of fire, theft, liability and other insurance
and bonds maintained with respect to the assets or businesses of PFS and each
PFS Subsidiary, the effective dates thereof and the premiums payable with
respect thereto. All such policies and bonds are valid and enforceable and in
full force and effect and neither PFS nor any PFS Subsidiary has received any
notice of premium increases or cancellations with respect to any of such
policies and bonds. To the best knowledge of PFS, neither PFS nor any PFS
Subsidiary is liable for any material retroactive premium adjustments with
respect to any of its insurance policies or bonds.
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S. Tax Matters. Each member of the consolidated group
of which PFS is a member or has ever been a member (the "Group") has timely
filed or caused to be filed all federal, state, foreign and local income,
franchise, gross receipts, payroll, sales, use, withholding, occupancy, excise,
real and personal property, employment and other tax returns, tax information
returns and reports required to be filed, and has paid, or made adequate
provisions for the payment of, all taxes, duties or assessments of any nature
whatsoever, interest payments, penalties and additions (whether or not
reflected in its returns as filed) due and payable (and/or properly accruable
for all periods ending on or before the date of this Agreement) to any city,
county, state, foreign country, the United States or any other taxing
authority. The most recent PFS Financial Statements reflect an adequate
reserve for all taxes payable by PFS and each PFS Subsidiary accrued through
the date of such Financial Statements. No material deficiencies for any taxes
have been proposed, asserted or assessed against PFS or any PFS Subsidiary that
are not adequately reserved for. Except with respect to claims for refund, the
federal income tax returns of PFS and each PFS Subsidiary consolidated in such
returns have been examined by and settled with the United States Internal
Revenue Service (the "IRS"), or the statute of limitations with respect to such
years has expired (and no waiver extending the statute of limitations has been
requested or granted) for all years through 1989. The consolidated federal
income tax returns of the Group have not been audited during the last five (5)
fiscal years of PFS. No audit, examination or investigation is presently being
conducted or, to the best knowledge of PFS, threatened by any taxing authority;
no unpaid tax deficiencies or additional liabilities of any sort have been
proposed by any governmental representative; and no agreements for the
extension of time for the assessment of any amounts of tax have been entered
into by or on behalf of any member of the Group.
T. Fiduciary Activities. Each PFS Subsidiary's
fiduciary and custodial activities have been and are being conducted
in all material respects in accordance with all applicable law.
U. Environmental Matters.
/i/ PFS and each PFS Subsidiary is in substantial
compliance with all applicable federal, state and local laws, rules,
regulations, ordinances and requirements relating to the environment
("Environmental Laws");
/ii/ No "Hazardous Wastes" (as hereinafter defined) have
ever been generated, transported, treated, stored, released or
disposed of on any real property owned or leased by PFS or PFS
Subsidiary;
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/iii/ Neither PFS nor any PFS Subsidiary has transported or
disposed or caused or permitted any person to transport or dispose of
any Hazardous Wastes other than in accordance with all Environmental
Laws;
/iv/ Neither PFS nor any PFS Subsidiary has ever violated
any of the Environmental Laws;
/v/ No asbestos, PCBs or other Hazardous Wastes or any
petroleum product or constituents thereof is present on, in or under
any of the property owned by PFS or any PFS Subsidiary, whether owned
or leased or held as OREO (as such term is customarily used) or in
which PFS or any PFS Subsidiary has any legal or equitable interest;
/vi/ There are no loans or other credits included in the
loan portfolio of any PFS Subsidiary with respect to which PFS or any
PFS Subsidiary is or could incur or become responsible for liability
under the Environmental Laws; and
/vii/ No Hazardous Wastes have ever been utilized on any of
the property now held or previously held by PFS or any PFS Subsidiary
as collateral or otherwise securing any loan made by PFS or any PFS
Subsidiary.
Hazardous Wastes" for purposes of this Agreement shall include,
without limitation: /i/ hazardous substances or hazardous wastes, as those
terms are defined by the Comprehensive Environmental Response, Compensation and
Liability Act, 42 U.S.C. Section 9601 et seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901 et seq., and any other applicable federal,
state or local law, rule, regulation, ordinance or requirement, all as amended
or hereafter amended; /ii/ petroleum, including without limitation crude oil
or any fraction thereof which is liquid at standard conditions of temperature
and pressure (60 degrees Fahrenheit and 14.7 pounds per square inch absolute);
/iii/ any radioactive material , including without limitation any source,
special nuclear, or by-product material as defined in 42 U.S.C. Section 2011 et
seq.; and /iv/ asbestos or any asbestiform minerals in any form or condition.
V. Insider Loans. All loans, loan commitments and any
other extensions of credit and commitments to extend credit that are currently
outstanding by PFS or any PFS Subsidiary to directors, officers, or principal
shareholders of PFS or any PFS Subsidiary or any of their related interests,
were made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons, and substantially comply with all applicable provisions of
federal and state law. Such loans, extensions and commitments do not involve
more than a normal risk of collectability.
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W. Adjustable Rate Mortgages. Each PFS Subsidiary has
properly calculated, in accordance with the contractual terms thereof and all
applicable law, all adjustments required in its portfolio of adjustable rate
mortgage notes.
X. Regulatory Matters. Neither PFS nor any PFS
Subsidiary has, through the date hereof, taken or agreed to take any action or
has knowledge of any fact or circumstance that would materially impede or delay
receipt of any approval referred to in Section 5.2E hereof.
Y. Absence of Certain Changes or Events. Except as
disclosed in the PFS SEC Documents or Previously Disclosed, since December 31,
1992, PFS and the PFS Subsidiaries have not incurred any material liability,
except in the ordinary course of their business consistent with their past
practices, nor has there been any change, or any event involving a prospective
change, in the business, assets, financial condition or results of operations
of PFS or any of its PFS Subsidiaries that has had, or is reasonably likely to
have, a material adverse effect on PFS and PFS's Subsidiaries taken as a whole.
Z. Full Disclosure. No representation or warranty of
PFS contained in this Agreement and no statement contained in this Agreement or
in any certificate or other instrument furnished to Corporation hereunder
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary to make the statements contained
herein or therein not misleading.
4.2 Corporation's Representations and Warranties. Except as
Previously Disclosed, Corporation hereby represents and warrants to PFS that:
A. Corporate Standing; Authorization.
/i/ Corporation is a bank holding company
registered under the BHCA and a savings and loan holding company
registered under the Savings and Loan Holding Company Act.
Corporation and each Corporation Subsidiary is a Kentucky corporation
or national bank or savings association duly organized, validly
existing, and in good standing under applicable laws. Corporation and
each Corporation Subsidiary have all requisite power and authority to
own, lease and operate its properties and to carry on its business as
now being conducted and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of its business or
the ownership or leasing of its properties makes such qualification
necessary.
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/ii/ The execution and delivery of this Agreement
and the Plan of Merger do not, and the consummation of the
transactions contemplated hereby and thereby will not, conflict with,
or result in any Violation pursuant to, any provision of the articles
of incorporation or association or charter or bylaws of Corporation or
any Corporation Subsidiary or, subject to obtaining or making the
consents, approvals, orders, authorizations, registrations,
declarations and filings referred to in paragraph /iii/ below, result
in any Violation of any loan or credit agreement, note, mortgage,
indenture, lease, benefit plan or other agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to
Corporation or any Corporation Subsidiary or their respective
properties or assets.
/iii/ Except (a) for consents, approvals, orders,
and authorizations from the Federal Reserve, the OTS, the KDFI, and
the TDFI, (b) for the filing of Articles of Merger with the Kentucky
Secretary of State and the Tennessee Secretary of State, and (c) in
connection with compliance with the provisions of the Securities Laws
and applicable state corporate and securities laws, no consent,
approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, is
required by or with respect to Corporation or any Corporation
Subsidiary in connection with the execution and delivery of this
Agreement and the Plan of Merger, or the consummation by Corporation
of the transactions contemplated hereby and thereby.
/iv/ Corporation has all requisite corporate power
and authority to enter into and to consummate the transactions
contemplated by this Agreement and the Plan of Merger. The execution
and delivery of this Agreement and the Plan of Merger and the
consummation of the transactions contemplated hereby and thereby have
been duly authorized by all necessary corporate action on the part of
Corporation. This Agreement and the Plan of Merger have been duly
executed and delivered by Corporation and constitute the legal, valid
and binding obligations of Corporation enforceable against it in
accordance with their terms.
B. SEC Documents. Corporation has made available to PFS
a true and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by Corporation with the Commission since
January 1, 1991 (as such documents have since the time of their filing been
amended, the "Corporation SEC Documents"), which are all the documents that
Corporation was required to file with the Commission since such date. As of
their respective dates, the Corporation SEC documents complied in all material
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respects with the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the Commission thereunder applicable to such
Corporation SEC Documents, and none of the Corporation SEC Documents contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
financial statements of Corporation included in the Corporation SEC Documents
comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the Commission
with respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto or, in the case of the
unaudited statements, as permitted by Form 10-Q of the Commission) and fairly
present the consolidated financial position of Corporation and its consolidated
subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended. All material agreements,
contracts and other documents required to be filed as exhibits to any of the
Corporation SEC Documents have been so filed. All reports, schedules and
statements hereafter filed by Corporation with the Commission which Corporation
shall deliver to Corporation pursuant to Section 3.5 hereof will comply in all
material respects with the requirements of the Securities Laws, and none of
such reports, schedules or statements will contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of Corporation
included in such reports, schedules and statements will comply as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the Commission with respect thereto, will be
prepared in accordance with generally accepted accounting principles applied on
a consistent basis during the periods involved (except as may be indicated in
the notes thereto or, in the case of the unaudited statements, as permitted by
Form 10-Q of the Commission) and will fairly present the consolidated financial
position of Corporation and its consolidated subsidiaries as at the dates
thereof and the consolidated results of their operations and cash flows for the
periods then ended.
C. Absence of Certain Changes or Events. Except as
disclosed in the Corporation SEC Documents, since December 31, 1992,
Corporation and the Corporation Subsidiaries have not incurred any material
liability, except in the ordinary course of their business consistent with
their past practices, nor has there been any change, or any event involving a
prospective change, in the business, assets, financial condition or results of
operations of Corporation or any of its Corporation Subsidiaries that has had,
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or is reasonably likely to have, a material adverse effect on Corporation and
the Corporation Subsidiaries taken as a whole.
D. Brokers. Neither Corporation nor any Corporation
Subsidiary, nor any of their respective officers, directors or employees, has
employed any broker, finder or financial advisor or incurred any liability for
fees or commissions in connection with the negotiations relating to or the
transactions contemplated by this Agreement.
E. Legal Proceedings. There are no claims of any kind
or any actions, suits, proceedings, arbitrations or investigations pending or,
to the best knowledge of Corporation, threatened against Corporation or any
Corporation Subsidiary or against any asset, interest or right of any such
company that might, individually or in the aggregate, have a material adverse
effect on the financial condition, results of operation or business of
Corporation or any Corporation Subsidiary, nor is there any judgment, decree,
injunction, rule or order of any governmental entity or arbitrator outstanding
against Corporation or any Corporation Subsidiary having or which, insofar as
reasonably can be foreseen, in the future could have any such effect.
F. Employee Benefit Plans. Each bonus, pension, profit
sharing, deferred compensation, incentive compensation, stock ownership, stock
purchase, stock option, phantom stock, retirement, vacation, severance,
disability, death benefit, hospitalization, medical or other plan, arrangement
or understanding (whether or not legally binding) providing benefits to any
current or former employee or director of Corporation or any Corporation
Subsidiary has been administered in all material respects in accordance with
its terms and is in compliance in all material respects with the applicable
provisions of ERISA and the Code.
4.3 Non-Survival of Representations and Warranties. All
representations and warranties contained in this Agreement by any party hereto
or set forth in any certificate or other instrument delivered by or on behalf
of the parties pursuant to this Agreement shall expire at the Effective Time.
ARTICLE 5
CONDITIONS PRECEDENT
5.1 Conditions to Obligations of PFS. The obligation of PFS to
consummate the transactions contemplated by this Agreement and the Plan of
Merger, including the Merger, is subject to the satisfaction of the following
conditions precedent on or before the Closing Date, any of which may be waived
by PFS:
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A. Approval of this Agreement and the Plan of Merger by
the shareholders of PFS at the Meeting.
B. There shall not be threatened, instituted or pending
any action or proceeding before any domestic or foreign court or governmental
agency or other regulatory or administrative agency or commission, or by any
other person /i/ challenging the Merger or the other transactions contemplated
by this Agreement or the terms thereof, or /ii/ seeking to prohibit the Merger
or the other transactions contemplated by this Agreement, which, in the opinion
of PFS's counsel, has a reasonable probability of success.
C. The representations and warranties of Corporation set
forth in Section 4.2 of this Agreement shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date
as if made on the Closing Date, and Corporation shall have furnished to PFS a
certificate of an executive officer of Corporation to that effect.
D. Corporation in all material respects shall have
performed and observed its obligations and covenants as set forth in this
Agreement prior to or on the Closing Date and shall have delivered to PFS a
certificate of an executive officer of Corporation to that effect and evidence,
in form and substance satisfactory to counsel for PFS, that the transactions
contemplated by this Agreement and the Plan of Merger were duly authorized by
all necessary corporate action of Corporation.
E. There shall not have been any material adverse change
in the business, financial condition, prospects or operations of Corporation
since December 31, 1992.
F. Receipt of all permits, consents, approvals and
authorizations from federal and state governmental authorities and regulatory
agencies necessary to effect the Merger (including the expiration of all
applicable waiting periods) and the other transactions contemplated herein, and
the satisfaction of all other requirements prescribed by law which are
necessary to the carrying out of the Merger.
G. PFS shall have received an opinion of counsel of
Corporation dated as of the Closing Date, in substantially the form attached
hereto as Exhibit 5.1G.
H. PFS shall have received the opinion of Corporation's
counsel in form and substance reasonably satisfactory to PFS and its counsel,
dated the Closing Date, to the effect that the Merger will be treated for
Federal income tax purposes as a reorganization within the meaning of Section
368 of the Code and that, except with respect to the payment of cash for
fractional shares or in connection with the exercise of appraisal rights, the
conversion of PFS Common Stock into Corporation Common Stock will not give rise
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to the recognition of gain or loss for federal income tax purposes to the
shareholders of PFS.
I. PFS shall have received an opinion from its financial
advisor to the effect that, as of the date the Proxy Statement/Prospectus was
mailed to shareholders of PFS, the Merger is fair to the shareholders of PFS
from a financial viewpoint.
J. The Registration Statement (including any post
effective amendments thereto) shall be effective under the Securities Act of
1933, as amended, and no proceedings shall be pending or to the knowledge of
PFS threatened by the Commission to suspend the effectiveness of such
Registration Statement.
5.2 Conditions to Obligations of Corporation. The obligation of
Corporation to consummate the transactions contemplated by this Agreement and
the Plan of Merger, including the Merger, is subject to the satisfaction of the
following conditions precedent on or before the Closing Date, any of which may
be waived by Corporation:
A. Approval of this Agreement and the Plan of Merger by
the shareholders of PFS at the Meeting.
B. There shall not be threatened, instituted or pending
any action or proceeding before any domestic or foreign court or governmental
agency or other regulatory or administrative agency or commission, or by any
other person /i/ challenging the Merger or the other transactions contemplated
by this Agreement or the terms thereof, or /ii/ seeking to prohibit the Merger
or the other transactions contemplated by this Agreement, which, in the opinion
of Corporation's counsel, has a reasonable probability of success.
C. The representations and warranties of PFS set forth
in Section 4.1 of this Agreement shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date as if made
on the Closing Date, and PFS shall have furnished to Corporation a certificate
executed by the Chief Executive Officer of PFS to that effect.
D. PFS in all material respects shall have performed and
observed its obligations and covenants as set forth in this Agreement prior to
or on the Closing Date and shall have delivered to Corporation a certificate of
the Chief Executive Officer of PFS to that effect and evidence, in form and
substance satisfactory to counsel for Corporation, that the transactions
contemplated by this Agreement and the Plan of Merger were duly authorized by
all necessary corporate action of PFS.
E. Receipt of all permits, consents, approvals and
authorizations from federal and state governmental authorities and regulatory
agencies necessary to effect the Merger (including the expiration of all
applicable waiting periods) and the other
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transactions contemplated herein, on terms and conditions satisfactory to
Corporation (other than standard terms and conditions), and the satisfaction of
all other requirements prescribed by law which are necessary to the carrying
out of the Merger.
F. There shall not have been any material adverse change
in the business, financial condition, prospects or operations of PFS or any PFS
Subsidiary since December 31, 1992.
G. Corporation shall have received an opinion of counsel
for PFS dated as of the Closing Date, in substantially the form attached hereto
as Exhibit 5.2G.
H. Corporation shall have received a written release
from each of the executive officers and directors of PFS and each PFS
Subsidiary which releases Corporation, PFS and each PFS Subsidiary from any and
all claims, known or unknown, contingent or direct, which he or she may have
against Corporation, PFS or any PFS Subsidiary as of the Closing Date, other
than /i/ claims arising under this Agreement and the transactions contemplated
hereby, or /ii/ claims arising out of moneys on deposit or property held in
trust or as a custodian by a PFS Subsidiary or compensation accrued but not yet
payable or in payment for services rendered to PFS or any PFS Subsidiary as
reflected on the books and records of PFS or any PFS Subsidiary or /iii/ claims
under PFS's articles of incorporation, bylaws, or under statutory or common law
for indemnification against liabilities or claims made against them resulting
from their service as an executive officer or director of PFS before the
Effective Time, including, without limitation, the advancement or reimbursement
of expenses and costs.
I. Corporation shall have received a letter from KPMG
Peat Marwick to the effect that the Merger qualifies for "pooling of interests"
accounting treatment if consummated in accordance with this Agreement and the
Plan of Merger.
J. The Registration Statement (including any post
effective amendments thereto) shall be effective under the Securities Act of
1933, as amended, and no proceedings shall be pending or to the knowledge of
Corporation threatened by the Commission to suspend the effectiveness of such
Registration Statement.
K. Corporation shall have received all state securities
or "blue sky" permits and other authorizations necessary to consummate the
Merger.
L. The "affiliates" of PFS shall have executed and
delivered the Affiliate Agreements.
M. Each of Barry T. Buckley, Fred H. Brown, M. Dale
Bruner, Walter W. Carlen, Steve D. Cihat, Michael Evans, Paul R.
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Gaw, Thomas D. Gentry, Billy C. Hall, James N. Hall and James B. McWilliams
shall have executed and delivered to Corporation a noncompetition agreement in
the form attached hereto as Exhibit 5.2.M.
ARTICLE 6
TERMINATION
6.1 Dissenting Shares. Prior to the Effective Time, this
Agreement and the Plan of Merger may be declared void and of no effect by
Corporation if the number of Dissenting Shares is greater than 9% of the issued
and outstanding shares of PFS.
6.2 Termination. This Agreement and the Plan of Merger may be
terminated: (i) by the mutual agreement of Corporation and PFS; (ii) by
Corporation, upon prior written notice, if PFS materially breaches any
representation or warranty set out in Section 4.1 of this Agreement or
materially breaches any covenant in this Agreement, or upon the failure and
nonwaiver of any condition precedent set out in Section 5.2 unless, in the case
of a material breach of a covenant or failure of a condition, within thirty
(30) days after written notice from Corporation, PFS shall have cured such
breach or failure; (iii) by PFS, upon prior written notice, if Corporation
materially breaches any representation or warranty set out in Section 4.2 of
this Agreement or materially breaches any covenant in this Agreement or upon
the failure and nonwaiver of any condition precedent set out in Section 5.1
unless, in the case of a material breach of a covenant or failure of a
condition, within thirty (30) days after written notice from PFS, Corporation
shall have cured such breach or failure; or (iv) by PFS or Corporation if the
Effective Time shall not have occurred on or before August 31, 1994.
6.3 Declaration. Any declaration of termination under this
Article 6 by Corporation or PFS shall be pursuant to resolution of its Board of
Directors or by executive officers thereof duly authorized by its Board of
Directors to make such a declaration; shall be made by written notice given to
the other parties setting forth the grounds for the termination, including, if
applicable, the alleged material misrepresentation, breach or failure, and,
unless, in the case of a material breach of a covenant or a failure of a
condition, such material breach or failure is timely cured, shall have the
effect of terminating this Agreement and the Plan of Merger effective upon the
delivery of such written notice or the expiration of any applicable cure
period, whichever is later, whereupon the same shall have no further effect and
the Merger provided for herein and therein shall not be effected.
Notwithstanding the foregoing, no termination of this Agreement shall affect
the covenants set forth in Section 3.5 relating to confidentiality or the
provisions set forth in Section 8.5 relating to
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expenses, which shall survive any such termination. Except as otherwise
expressly provided herein, no termination of this Agreement on the grounds of a
material misrepresentation or uncured material breach of any covenant contained
herein shall relieve the breaching party from any liability for such uncured
material misrepresentation or uncured material breach of any covenant or
agreement contained herein giving rise to such termination.
ARTICLE 7
INDEMNIFICATION
Except with respect to an unintentional breach of the
representations and warranties of PFS contained in Section 4.1U /v/, /vi/, or
/vii/ of this Agreement (for which PFS shall not be liable hereunder), PFS
shall indemnify, defend and hold Corporation harmless, and Corporation shall
indemnify, defend and hold PFS harmless, against and in respect of any material
nonfulfillment of any covenant or agreement or the material breach of any
representation or warranty on the part of the indemnifying party under this
Agreement and any claim, action, suit, proceeding, demand, judgment,
assessment, cost and expense, including reasonable counsel fees, incident to
the foregoing. Except with respect to a party's intentional breach of any
covenant, agreement, representation or warranty under this Agreement, the
liability of either party hereto under this Article 7 shall be limited to the
actual costs and expenses incurred by the party to be indemnified in connection
with its investigation of the other party and the transactions contemplated by
this Agreement. A party seeking indemnification hereunder shall use its best
efforts to minimize any liabilities, damages, deficiencies, claims, judgments,
assessments, cost and expenses in respect of which indemnity is sought
hereunder.
ARTICLE 8
GENERAL PROVISIONS
8.1 Law and Section Headings. This Agreement shall be construed
and interpreted in accordance with the laws of the Commonwealth of Kentucky.
Section headings are used in this Agreement for convenience only and are to be
ignored in the construction of the terms of this Agreement.
8.2 Modifications. The parties hereto may amend, modify or
supplement this Agreement, before or after approval thereof by the shareholders
of PFS, in such manner as may be agreed by them in writing.
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8.3 Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
the remaining provisions.
8.4 Notices. All notices hereunder shall be in writing and shall
be deemed to have been given or made when delivered or mailed, first class,
registered or certified mail, postage prepaid, addressed as follows, until
notice of another address or additional addresses have been received by the
other parties:
If to Corporation to:
Trans Financial Bancorp, Inc.
500 East Main Street
Bowling Green, Kentucky 42101
Attention: Douglas M. Lester, President and Chief
Executive Officer
With a copy to:
Stewart E. Conner, Esq.
WYATT, TARRANT & COMBS
2800 Citizens Plaza
Louisville, Kentucky 40202
If to PFS, to:
Peoples Financial Services, Inc.
Two West Jackson
P. O. Box 130
Cookeville, Tennessee 38501-0130
Attention: Barry Buckley, President
and Chief Executive Officer
With a copy to:
Steven Eisen, Esq.
Baker, Worthington, Crossley, Stansberry
& Woolf
1700 Nashville City Center
511 Union Street
Nashville, Tennessee 37219
8.5 Expenses; Risk of Loss. Whether or not the Merger is
consummated, each of the parties hereto will pay its own fees and expenses
incurred in connection with the Merger and the other transactions contemplated
by this Agreement and the Plan of Merger; provided, however, that if the
transactions contemplated hereby are
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consummated, then the out-of-pocket fees and expenses incurred or paid by or on
behalf of PFS in connection with the Merger or the consummation of any of the
transactions contemplated by this Agreement and the Plan of Merger, including
all fees and expenses of investment banking firms, financial advisors,
attorneys, accountants, experts and consultants, shall not exceed $50,000
(excluding the costs of printing and mailing to shareholders of PFS the Proxy
Statement/Prospectus). Corporation and PFS shall share equally the cost
incurred in printing and mailing to shareholders of PFS the Proxy
Statement/Prospectus. Until the Effective Time, the risk of loss to the assets
of PFS shall remain with PFS.
8.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but such counterparts shall
together constitute one and the same instrument.
8.7 Time of Essence; Best Efforts. Time is of the essence to the
performance of the obligations set forth in this Agreement. PFS and
Corporation each agree to use their respective best efforts to obtain the
satisfaction of the conditions to their respective obligations specified
herein, and to advise the other parties hereto in writing as to any unusual
delays or impediments in obtaining the same.
8.8 Closing. At the Closing, each party shall execute and deliver
all documents required by this Agreement, and such further documents as the
other party shall reasonably request in order to satisfy the fulfillment of
each party's agreements and undertakings hereunder.
8.9 Records and Further Assurances. After the Closing, each party
shall make available to the other on reasonable request such books and records
of that party as may be appropriate for use in connection with their respective
tax returns, including any review thereof, and for any other reasonable
purpose.
8.10 Parties in Interest; Third Party Rights. All covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of their respective successors and
permitted assigns. No party to this Agreement may however, assign its rights
hereunder or delegate its obligations hereunder to any other person or entity
without the express prior written consent of the other parties hereto. It is
the intention of the parties that nothing in this Agreement or the Plan of
Merger shall be deemed to create any right with respect to any person or entity
not a party to this Agreement or the Plan of Merger.
8.11 Entire Agreement; Waiver. This Agreement, including all
information Previously Disclosed, the Exhibits hereto and the Plan of Merger,
constitute and contain the entire agreement of PFS and
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Corporation with respect to the Merger and supersede any prior agreement by the
parties, whether written or oral. The waiver of a breach of any term or
condition of this Agreement must be in writing signed by the party sought to be
charged with such waiver and such waiver shall not be deemed to constitute the
waiver of any other breach of the same or of any other term or condition of
this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their duly authorized officers as of the date first
above written.
TRANS FINANCIAL BANCORP, INC.
By /s/ Douglas M. Lester
--------------------------------
Douglas M. Lester, President and
Chief Executive Officer
PEOPLES FINANCIAL SERVICES, INC.
By /s/ Barry Buckley
----------------------------
Barry Buckley, President and
Chief Executive Officer
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APPENDIX A-2
PLAN OF MERGER
THIS PLAN OF MERGER ("Plan") is made and entered into as of
this 27th day of December, 1993, by and between TRANS FINANCIAL BANCORP, INC.,
a Kentucky corporation ("Corporation") and PEOPLES FINANCIAL SERVICES INC., a
Tennessee corporation ("PFS").
W I T N E S S E T H :
PFS is a corporation organized and existing under the laws of
the State of Tennessee, the authorized capital stock of which consists of /i/
100 shares of organizational common stock with $10.00 par value per share ("PFS
Organizational Common Stock") of which at the date hereof no shares are issued
and outstanding and /ii/ 1,000,000 shares of common stock without par value
("PFS Common Stock"), of which at the date hereof 236,777 shares are issued and
outstanding and fully paid and nonassessable, and 3,111 shares are reserved for
issuance upon the exercise of outstanding options.
The respective Boards of Directors of Corporation and PFS have
determined that it is desirable to effect a Plan and Agreement of
Reorganization (the "Agreement"), for the general welfare and advantage of
Corporation and PFS and their respective shareholders, under which plan PFS
would be merged into Corporation, in accordance with the terms of the Agreement
and this Plan.
The respective Boards of Directors of PFS and Corporation have
approved and adopted the Agreement and this Plan and have authorized the
execution hereof.
NOW, THEREFORE, in consideration of the premises and of the
mutual agreements and undertakings herein contained, the parties hereby agree
as follows:
ARTICLE 1
THE MERGER
1.1 The Merger. Upon the terms and conditions set forth in this Plan
and the Agreement, at the Effective Time (as hereinafter defined), PFS shall be
merged with and into Corporation (the "Merger") in accordance with the
provisions of and with the effect provided in the Kentucky Business Corporation
Act (the "KBCA") and the Tennessee Business Corporation Act ("TBCA"). The
terms of the Merger shall be as set forth in the Agreement and in this Plan.
<PAGE> 230
1.2 Articles of Merger. Upon the terms and conditions set forth in
the Agreement and this Plan, Articles of Merger (the "Articles of Merger")
shall be duly prepared and executed by Corporation and PFS, and thereafter
delivered to the Secretary of States of the Commonwealth of Kentucky and the
State of Tennessee for filing, as provided in the KBCA and the TBCA on the
Closing Date, as defined in the Agreement. The Merger shall become effective
upon filing with the Kentucky Secretary of State and the Tennessee Secretary of
State or at such time and date thereafter as is provided in the Articles of
Merger (the "Effective Time").
1.3 Effect of Filing.
A. At the Effective Time, /i/ the separate existence of
PFS shall cease and PFS shall be merged with and into Corporation (sometimes
herein referred to as the "Surviving Corporation") and /ii/ the Articles of
Incorporation and Bylaws of Corporation as in effect immediately prior to the
Effective Time shall be the Articles of Incorporation and Bylaws of the
Surviving Corporation.
B. At the Effective Time, the officers and Board of
Directors of the Surviving Corporation shall consist of those persons serving
as the officers and directors of Corporation immediately prior to the Effective
Time.
C. At and after the Effective Time, the Merger will have
the effects set forth in Section 271B.11-060 of the KBCA and Section 48-21-107
of the TBCA and as otherwise provided by law.
ARTICLE 2
CONVERSION OF SHARES
2.1 Conversion of PFS Capital Stock.
A. Conversion of PFS Common Stock. Each share of PFS
Common Stock issued and outstanding immediately prior to the Effective Time
shall, automatically, by virtue of the Merger and at the Effective Time, be
exchanged for and converted, without any further notice to or on the part of
the holder thereof, into 5.5 shares of Corporation Common Stock, subject to
Sections 2.1.B and 2.1.C hereof (the "Exchange Ratio"). All shares of PFS
Common Stock shall automatically be canceled and shall cease to exist and each
certificate previously representing any such shares shall thereafter represent
the right to receive the Corporation Common Stock into which such PFS Common
Stock has been converted. Certificates previously representing shares of PFS
Common Stock shall be exchanged for Corporation Common Stock issued in
consideration therefor upon the surrender of such certificates in accordance
with Section 2.2.
B. Reclassifications. If prior to the Effective Time
the outstanding shares of Corporation Common Stock shall have been
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increased, decreased or changed into or exchanged for a different number or
kind of shares or securities by reorganization, recapitalization,
reclassification, stock dividend, stock split or other like changes in
Corporation's capitalization, all without Corporation receiving consideration
therefor, then an appropriate and proportionate adjustment shall be made in the
number and kind of shares of Corporation Common Stock to be thereafter
delivered pursuant to this Plan of Merger.
C. No Fractional Shares. No certificate or scrip of any
kind will be issued by Corporation to any shareholder of PFS in respect of any
fractional interest in Corporation Common Stock arising out of the conversion
of PFS Common Stock into Corporation Common Stock in the Merger and such
fractional share interests will not entitle the owner thereof to vote or to any
rights of a shareholder of the Corporation. No holder of PFS Common Stock will
have any rights in respect of a fractional interest in Corporation Common Stock
arising out of the Merger except the right to receive in lieu thereof a cash
payment in a dollar amount equal to such fractional interest multiplied by the
average of the bid and asked price per share, as quoted by the National
Association of Securities Dealers Automated Quotation System ("NASDAQ"), for
Corporation Common Stock on the trading day which occurs immediately prior to
the Closing Date. For purposes of this Agreement, "trading day" shall mean any
day on which securities are traded on the New York Stock Exchange.
2.2 Exchange of Certificates.
A. As of the Effective Time, the Corporation shall
deposit, or cause to be deposited, with Peoples Bank & Trust of the
Cumberlands, Cookeville, Tennessee (the "Exchange Agent"), for the benefit of
the holders of PFS Common Stock, for exchange in accordance with this Section
2.2, through the Exchange Agent, certificates representing the shares of
Corporation Common Stock (such certificates for shares of Corporation Common
Stock, together with any dividends or distributions with respect thereto, being
hereinafter referred to as the "Exchange Fund") issuable pursuant to Section
2.1 in exchange for outstanding shares of PFS Common Stock.
B. At and after the Effective Time, each person (other
than Corporation) who immediately prior to the Effective Time held of record
shares of PFS Common Stock shall be entitled to receive, upon the surrender of
the certificate(s) which represented such shares (individually a "Certificate"
and collectively the "Certificates") to Corporation, together with a letter of
transmittal (in the form contemplated by Section 2.2.C) duly executed, the
consideration specified in Section 2.1.
C. On, or within seven (7) days after the Effective
Time, the Exchange Agent shall mail or deliver to each holder
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(other than Corporation), who immediately prior to the Effective Time held of
record shares of PFS Common Stock, a form letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon proper delivery of the Certificates to the
Exchange Agent) and instructions for use in effecting the surrender of the
Certificates or payment therefor. No interest will be paid or accrue on any
consideration payable on the surrender of such Certificate. If delivery of
certificates of Corporation Common Stock is to be made to a person other than
the person in whose name the Certificate surrendered is registered, it shall be
a condition of payment that the Certificate so surrendered shall be properly
endorsed or otherwise in proper form for transfer and that the person
requesting such payment shall pay any transfer or other taxes required by
reason of the payment to a person other than the registered holder of the
Certificate surrendered or establish to the satisfaction of Corporation that
such tax has been paid or is not applicable.
D. At and after the Effective Time, holders of
Certificates shall cease to have any rights as shareholders of PFS except for
the right to receive upon such surrender the consideration specified in Section
2.1.
E. No dividends or other distributions declared or made
after the Effective Time with respect to Corporation Common Stock with a record
date after the Effective Time shall be paid to the holder of any unsurrendered
Certificate with respect to the shares of Corporation Common Stock represented
thereby, and no cash payment in lieu of fractional shares shall be paid to any
such holder pursuant to Section 2.1.C until the holder of such Certificate
shall surrender such Certificate. Subject to the effect of applicable laws,
following the surrender of any such Certificate, there shall be paid to the
holder of such Certificate(s) representing whole shares of Corporation Common
Stock issued in exchange therefor, without interest, (i) at the time of such
surrender the amount of any cash payable with respect to a fractional share of
Corporation Common Stock to which such holder is entitled pursuant to Section
2.1.C and the amount of dividends or other distributions with a record date
after the Effective Time theretofore paid with respect to such whole shares of
Corporation Common Stock, and (ii) at the appropriate payment date, the amount
of dividends or other distributions with a record date after the Effective Time
but prior to surrender and a payment date subsequent to surrender payable with
respect to such whole shares of Corporation Common Stock.
F. After the Effective Time, except to the extent
necessary to issue replacement Certificates for any Certificates which may have
been lost or stolen or to comply with the payment instructions contained in a
letter of transmittal contemplated by Section 2.2.C., there shall be no further
registration of transfers on the stock transfer books of PFS of any
Certificates formerly
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evidencing the shares of PFS Common Stock which were outstanding immediately
prior to the Effective Time.
G. Any portion of the Exchange Fund that remains
undistributed to the shareholders of PFS for six months after the Effective
Time shall be delivered to the Corporation, upon demand, and any shareholders
of PFS who have not theretofore complied with this Article 2 shall thereafter
look only to the Corporation for payment of their claim for Corporation Common
Stock, any cash in lieu of fractional shares of Corporation Common Stock and
any dividends or distributions with respect to Corporation Common Stock.
H. Neither PFS nor the Corporation shall be liable to
any holder of shares of PFS Common Stock for such shares or Corporation Common
Stock into which they are converted (or dividends or distributions with respect
thereto) or cash in lieu of fractional shares delivered to a public official
pursuant to any abandoned property, escheat or similar law.
2.3 Dissenting Shareholders. If any holder of shares of PFS
Common Stock shall, in accordance with the provisions of applicable law, seek
appraisal and perfect dissenting shareholder rights to be paid the fair value
of his or her shares ("Dissenting Shares"), then such holder shall be entitled
to receive such value as may be established pursuant to such provisions. PFS
shall give Corporation prompt notice of any written objections or demands
received from any shareholder pursuant to such provisions, and shall give
Corporation the opportunity to participate in all proceedings with respect to
any such objections or demands. PFS will pay its dissenting shareholders the
value of their stock out of its own funds. No funds will be supplied for that
purchase, directly or indirectly, by Corporation, nor will Corporation directly
or indirectly reimburse PFS for any payments to dissenters.
2.4 Corporation Common Stock. The shares of capital stock
of Corporation issued and outstanding immediately prior to the Effective Time
shall remain issued and outstanding at the Effective Time and shall not be
effected by the Merger.
ARTICLE 3
TERMINATION
Anything contained in this Plan notwithstanding and
notwithstanding adoption hereof by the shareholders of PFS, this Plan may be
terminated and the Merger abandoned as provided in the Agreement.
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ARTICLE 4
CONDITIONS PRECEDENT
The obligations of Corporation and PFS to effect the Merger as
herein provided shall be subject to satisfaction, unless duly waived, of the
conditions set forth in the Agreement.
ARTICLE 5
GENERAL PROVISIONS
5.1 Law and Section Headings. This Plan shall be construed and
interpreted in accordance with the laws of the Commonwealth of Kentucky.
Section headings are used in this Plan for convenience only and are to be
ignored in the construction of the terms of this Plan.
5.2 Modifications. The parties hereto may amend, modify or
supplement this Plan, before or after approval thereof by the shareholders of
PFS, in such manner as may be agreed by them in writing.
IN WITNESS WHEREOF, the parties hereto have caused this Plan
to be executed by their duly authorized officers as of the date first above
written.
TRANS FINANCIAL BANCORP, INC.
By /s/ Douglas M. Lester
---------------------------------
Douglas M. Lester, President
PEOPLES FINANCIAL SERVICES, INC.
By /s/ Barry Buckley
---------------------------------
Barry Buckley, President
6
<PAGE> 235
APPENDIX B
PROFESSIONAL BANK SERVICES
February 8, 1994
Board of Directors
Peoples Financial Services, Inc.
2 W. Jackson
P.O. Box 130
Cookeville, Tennessee 38501
Dear Members of the Board:
You have requested our opinion as investment bankers as to the
fairness, from a financial perspective, to the common shareholders of Peoples
Financial Services, Inc., Cookeville, Tennessee (the "Company") of the proposed
merger of the Company and Trans Financial Bancorp, Inc., Bowling Green,
Kentucky ("TFB"). In the merger, Company shareholders will receive 5.5 TFB
common shares per Company common share. The terms of the merger are fully set
forth in the Agreement and Plan of Reorganization dated December 27, 1993
between the Company and TFB (the "Agreement").
Professional Bank Services, Inc. ("PBS") is a bank consulting
firm and as part of its investment banking business is continually engaged in
reviewing the fairness, from a financial perspective, of bank acquisition
transactions and in the valuation of banks and other businesses and their
securities in connection with mergers, acquisitions, estate settlements and
other purposes. We are independent with respect to the parties of the proposed
transaction.
For purposes of this opinion, we have reviewed and analyzed
the historical performance of the Company and its subsidiaries Peoples Bank &
Trust of the Cumberlands (the "Bank") and Citizens Federal Savings Bank (the
"Savings Bank") contained in (i) 1992 Annual Report to stockholders for the
Company; (ii) September 30, 1993 Form 10-Q for the Company as filed with the
Securities and Exchange Commission; (iii) September 30, 1993 Consolidated
Reports of Condition and Income filed with the Federal Deposit Insurance
Corporation by the Bank; (iv) September 30, 1993 Uniform Bank Performance
Report of the Bank; (v) September 30, 1993 Thrift Financial Report for the
Savings Bank as filed with the Office of Thrift Supervision; (vi) historical
common stock trading activity of the Company; and (vii) the premises and other
fixed assets. We have reviewed and tabulated statistical data regarding the
loan portfolio, securities portfolio and other performance ratios and
statistics. Financial projections were prepared and analyzed as well as other
financial studies, analyses and investi-
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Board of Directors
Peoples Financial Services, Inc.
February 8, 1994
Page 2
gations as deemed relevant for the purposes of this opinion. In review of the
aforementioned information, we have taken into account our assessment of
general market and financial conditions, our experience in other transactions,
and our knowledge of the banking industry generally.
In conjunction with our opinion, we have evaluated the
historical performance and current financial condition of TFB contained in:
(i) Audited Annual Report to Shareholders for the years ending December 31,
1990, 1991, and 1992; (ii) September 30, 1993 Quarterly Report to shareholders;
(iii) historical common stock trading and dividend activity to date; (iv)
Agreement and Plan of Reorganization; and (v) the financial terms of certain
other comparable transactions. We have prepared and analyzed the pro forma
consolidated financial condition of the Company and TFB. We have reviewed and
tabulated consolidated statistical data regarding growth, growth prospects for
service markets, liquidity, asset composition and quality, profitability,
leverage and capital adequacy.
We have not compiled, reviewed or audited the financial
statements of the Company or TFB, nor have we independently verified any of the
information reviewed; we have relied upon such information as being complete
and accurate in all material respects. We have not made independent evaluation
of the assets of the Company or TFB.
Base on the foregoing and all other factors deemed relevant,
it is our opinion as investment bankers, that, as of the date hereof, the
consideration to be received by the shareholders as set forth in the Agreement
is, from a financial perspective, fair and equitable to all common shareholders
of the Company.
Very truly yours,
PROFESSIONAL BANK SERVICES, INC.
/s/ Christopher L. Hargrove
Christopher L. Hargrove
Vice President
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APPENDIX C
CHAPTER 23 OF THE TENNESSEE BUSINESS CORPORATION ACT
Part 1 - Right to Dissent and Obtain Payment for Shares
48-23-101. DEFINITIONS.
(1) "Beneficial shareholder" means the person who is a beneficial
owner of shares held by a nominee as the record shareholder;
(2) "Corporation" means the issuer of the shares held by a
dissenter before the corporate action, or the surviving or acquiring
corporation by merger or share exchange of that issuer;
(3) "Dissenter" means a shareholder who is entitled to dissent
from corporate action under Section 48-23-102 and who exercises that right
when and in the manner required by Section Section 48-23-201 -- 48-23-209;
(4) "Fair Value", with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action;
(5) "Interest" means interest from the effective date of the
corporate action that gave rise to the shareholder's right to dissent until the
date of payment, at the average auction rate paid on United States treasury
bills with a maturity of six (6) months (or the closest maturity thereto) as of
the auction date for such treasury bills closest to such effective date;
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation; and
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
48-23-102. RIGHT TO DISSENT. (a) A shareholder is entitled to
dissent from, and obtain payment of the fair value of his shares in the event
of, any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If shareholder approval is required for the merger by
Section 48-21-103 or the charter and the shareholder is entitled to vote on
the merger; or
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(B) If the corporation is a subsidiary that is merged
with its parent under Section 48-21-104;
(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially
all, of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale pursuant to
court order or a sale for cash pursuant to a plan by which all or substantially
all of the net proceeds of the sale will be distributed to the shareholders
within one (1) year after the date of sale;
(4) An amendment of the charter that materially and adversely
affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the
shares;
(B) Creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for the redemption
or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder
of the shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on
any matter, or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights; or
(E) Reduces the number of shares owned by the shareholder
to a fraction of a share, if the fractional share is to be acquired for cash
under Section 48-16-104; or
(5) Any corporate action taken pursuant to a shareholder vote to
the extent the charter, bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his
shares under this chapter may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
(c) Notwithstanding the provisions of subsection (a), no
shareholder may dissent as to any shares of a security which, as of the date of
the effectuation of the transaction which would otherwise give rise to
dissenters' rights, is listed on an exchange
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registered under Section 6 of the Securities Exchange Act of 1934, as amended,
or is a "national market system security," as defined in rules promulgated
pursuant to the Securities Exchange Act of 1934, as amended.
48-23-103. DISSENT BY NOMINEES AND BENEFICIAL OWNERS. (a) A
record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one (1) person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection
are determined as if the shares as to which he dissents and his other shares
were registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to
shares of any one (1) or more classes held on his behalf only if:
(1) He submits to the corporation the record shareholder's written
consent to the dissent not later than the time the beneficial shareholder
asserts dissenters' rights; and
(2) He does so with respect to all shares of the same class of
which he is the beneficial shareholder or over which he has power to direct the
vote.
Part 2 - Procedure for Exercise of Dissenters' Rights
48-23-201. NOTICE OF DISSENTERS' RIGHTS. (a) If proposed corporate
action creating dissenters' rights under Section 48- 23-102 is submitted to a
vote at a shareholders' meeting, the meeting notice must state that
shareholders are or may be entitled to assert dissenters' rights under this
chapter and be accompanied by a copy of this chapter.
(b) If corporate action creating dissenters' rights under Section
48-23-102 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Section
48-23-203.
(c) A corporation's failure to give notice pursuant to this
section will not invalidate the corporate action.
48-23-202. NOTICE OF INTENT TO DEMAND PAYMENT. (a) If proposed
corporate action creating dissenters' rights under Section 48-23-102 is
submitted to a vote at a shareholders' meeting, a shareholder who wishes to
assert dissenters' rights:
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(1) Must deliver to the corporation, before the vote is taken,
written notice of his intent to demand payment for his shares if the proposed
action is effectuated; and
(2) Must not vote his shares in favor of the proposed action. No
such written notice of intent to demand payment is required of any shareholder
to whom the corporation failed to provide the notice required by Section
48-23-201.
(b) A shareholder who does not satisfy the requirements of
subsection (a) is not entitled to payment for his shares under this chapter.
48-23-203. DISSENTERS' NOTICE. (a) If proposed corporate
action creating dissenters' rights under Section 48-23-102 is authorized at a
shareholders' meeting, the corporation shall deliver a written dissenters'
notice to all shareholders who satisfied the requirements of Section
48-23-202.
(b) the dissenters' notice must be sent no later than ten (10)
days after the corporate action was authorized by the shareholders or
effectuated, whichever is the first to occur, and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the principal terms
of the proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not he acquired beneficial ownership of
the shares before that date;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than one (1) nor more than two (2) months
after the date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this chapter if the corporation
has not previously sent a copy of this chapter to the shareholder pursuant to
Section 48-23-201.
48-23-204. DUTY TO DEMAND PAYMENT. (a) A shareholder sent a
dissenters' notice described in Section 48-23-203 must demand payment, certify
whether he acquired beneficial ownership of the shares before the date required
to be set forth in the dissenters'
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notice pursuant to Section 48-23-203(b)(3), and deposit his certificates in
accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share
certificates under subsection (a) retains all other rights of a shareholder
until these rights are cancelled or modified by the effectuation of the
proposed corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this chapter.
(d) A demand for payment filed by a shareholder may not be
withdrawn unless the corporation with which it was filed, or the surviving
corporation, consents thereto.
48-23-205. SHARE RESTRICTIONS. (a) The corporation may
restrict the transfer of uncertificated shares from the date the demand for
their payment is received until the proposed corporate action is effectuated or
the restrictions released under Section 48-23-207.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the effectuation of the proposed corporate
action.
48-23-206. PAYMENT. (a) Except as provided in Section as soon
as the proposed corporate action is effectuated, or upon of a payment demand,
whichever is later, the corporation shall pay each who complied with Section
48-23-204 the amount the corporation to be the fair value of his shares, plus
accrued interest.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of
the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under
Section 48-23-209; and
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(5) A copy of this chapter if the corporation has not previously
sent a copy of this chapter to the shareholder pursuant to Section 48-23-201
or Section 48-23-203.
48-23-207. FAILURE TO TAKE ACTION. (a) If the corporation does
not effectuate the proposed action that gave rise to the dissenters' rights
within two (2) months after the date set for demanding payment and depositing
share certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing
transfer restrictions, the corporation effectuates the proposed action, it must
send a new dissenters' notice under Section 48-23-203 and repeat the payment
demand procedure.
48-23-208. AFTER-ACQUIRED SHARES. (a) A corporation may elect
to withhold payment required by Section 48-23-206 from a dissenter unless he
was the beneficial owner of the shares before the date set forth in the
dissenters' notice as the date of the first announcement to news media or to
shareholders of the principal terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after effectuating the proposed corporate action, it shall
estimate the fair value of the shares, plus accrued interest, and shall pay
this amount to each dissenter who agrees to accept it in full satisfaction of
his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest
was calculated, and a statement of the dissenter's right to demand payment
under Section 48-23-209.
48-23-209. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT
OFFER. (a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and demand
payment of his estimate (less any payment under Section 48-23-206), or reject
the corporation's offer under Section 48-23-208 and demand payment of the fair
value of his shares and interest due, if:
(1) The dissenter believes that the amount paid under Section
48-23-206 or offered under Section 48-23-208 is less than the fair value of
his shares or that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under Section 48-23-206
within two (2) months after the date set for demanding payment; or
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(3) The corporation, having failed to effectuate the proposed
action, does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within two (2) months after the
date set for demanding payment.
(b) A dissenter waives his right to demand payment under this
section unless he notifies the corporation of his demand in writing under
subsection (a) within one (1) month after the corporation made or offered
payment for his shares.
Part 3 - Judicial Appraisal of Shares
48-23-301. COURT ACTION. (a) If a demand for payment under
Section 48-23-209 remains unsettled, the corporation shall commence a
proceeding within two (2) months after receiving the payment demand and
petition the court to determine the fair value of the shares and accrued
interest. If the corporation does not commence the proceeding within the
two-month period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(b) The corporation shall commence the proceeding in a court of
record having equity jurisdiction in the county where the corporation's
principal office (or, if none in this state, its registered office) is located.
If the corporation is a foreign corporation without a registered office in this
state, it shall commence the proceeding in the county in this state where the
registered office of the domestic corporation merged with or whose shares were
acquired by the foreign corporation was located.
(c) The corporation shall make all dissenters (whether or not
residents of this state) whose demands remain unsettled, parties to the
proceeding as in an action against their shares and all parties must be served
with a copy of the petition. Nonresidents may be served by registered or
certified main or by publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is
commenced under subsection (b) is plenary and exclusive. The court may appoint
one (1) or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
(e) Each dissenter made a party to the proceeding is entitled to
judgment:
(1) For the amount, if any, by which the court finds the fair
value of his shares, plus accrued interest, exceeds the amount paid by the
corporation; or
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(2) For the fair value, plus accrued interest, of his
after-acquired shares for which the corporation elected to withhold payment
under Section 48-23-208.
48-23-302. COURT COSTS AND COUNSEL FEES. (a) The court in
an appraisal proceeding commenced under Section 48-23- 301 shall determine all
costs of the proceeding, including the reasonable compensation and expenses of
appraisers appointed by the court. The court shall assess the costs against
the corporation, except that the court may assess costs against all or some of
the dissenters, in amounts the court finds equitable, to the extent the court
finds the dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment under Section 48-23-209.
(b) The court may also assess the fees and expenses of counsel and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters
if the court finds the corporation did not substantially comply with the
requirements of Section Section 48-23-201 -- 48-23-209; or
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by this chapter.
(c) If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly situated,
and that the fees for those services should not be assessed against the
corporation, the court may award to these counsel reasonable fees to be paid
out of the amounts awarded to the dissenters who were benefited.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article XI of the registrant's Amended and Restated Articles of
Incorporation limits the liability of directors of the registrant pursuant to
the Kentucky Business Corporation Act. Under this Article, directors generally
will be personally liable to the registrant or its shareholders for monetary
damages only for transactions involving conflicts of interest or from which a
director derives an improper personal benefit, intentional misconduct or
violations of law, and unlawful distributions. The Articles of Incorporation
further provide that the Bylaws of the registrant may set forth indemnification
requirements.
The Bylaws of the registrant require the registrant to indemnify each
person who was or is made a party or is threatened to be made a party to any
action, suit or proceeding, whether civil, criminal, administrative or
investigative ("Proceeding"), by reason of the fact that he or she is or was a
director or officer of the registrant, or is or was serving in such capacity
with another entity at the request of the registrant, for the costs of such
Proceeding to the fullest extent authorized by Kentucky law. If the Proceeding
was initiated by the officer or director, however, indemnification is permitted
only if the Proceeding was authorized by the Board of Directors. The costs
indemnified include all expenses, liability and loss reasonably incurred or
suffered by the director or officer in connection with his or her action on
behalf of the registrant.
The Bylaws of the registrant further provide for the advancement of
expenses incurred by an officer or director, and reimbursable under the Bylaws,
upon prior delivery to the registrant of an undertaking, by or on behalf of
such director or officer, to repay all amounts advanced if it is ultimately
determined that such director or officer is not entitled to indemnification.
If a claim is not paid in full by the registrant within ninety days
after a written claim has been received, the director or officer making the
claim may bring suit against the registrant to recover any unpaid amount. If
the director or officer is successful, in whole or in part, he or she will be
entitled to be paid the expense of prosecuting such claim. Although it is a
defense to an action against the registrant by a director or officer that he or
she has not met the standards of conduct which make it permissible under
Kentucky law for the registrant to indemnify, the registrant has the burden of
proving this defense.
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The circumstances under which Kentucky law requires or permits a
corporation to indemnify its directors, officers, employees and/or agents are
set forth at KRS 271B.8-500 et seq.
Generally, under KRS 271B.8-500et seq., a corporation may indemnify an
individual made a party to a proceeding because he is or was a director against
liability incurred in the proceeding if (a) he conducted himself in good faith,
and (b) he reasonably believed: in the case of conduct in his official capacity
with the corporation, that his conduct was in its best interests; and, in all
other cases, that his conduct was at least not opposed to its best interests;
and (c) in the case of any criminal proceeding, he had no reasonable cause to
believe his conduct was unlawful.
A corporation may not indemnify a director: (a) in connection with a
proceeding by or in the right of the corporation in which the director was
adjudged liable to the corporation; or (b) in connection with any other
proceeding charging improper personal benefit to him, whether or not involving
action in his official capacity, in which he was adjudged liable on the basis
that personal benefit was improperly received by him.
Indemnification permitted in connection with a proceeding by or in the
right of the corporation is limited to reasonable expenses incurred in
connection with the proceeding.
In addition, the registrant maintains directors' and officers'
liability insurance covering certain liabilities which may be incurred by the
directors and officers of the registrant in connection with the performance of
their duties.
ITEM 21. EXHIBITS
The following exhibits are filed herewith or incorporated herein by
reference:
(2) Agreement and Plan of Reorganization and Plan of
Merger, each dated December 27, 1993, between Trans
Financial Bancorp, Inc. and Peoples Financial
Services, Inc. included as Appendix A to the Proxy
Statement-Prospectus.
(4) (a) Restated Articles of Incorporation of the
Registrant incorporated by reference to
Exhibit 3 of the Registrant's report on Form
10-Q for the quarter ended March 31, 1992.
(b) Bylaws of the Registrant as amended are
incorporated by reference to Exhibit 3 of the
Registrant's report on Form 10-Q for the
quarter ended March 31, 1992.
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(c) Specimen Stock Certificate is incorporated by
reference to Exhibit 4(c) to the Registrant's
report on Form 10-K for the year ended
December 31, 1987.
(d) Rights Agreement dated January 20, 1992
between Manufacturers Hanover Trust Company
and Trans Financial Bancorp, Inc. is
incorporated by reference to Exhibit 1 to the
Registration's report on Form 8-K dated
January 24, 1992.
* (5) Opinion of Wyatt, Tarrant & Combs regarding the
validity of the Common Stock being registered.
* (8) Opinion of Wyatt, Tarrant & Combs as to certain
federal income tax consequences.
(10) (a) Trans Financial Bancorp, Inc. 1987 Stock
Option Plan is incorporated by reference to
Exhibit 10 of the Registrant's report on Form
10-Q for the quarter ended March 31, 1988.
(b) Trans Financial Bancorp, Inc. 1990 Stock
Option Plan is incorporated by reference to
Exhibit 10(d) of Registrant's Report on Form
10-K for the year ended December 31, 1990.
(c) Trans Financial Bancorp, Inc. 1992 Stock
Option Plan is incorporated by reference to
Exhibit 28 of Registrant's Report on Form
10-Q for the quarter ended March 31, 1992.
(d) Employment Agreement between Douglas M.
Lester and Trans Financial Bancorp, Inc. is
incorporated by reference to Exhibit 10(c) of
the Registrant's report on Form 10-K for the
year ended December 31, 1990.
(e) Employment Agreement between Harold T.
Matthews and Trans Financial Bank, N.A. is
incorporated by reference to Exhibit 10(e) of
Registrant's Report on Form 10-K for the year
ended December 31, 1992.
(f) Description of Registrant's Performance
Incentive Plan is incorporated by reference
to Exhibit 10(e) of Registrant's Report on
Form 10-K for the year ended December 31,
1992.
(g) Form of Deferred Compensation Agreement
between Registrant and certain officers of
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<PAGE> 248
Registrant is incorporated by reference to
Exhibit 10(e) of Registrant's Report on Form
10-K for the year ended December 31, 1992.
(h) Trans Financial Bancorp, Inc. Dividend
Reinvestment and Stock Purchase Plan is
incorporated by reference to the Registration
Statement on Form S-3 of Registrant (File No.
33-40606).
(i) Plan and Agreement of Reorganization dated
September 14, 1992 among Trans Financial
Bancorp, Inc., Dawson Springs Bancorp, Inc.
and the shareholders of Dawson Springs
Bancorp, Inc. is incorporated by reference to
Exhibit 1 of Registrant's Report on Form 8-K
dated January 15, 1993.
(j) Share Exchange Agreement dated March 25, 1993
between Trans Financial Bancorp, Inc. and
Trans Kentucky Bancorp is incorporated by
reference to Exhibit 1 of Registrant's Report
on Form 8-K dated April 8, 1993.
(k) Plan and Agreement of Reorganization dated
November 9, 1993, among Trans Financial
Bancorp, Inc., Trans Financial Acquisition
Corp and Kentucky Community Bancorp, Inc. is
incorporated by reference to Appendix A to
the Registration on Form S-4 of Registrant
(File No. 33-51575).
(l) Warrant dated as of February 13, 1992 between
Morgan Keegan & Company, Inc. and Trans
Financial Bancorp, Inc. is incorporated by
reference to Exhibit 10(m) of Registration
Statement on Form S-2 of Registrant (File No.
33-45483).
(m) Underwriting Agreement dated as of September
9, 1993 between Morgan Keegan & Company, Inc.
and Trans Financial Bancorp, Inc. is
incorporated by reference to Exhibit (1) to
Registration Statement on Form S-2 of
Registrant (File No. 33-67686).
(n) Underwriting Agreement dated as of March 3,
1992 between Morgan Keegan & Company, Inc.
and Trans Financial Bancorp, Inc. is
incorporated by reference to Exhibit (1) to
Registration Statement on Form S-2 of
Registrant (File No. 33-45483).
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<PAGE> 249
(o) Loan Agreement dated as of July 6, 1993
between First Tennessee Bank National
Association and Trans Financial Bancorp, Inc.
incorporated by reference to Exhibit 10(p) to
the Registration Statement on Form S-2 of
Registrant (File No. 33-67686).
(p) Subordinated Note dated as of September 16,
1993 by Trans Financial Bancorp, Inc.
incorporated by reference to Exhibit 1 to
Registration Statement on Form S-2 of
Registrant (File No. 33-67686).
(q) Form of Indenture dated as of September 1,
1993 between Trans Financial Bancorp, Inc.
and First Tennessee Bank National Association
is incorporated by reference to Exhibit 4 to
Registration Statement on Form S-2 of
Registrant (File No 33-67686).
(r) Agreement and Plan of Reorganization
and Plan of Merger between Trans Financial
Bancorp, Inc. and FGC Holding Company dated
January 28, 1994 is incorporated by reference
to Exhibit 2 of Registrant's Report on Form
8-K filed February 18, 1994.
(23) (a) Consent of KPMG Peat Marwick, independent
auditors for the Registrant.
(b) Consent of KPMG Peat Marwick, independent
auditors for Peoples Financial.
(c) Consent of KPMG Peat Marwick, independent
auditors for Citizens Federal.
(d) Consent of KPMG Peat Marwick, independent
auditors for Kentucky Community.
(e) Consent of Eskew and Gresham, independent
auditors for FGC.
(f) Consent of Wyatt, Tarrant & Combs, contained
in the opinion filed as Exhibit 5 hereto.
(g) Consent of Wyatt, Tarrant & Combs, contained
in the opinion filed as Exhibit 8 hereto.
*(h) Consent of Professional Bank Services, Inc.
*(24) Powers of Attorney
(99) (a) Opinion of Professional Bank Services, Inc.
(included in the Proxy Statement-Prospectus
as Appendix B).
(b) Form of Proxy
* Previously filed.
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<PAGE> 250
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors or officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer,
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(b) The undersigned registrant hereby undertakes that prior to any
public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(c) The undersigned registrant hereby undertakes that every prospectus
(i) that is filed pursuant to paragraph (d) immediately preceding, or (ii) that
purports to meet the requirements of Sections 10(a)(3) of the Securities Act
and is used in connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that for purposes of
determining any liability under the Securities Act, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(d) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding the request.
II-6
<PAGE> 251
(e) The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-7
<PAGE> 252
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Post-Effective Amendment No. 1 to Registration
Statement on Form S-4 to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Bowling Green, Commonwealth of Kentucky, on
March 11, 1994.
TRANS FINANCIAL BANCORP, INC.
By /s/ Douglas M. Lester
---------------------------
Douglas M. Lester, Chairman of
the Board, President and
Chief Executive Officer
II-8
<PAGE> 253
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 1 to Registration Statement on Form S-4 has been
signed below by the following persons on the 11th day of March, 1994 in the
capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Douglas M. Lester
- -------------------------- Chairman of the Board, Pres-
Douglas M. Lester ident, Chief Executive Officer
and Director (Principal
Executive Officer)
/s/ Vince Berta Treasurer and Chief Financial
- -------------------------- Officer (Principal Financial and
Vince Berta Accounting Officer)
*
- --------------------------
Barry D. Bray Director
*
- --------------------------
Mary D. Cohron Director
*
- --------------------------
Floyd H. Ellis Director
*
- --------------------------
Noel Ennis Director
*
- --------------------------
J. David Francis Director
*
- --------------------------
Roy E. Gaddie Director
*
- --------------------------
John B. Gaines Director
- --------------------------
David B. Garvin Director
</TABLE>
II-9
<PAGE> 254
<TABLE>
<S> <C>
- -------------------------
Wayne Gaunce Director
*
- -------------------------
C.C. Howard Gray Director
*
- -------------------------
Charles A. Hardcastle Director
*
- -------------------------
Carroll Knicely Director
*
- -------------------------
Douglas M. Lester Director
- -------------------------
C. Cecil Martin Director
*
- -------------------------
Frank Mastrapasqua Director
- -------------------------
Joseph I. Medalie Director
*
- -------------------------
Charles M. Stewart Director
*
- -------------------------
William B. Van Meter Director
*
- -------------------------
Roland D. Willock Director
* By /s/ Douglas M. Lester
------------------------
Douglas M. Lester,
Attorney-in-fact pursuant to
powers of attorney previously
filed as part of this
Registration Statement
</TABLE>
II-10
<PAGE> 255
INDEX TO EXHIBITS
Exhibit No. Description
----------- -----------
(2) Agreement and Plan of Reorganization and Plan of
Merger, each dated December 27, 1993, between Trans
Financial Bancorp, Inc. and Peoples Financial
Services, Inc. included as Appendix A to the Proxy
Statement-Prospectus.
(4) (a) Restated Articles of Incorporation of the
Registrant incorporated by reference to
Exhibit 3 of the Registrant's report on Form
10-Q for the quarter ended March 31, 1992.
(b) Bylaws of the Registrant as amended are
incorporated by reference to Exhibit 3 of the
Registrant's report on Form 10-Q for the
quarter ended March 31, 1992.
(c) Specimen Stock Certificate is incorporated by
reference to Exhibit 4(c) to the Registrant's
report on Form 10-K for the year ended
December 31, 1987.
(d) Rights Agreement dated January 20, 1992
between Manufacturers Hanover Trust Company
and Trans Financial Bancorp, Inc. is
incorporated by reference to Exhibit 1 to the
Registration's report on Form 8-K dated
January 24, 1992.
*(5) Opinion of Wyatt, Tarrant & Combs regarding the
validity of the Common Stock being registered.
*(8) Opinion of Wyatt, Tarrant & Combs as to certain
federal income tax consequences.
<PAGE> 256
(10) (a) Trans Financial Bancorp, Inc. 1987 Stock
Option Plan is incorporated by reference to
Exhibit 10 of the Registrant's report on Form
10-Q for the quarter ended March 31, 1988.
(b) Trans Financial Bancorp, Inc. 1990 Stock
Option Plan is incorporated by reference to
Exhibit 10(d) of Registrant's Report on Form
10-K for the year ended December 31, 1990.
(c) Trans Financial Bancorp, Inc. 1992 Stock
Option Plan is incorporated by reference to
Exhibit 28 of Registrant's Report on Form
10-Q for the quarter ended March 31, 1992.
(d) Employment Agreement between Douglas M.
Lester and Trans Financial Bancorp, Inc. is
incorporated by reference to Exhibit 10(c) of
the Registrant's report on Form 10-K for the
year ended December 31, 1990.
(e) Employment Agreement between Harold T.
Matthews and Trans Financial Bank, N.A. is
incorporated by reference to Exhibit 10(e) of
Registrant's Report on Form 10-K for the year
ended December 31, 1992.
(f) Description of Registrant's Performance
Incentive Plan is incorporated by reference
to Exhibit 10(e) of Registrant's Report on
Form 10-K for the year ended December 31,
1992.
(g) Form of Deferred Compensation Agreement
between Registrant and certain officers of
Registrant is incorporated by reference to
Exhibit 10(e) of Registrant's Report on Form
10-K for the year ended December 31, 1992.
(h) Trans Financial Bancorp, Inc. Dividend
Reinvestment and Stock Purchase Plan is
incorporated by reference to the Registration
Statement on Form S-3 of Registrant (File No.
33-40606).
(i) Plan and Agreement of Reorganization dated
September 14, 1992 among Trans Financial
Bancorp, Inc., Dawson Springs Bancorp, Inc.
and the shareholders of Dawson Springs
Bancorp, Inc. is incorporated by reference to
Exhibit 1 of Registrant's Report on Form 8-K
dated January 15, 1993.
<PAGE> 257
(j) Share Exchange Agreement dated March 25, 1993
between Trans Financial Bancorp, Inc. and
Trans Kentucky Bancorp is incorporated by
reference to Exhibit 1 of Registrant's Report
on Form 8-K dated April 8, 1993.
(k) Plan and Agreement of Reorganization dated
November 9, 1993, among Trans Financial
Bancorp, Inc., Trans Financial Acquisition
Corp and Kentucky Community Bancorp, Inc. is
incorporated by reference to Appendix A to
the Registration on Form S-4 of Registrant
(File No. 33-51575).
(l) Warrant dated as of February 13, 1992 between
Morgan Keegan & Company, Inc. and Trans
Financial Bancorp, Inc. is incorporated by
reference to Exhibit 10(m) of Registration
Statement on Form S-2 of Registrant (File No.
33-45483).
(m) Underwriting Agreement dated as of September
9, 1993 between Morgan Keegan & Company, Inc.
and Trans Financial Bancorp, Inc. is
incorporated by reference to Exhibit (1) to
Registration Statement on Form S-2 of
Registrant (File No. 33-67686).
(n) Underwriting Agreement dated as of March 3,
1992 between Morgan Keegan & Company, Inc.
and Trans Financial Bancorp, Inc. is
incorporated by reference to Exhibit (1) to
Registration Statement on Form S-2 of
Registrant (File No. 33-45483).
(o) Loan Agreement dated as of July 6, 1993
between First Tennessee Bank National
Association and Trans Financial Bancorp, Inc.
incorporated by reference to Exhibit 10(p) to
the Registration Statement on Form S-2 of
Registrant (File No. 33-67686).
(p) Subordinated Note dated as of September 16,
1993 by Trans Financial Bancorp, Inc.
incorporated by reference to Exhibit 1 to
Registration Statement on Form S-2 of
Registrant (File No. 33-67686).
(q) Form of Indenture dated as of September 1,
1993 between Trans Financial Bancorp, Inc.
and First Tennessee Bank National Association
is incorporated by reference to Exhibit 4 to
Registration Statement on Form S-2 of
Registrant (File No 33-67686).
(r) Agreement and Plan of Reorganization and Plan
of Merger between Trans Financial Bancorp,
Inc. and FGC Holding Company dated
January 28, 1994 is incorporated by reference
to Exhibit 2 of Registrant's Current Report
on Form 8-K dated February 18, 1994.
<PAGE> 258
(23) (a) Consent of KPMG Peat Marwick, independent
auditors for the Registrant.
(b) Consent of KPMG Peat Marwick, independent
auditors for Peoples Financial.
(c) Consent of KPMG Peat Marwick, independent
auditors for Citizens Federal.
(d) Consent of KPMG Peat Marwick, independent
auditors for Kentucky Community.
(e) Consent of Eskew and Gresham, independent
auditors for FGC.
(f) Consent of Wyatt, Tarrant & Combs, contained
in the opinion filed as Exhibit 5 hereto.
(g) Consent of Wyatt, Tarrant & Combs, contained
in the opinion filed as Exhibit 8 hereto.
*(h) Consent of Professional Bank Services, Inc.
*(24) Powers of Attorney.
(99) (a) Opinion of Professional Bank Services, Inc.
(included in the Proxy Statement-Prospectus
as Appendix B).
(b) Form of Proxy
* Previously filed.
<PAGE> 1
Exhibit 23(a)
CONSENT OF KPMG PEAT MARWICK
INDEPENDENT AUDITORS
The Board of Directors
Trans Financial Bancorp, Inc.:
We consent to the use of our report dated February 28, 1993 on the consolidated
financial statements of Trans Financial Bancorp, Inc. and subsidiaries as of
December 31, 1992 and 1991, and for each of the years in the three-year period
ended December 31, 1992, incorporated herein by reference and to the reference
to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick
Louisville, Kentucky
March 11, 1994
<PAGE> 1
Exhibit 23(b)
CONSENT OF KPMG PEAT MARWICK
INDEPENDENT AUDITORS
The Board of Directors
Peoples Financial Services, Inc.:
We consent to the use of our report dated February 4, 1993, relating to
the consolidated balance sheets of Peoples Financial Services, Inc. and
subsidiary as of December 31, 1992 and 1991, and the related consolidated
statements of earnings, stockholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1992, which report is
included herein, and to the reference to our firm under the heading "Experts" in
the prospectus.
/s/ KPMG Peat Marwick
Nashville, Tennessee
March 11, 1994
<PAGE> 1
Exhibit 23(c)
Consent of KPMG Peat Marwick
INDEPENDENT AUDITORS
The Board of Directors
Citizens Federal Savings Bank:
We consent to the use of our report dated February 26, 1993 relating to
the consolidated balance sheets of Citizens Federal Savings Bank and
subsidiaries as of December 31, 1992 and 1991, and the related consolidated
statements of operations, retained earnings and cash flows for each of the
years in the three-year period ended December 31, 1992, which report is
included herein, and to the reference to our firm under the heading "Experts" in
the prospectus.
Our report dated February 26, 1993 contains an emphasis paragraph which states
that Citizens Federal entered into a supervisory agreement with the Office of
Thrift Supervision in 1991. To comply with the agreement's requirement to
increase regulatory capital ratios, Citizens Federal entered into an
acquisition agreement under which Citizens Federal would convert from mutual to
stock form and be acquired by Peoples Financial Services, Inc., as discussed in
note 15 to the consolidated financial statements of Citizens Federal. The
conversion and acquisition was consummated on February 1, 1993, and resulted in
an increase of capital above the requirement set forth in the supervisory
agreement. Failure to comply with the remaining provisions of the agreement
could expose Citizens Federal to possible further regulatory sanctions and
enforcement actions.
/s/ KPMG Peat Marwick
Nashville, Tennessee
March 11, 1994
<PAGE> 1
Exhibit 23(d)
CONSENT OF KPMG PEAT MARWICK
INDEPENDENT AUDITORS
The Board of Directors
Kentucky Community Bancorp, Inc.:
We consent to the use of our report dated February 5, 1993 on the consolidated
financial statements of Kentucky Community Bancorp, Inc., and subsidiaries as
of December 31, 1992 and 1991, and for each of the years in the three-year
period ended December 31, 1992, incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick
Louisville, Kentucky
March 11, 1994
<PAGE> 1
Exhibit 23(e)
CONSENT OF ESKEW & GRESHAM, PSC
INDEPENDENT AUDITORS
The Board of Directors
FGC Holding Company
We consent to the use of our report dated February 11, 1994 on the
consolidated financial statements of FGC Holding Company and Subsidiary as of
December 31, 1992, and for the year then ended, incorporated herein by
reference and to the reference to our firm under the heading "Experts" in the
post-effective Amendment No. 1.
/s/ Eskew & Gresham, PSC
March 11, 1994
Louisville, Kentucky
<PAGE> 1
EXHIBIT 99(B)
REVOCABLE PROXY
PEOPLES FINANCIAL SERVICES, INC.
SPECIAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Fred Brown and Barry Buckley,
and each of them, as attorneys and proxies, with full power of substitution,
and authorizes them, and each of them, to vote and act with respect to all
shares of Common Stock of Peoples Financial Services, Inc. (the "Company")
which the undersigned is entitled to vote at the Special Meeting of
Shareholders to be held on April 12, 1994, at 4:30 p.m., at the
principal office of the Company at Two West Jackson, Cookeville, Tennessee, and
at any and all adjournments thereof.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING
PROPOSAL:
1. PROPOSAL to APPROVE the Agreement and Plan of Reorganization
and the related Plan of Merger, each dated December 27, 1993.
/ / FOR / / AGAINST / / ABSTAIN
2. In their discretion, the proxies are authorized to vote upon
such other matters incident to the conduct of the meeting.
THE PROXIES SHALL VOTE SUCH SHARES AS SPECIFIED HEREIN. IF A
CHOICE IS NOT SPECIFIED, THEY SHALL VOTE FOR THE PROPOSAL TO APPROVE THE
AGREEMENT AND PLAN OF REORGANIZATION AND THE RELATED PLAN OF MERGER.
Dated:______________________, 1994
___________________________________
PRINT NAME OF SHAREHOLDER
___________________________________
SIGNATURE OF SHAREHOLDER
Name(s) should be signed exactly as
shown on the stock certificate(s).
Title should be added if signing as
attorney, executor, administrator,
trustee or guardian.
PLEASE COMPLETE, DATE SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED POSTAGE
PAID ENVELOPE.
