_______________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported) March 10, 1994
Commission File Number Number 0-16839
PEOPLES FIRST CORPORATION
(Exact name of registrant as specified in its charter)
Kentucky 61-1023747
(State or other jurisdiction of (I R S Employer
incorporation or organization) Identification No.)
100 South Fourth Street
Paducah, Kentucky 42002-2200
(Address of principal exective offices) (Zip Code)
Registrant's telephone number, including area code: (502) 441-1200
______________________________________________________________________________1
Item 2.
ACQUISITION OR DISPOSTION OF ASSETS
The Merger (the Merger) of First Kentucky Bancorp, Inc. (Bancorp), the parent
company of First Kentucky Federal Savings Bank (Bank), Central City, Kentucky,
into Peoples First Acquisition Corporation (Subsidiary), a wholly-owned subsi-
diary of Peoples First Corporation (PFC), became effective upon the filing of
Articles of Merger with the Kentucky Secretary of State on March 10, 1994. In
the Merger, the surviving Subsidiary, acquired all the assets and assumed all
the liabilities of the Bancorp. At the time of the Merger, the principal asset
of Bancorp was the stock of the Bank. At December 31, 1993, Bancorp had, on a
consolidated basis, total assets of approximately $176.8 million, loans of
approximately $78.3 million, deposits of approximately $160.8 million and net
assets (stockholders' equity) of approximately $13.7 million.
PFC exchanged 930,000 shares of its common stock for all the outstanding shares
of Bancorp. PFC's common stock is traded on the National Association of Secur-
ities Dealers Automated Quotation System (NASDAQ) National Market System (NMS)
under the symbol PFKY. The last trading price reported by NASDAQ on March 10,
1994, for PFKY was $27.00 per share. This business combination will be account-
ed for as a pooling-of-interest. PFC will report the results of operations for
1994 as though Bancorp had been combined as of the beginning of 1994 and finan-
cial statements for prior years will be restated on a combined basis to furnish
comparative information.
Peoples First generally intends to continue to use the assets acquired in the
Merger for the purpose of the general business conducted by a savings bank,
their use immediately before the Merger.
2
Item 7.
FINANCIAL STATEMENTS AND EXHIBITS
Listed below are the financial statments, pro forma information and exhibits
filed as a part of this report:
(a) Financial statements of business acquired
Audited balance sheets of First Kentucky Bancorp, Inc. and Subsidiary as of
September 30, 1993 and 1992, and the related statements of income, share-
holders' equity, and cash flows for the years then ended.
Unaudited balance sheets of First Kentucky Bancorp, Inc. and Subsidiary as
of December 31, 1993 and 1992, and the related statements of income and
cash flows for the three months then ended.
(b) Pro forma financial information
Pro forma condensed combined balance sheet Peoples First Corporation and
Subsidiaries and First Kentucky Bancorp, Inc. and Subsidiary as of Decem-
ber 31, 1993.
Pro forma condensed combined statements of income Peoples First Corporation
and Subsidiaries and First Kentucky Bancorp, Inc. and Subsidiary for the
year ended December 31, 1993.
(c) Exhibits
(2.1) Affiliation Agreement between Peoples First Corporation and First
Kentucky Bancorp, Inc. is incorporated herein by reference to
Appendix A of Form S-4, registration No. 33-51741 as filed with
the Securities and Exchange Commission on January 24, 1994.
(23.1) Consent of Whelan, Doerr, Pike and Pawley, PSC, independent public
accountants.
3
INDEPENDENT AUDITORS' REPORT
Board of Directors
First Kentucky Bancorp, Inc.
Central City, Kentucky
We have audited the accompanying consolidated statements of financial condition
of First Kentucky Bancorp, Inc. and subsidiary as of September 30, 1993 and
1992, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended September 30,
1993. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Kentucky Bancorp, Inc. and subsidiary as of September 30, 1993 and 1992, and the
results of its operations and its cash flows for each of the three years in the
period ended September 30, 1993, in conformity with generally accepted
accounting principles.
WHELAN, DOERR, PIKE & PAWLEY, PSC
Elizabethtown, Kentucky
November 3, 1993
4
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS September 30,
1993 1992
Cash:
Interest-bearing deposits $5,000,000 $10,500,000
Noninterest-bearing deposits 2,382,992 2,739,204
Investment securities (Market value,
September 30, 1993 $17,133,000; September 30,
1992 $19,674,000) (Note 4) 15,569,313 19,467,767
Mortgage-backed securities (Market value,
September 30, 1993 $71,393,000; September 30,
1992 $60,365,000) (Note 4) 69,747,976 58,114,592
Loans receivable, net (Note 5) 78,233,516 81,687,553
Office properties and equipment, net (Note 6) 1,875,101 1,987,609
Real estate owned, net (Note 7) 267,572 553,209
Federal Home Loan Bank stock, at cost 1,363,700 1,178,100
Accrued interest receivable (Note 8) 928,189 1,393,740
Prepaid and other assets (Note 12) 312,992 413,479
----------- -----------
$175,681,351 $178,035,253
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Customer deposits (Note 9) $161,374,848 $165,423,554
Note payable (Note 11) 158,481 202,856
Advance payments by borrowers for taxes
and insurance 223,534 163,458
Income taxes (Note 12):
Current -- 115,419
Other liabilities 173,115 287,836
----------- -----------
Total liabilities 161,929,978 166,193,123
Commitments (Note 5) -- --
Stockholders' equity (Notes 1, 10 and 11):
Serial preferred stock, 500,000 shares -- --
authorized and unissued
Common stock, $.01 par value, 2,500,000
shares authorized; issued and outstanding - 1993
409,342 shares; 1992 - 373,117 shares 4,093 3,731
Additional paid-in capital 3,670,279 3,282,478
Employee Stock Ownership Plan shares
purchased with debt (158,481) (202,856)
Retained earnings, substantially restricted 10,235,482 8,758,777
----------- -----------
Total stockholders' equity 13,751,373 11,842,130
----------- -----------
$175,681,351 $178,035,253
=========== ===========
See notes to consolidated financial statements.
5
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Year Ended September 30,
1993 1992 1991
Interest income:
Loans $6,597,948 $8,107,403 $10,287,595
Investments and deposits 1,498,993 2,335,106 3,393,958
Mortgage-backed securities 4,174,508 3,685,778 1,259,010
---------- ---------- ----------
12,271,449 14,128,287 14,940,563
Interest expense on customer deposits 6,683,955 9,092,693 11,008,948
---------- ---------- ----------
Net interest income 5,587,494 5,035,594 3,931,615
Provision for loan losses 122,000 253,000 264,000
---------- ---------- ----------
Net interest income after provision
for loan losses 5,465,494 4,782,594 3,667,615
Other income:
Gain on sale of investments (Note 4) -- 13,036 --
Service fees 383,529 449,435 346,197
Operation of real estate owned, net (1,933) 66,390 62,671
Other 67,177 112,791 83,534
---------- ---------- ----------
448,773 641,652 492,402
---------- ---------- ----------
Other expenses:
Compensation and benefits (Note 11) 1,657,118 1,553,037 1,400,527
Office occupancy, net 293,680 302,072 311,964
Federal insurance premiums 335,500 364,500 352,500
Provision for loss on real estate -- 50,000 20,000
Computer services 244,978 223,180 218,497
Kentucky building and loan tax 174,160 133,377 132,981
Other 616,204 602,112 563,333
---------- ---------- ----------
3,321,640 3,228,278 2,999,802
---------- ---------- ----------
Income before income taxes 2,592,627 2,195,968 1,160,215
Income taxes (credits) (Note 12):
Current 839,955 828,576 442,798
Deferred (3,871) (83,361) (9,194)
---------- ---------- ----------
836,084 745,215 433,604
---------- ---------- ----------
Net income $1,756,543 $1,450,753 $726,611
========== ========== ==========
Net income per share (Note 10) $4.56 $4.00 $0.58
========== ========== ==========
See notes to consolidated financial statements.
6
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Additional ESOP Shares
Number Paid-in Retained Purchased
of Shares Amount Capital Earnings with Debt Total
<S> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1990 -- $ -- $ -- $6,581,413 $ -- $6,581,413
Proceeds from common stock offering,
net (Note 1) 362,250 3,622 3,146,750 -- -- 3,150,372
Employee Stock Ownership Plan shares
purchased with debt (Note 11) -- -- -- -- (253,570) (253,570)
Net income -- -- -- 726,611 -- 726,611
------- ------- --------- ---------- --------- ----------
Balance, September 30, 1991 362,250 3,622 3,146,750 7,308,024 (253,570) 10,204,826
Issuance of stock to Management
Recognition Plan Trust (Note 11) 10,867 109 135,728 -- -- 135,837
Principal repayments on ESOP
obligation (Note 11) -- -- -- -- 50,714 50,714
Net income -- -- -- 1,450,753 -- 1,450,753
------- ------- --------- ---------- --------- ----------
Balance, September 30, 1992 373,117 3,731 3,282,478 8,758,777 (202,856) 11,842,130
Exercise of stock options 36,225 362 361,888 -- -- 362,250
Tax benefit of exercising stock options
and ESOP dividends used to retire debt -- -- 25,913 -- -- 25,913
Principal repayments on ESOP obligation
(Note 11) -- -- -- -- 44,375 44,375
Cash dividends paid -- -- -- (279,838) -- (279,838)
Net income -- -- -- 1,756,543 -- 1,756,543
------- ------- --------- ---------- --------- ----------
Balance, September 30, 1993 409,342 $4,093 $3,670,279 $10,235,482 ($158,481) $13,751,373
======= ======= ========= ========== ========= ==========
</TABLE>
See notes to consolidated financial statements.
7
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended September 30,
<S> <C> <C> <C>
1993 1992 1991
Operating Activities:
Net income $1,756,543 $1,450,753 $726,611
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Provision for loan losses 122,000 253,000 264,000
Provision for loss on real estate -- 50,000 20,000
Depreciation of office properties
and equipment 178,724 150,482 170,146
Depreciation of real estate owned 7,256 21,759 21,759
Gain on sale of investments -- (13,036) --
Loss on sale of real estate, net -- -- 4,314
Amortization of premiums and accretion of
discounts on investment securities and
mortgage-backed securities, net (626,969) 43,939 127,989
FHLB stock dividends (56,700) (52,800) (70,800)
Pension expense paid on ESOP debt 25,357 27,163 --
Tax benefit of exercising stock options and
ESOP dividends used to retire debt 25,913 -- --
Change in assets and liabilities:
(Increase) decrease in accrued interest
receivable 465,551 170,463 (152,146)
(Increase) decrease in prepaid and other assets 104,358 (144,929) 40,209
Increase (decrease) in income taxes - current (115,419) (64,388) 179,807
Decrease in income taxes - deferred (3,871) (83,361) (9,194)
Increase (decrease) in other liabilities (114,721) (121,078) 87,526
---------- ---------- ----------
Net cash provided by operating activities 1,768,022 1,687,967 1,410,221
Investing Activities:
Proceeds from sale of investment securities -- 11,863,750 --
Proceeds from maturities of investment
securities 5,035,000 5,594,000 10,694,000
Purchases of investment securities and
mortgage-backed securities (29,663,074) (46,819,446) (33,310,317)
Net repayments of loans 3,029,898 16,160,816 8,944,297
Purchases of office properties and equipment (66,216) (90,169) (92,933)
Redemption (purchases) of FHLB stock (128,900) (79,700) 123,700
Principal collected on mortgage-backed
securities 17,520,113 6,217,699 1,086,744
Sales of real estate owned 580,520 138,473 144,146
---------- ---------- ----------
Net cash used in investing (3,692,659) (7,014,577) (12,410,363)
See notes to consolidated financial statements.
8
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
Year Ended September 30,
1993 1992 1991
Financing Activities:
Net (decrease) increase in customer deposits ($4,048,706) $954,521 $3,684,783
Net increase in advance payments by borrowers 60,076 19,431 8,179
Proceeds from long-term borrowing -- -- 253,570
Proceeds from common stock offering,
net of issue costs -- -- 3,150,372
Shares purchased by Employee Stock Ownership Plan -- -- (253,570)
Proceeds from common stock issuance to MRP Trust -- 135,837 --
Proceeds from exercise of stock options 362,250 -- --
Repayment of borrowed funds (25,357) (50,714) --
Dividends paid to shareholders and on ESOP debt (279,838) -- --
---------- ---------- ----------
Net cash (used in) provided by financing activities (3,931,575) 1,059,075 6,843,334
---------- ---------- ----------
Net decrease in cash and cash equivalents (5,856,212) (4,267,535) (4,156,808)
Cash and cash equivalents:
Beginning of year 13,239,204 17,506,739 21,663,547
---------- ---------- ----------
End of year $7,382,992 $13,239,204 $17,506,739
========== ========== ==========
Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest $6,708,444 $9,134,160 $11,051,941
========= ========= =========
Income taxes $977,519 $892,065 $146,338
========= ========= =========
Supplemental Disclosure of Noncash Activities:
Transfer of loans to real estate owned $295,384 $88,380 $323,907
========= ========= =========
Loans to finance sales of real estate owned $35,934 $121,750 $242,056
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
9
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. First Kentucky Bancorp, Inc.
First Kentucky Bancorp, Inc. (the Company) is a Delaware corporation formed at
the direction of First Kentucky Federal Savings Bank (the Bank) to acquire all
the outstanding capital stock that the Bank issued upon conversion from a fed-
erally chartered mutual savings bank to a federally chartered stock savings
bank; this conversion was effective June 18, 1991. As part of the conversion,
the Bank issued all of its common stock to the Company and, simultaneously, the
Company sold its common stock to certain depositors of the Bank. The Company
issued 362,250 shares of common stock for an aggregate price of $3,622,500 or
$3,150,372, net of conversion costs which were deducted from the proceeds. The
plan of conversion outlined that all but approximately 1% of the net proceeds
would be injected into the Bank in exchange for 100% of its stock and, accord-
ingly $3,100,000 was infused into the Bank. Prior to the conversion, the
Company had not transacted any material business activities other than those
associated with the issuance of stock. Subsequent to the conversion, the
Company's business activities have been limited to owning the Bank.
2. Significant Accounting Policies
Principles of Consolidation - The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiary, First Kentucky Federal
Savings Bank and its wholly-owned subsidiary, Home Service Corporation, for all
years presented. Intercompany accounts and transactions have been eliminated in
consolidation. Certain prior year accounts have been reclassified to conform
with 1993 classifications.
Real Estate Owned - Real estate properties acquired through foreclosure and in
settlement of loans are stated at the lower of cost or estimated net realizable
value at the date of foreclosure. Cost is the lesser of fair value or the sum
of the related loan balance and the costs of foreclosure. Estimated net realiz-
able value represents estimated sales price less direct selling expenses. Costs
relating to development and improvement of property are capitalized, whereas
costs relating to holding property are not capitalized and are charged against
operations in the current period. Any portion of interest costs relating to
development of real estate is capitalized. In addition, real estate owned
consists of in-substance foreclosures which based on current information and
events, it is probable that the Bank will be unable to collect all amounts due
according to the contractual terms of the loan agreement and foreclosure is
probable to provide for repayment of the loan.
Office Properties and Equipment - Office properties and equipment are stated at
cost less accumulated depreciation computed principally by the straight-line
method over the following estimated useful lives:
Years
Land improvements 5 - 20
Buildings and improvements 5 - 50
Furniture, fixtures and equipment 3 - 15
10
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Loans Receivable - Loans receivable are stated at unpaid principal balances,
less the allowance for loan losses, deferred loan origination fees and unearned
discounts. Deferred loan origination fees are amortized using the level yield
method on a loan-by-loan basis over the lives of the underlying loans. Unearned
discounts on consumer loans are recognized over the lives of the loans using
methods that approximate the interest method. The allowance for loan losses is
increased by charges to income and decreased by charge-offs (net of recoveries).
Management's periodic evaluation of the adequacy of the allowance is based on
the Bank's past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral, and current economic conditions.
Uncollectible interest on loans that are contractually past due is charged off
or an allowance is established based on management's periodic evaluation. 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 has the
ability to make regular interest and principal payments, in which case the loan
is returned to accrual status.
The Bank's primary lending area is a region within Western Kentucky. The
economy within this region is based upon agriculture and coal industries. The
Bank's primary lending activity is the origination of residential real estate
loans secured by first mortgage for the purpose of acquisition or construction
of one-to-four family residential properties.
Allowance for Losses and Uncollected Interest - The Bank provides valuation
allowances for estimated losses on loans, accrued interest and real estate owned
when a loss is both estimable and probable. Major loans, real estate, and major
lending areas are reviewed periodically to determine potential problems at an
early date. The Bank's experience has shown that foreclosures on loans result
in some losses. Therefore, in addition to allowances for specific loans, the
Bank makes a provision for losses on properties based in part on loss experience
and in part on prevailing market conditions. Additions to allowances are
charged to operations.
Investment Securities - Securities are carried at amortized cost and are not
adjusted to the lower of cost or market because it is management's intention to
hold them to maturity. Amortization of premiums and accretion of discounts is
computed on a method which approximates the level yield method. Gains or losses
on the sale of investment securities are recognized in income at the time of
sale, with cost being determined by the specific identification method.
11
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
In May, 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments,
Debt, and Equity Securities" (SFAS No. 115). The statement requires the
classification of investment securities into three categories: held-to-maturity,
available-for-sale, or trading, based on management's positive intent and
ability to hold such securities. The Bank intends to adopt SFAS No. 115 by
October 1, 1994, as required. The adoption of SFAS No. 115 would not have a
material effect on the financial statements at September 30, 1993.
Mortgage-backed Securities - Mortgage-backed securities are carried at unpaid
principal balances adjusted for unamortized premiums and unearned discounts as
it is management's intent and ability to hold such investments to maturity.
Amortization of premiums and accretion of discounts is computed on a method
which approximates the level yield method. Such securities are primarily
Federal Home Loan Mortgage Corporation and Government National Mortgage
Association participations.
Income Taxes - Deferred income taxes are provided on differences between income
reported for financial reporting and income tax purposes as explained more fully
in Note 12.
3. Statement of Cash Flows
Companies are required to classify cash receipts and payments according to
whether they stem from operating, investing or financing activities. For
purposes of the statement of cash flows, the Bank considers all highly liquid
debt instruments purchased with a maturity of three months or less to be cash
equivalents. Cash and cash equivalents include cash on hand, amounts due from
banks and other short-term cash investments.
4. Investment Securities
The carrying values and estimated market values of investments in debt
securities are as follows:
-------------- September 30, 1993 ---------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
U.S. Treasury and Agency
obligations $14,814,005 $1,544,995 __ $16,359,000
Obligations of states and
political subdivisions 755,308 18,692 __ 774,000
---------- ---------- ---------- ----------
15,569,313 1,563,687 __ 17,133,000
Mortgage-backed securities 69,747,976 1,650,614 (5,590) 71,393,000
---------- ---------- ---------- ----------
$85,317,289 $3,214,301 ($5,590) $88,526,000
========== ========== ========== ==========
12
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
-------------- September 30, 1992 ---------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains (Losses) Value
U.S. Treasury and Agency
obligations $19,142,767 $445,200 ($243,967) $19,344,000
Obligations of states and
political subdivisions 325,000 5,000 __ 330,000
---------- ---------- ---------- ----------
19,467,767 450,200 (243,967) 19,674,000
Mortgage-backed securities 58,114,592 2,250,408 __ 60,365,000
---------- ---------- ---------- ----------
$77,582,359 $2,700,608 ($243,967) $80,039,000
========== ========== ========== ==========
Proceeds from the sale of long-term U. S. Treasury bonds during the year ended
September 30, 1992, were $11,863,750; gross gain of $13,036 was recognized for
the same period.
The amortized cost and estimated market value of debt securities at Septem-
ber 30, 1993, by contract 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.
Estimated
Amortized Market
Cost Value
Investment securities:
Due in one year or less $90,000 $91,000
Due after one year through five years 4,510,727 4,912,000
Due after five years through ten years 10,503,278 11,654,000
Due after ten years 465,308 476,000
---------- ----------
15,569,313 17,133,000
Mortgage-backed securities:
Due after one year through five years 57,709,235 59,191,000
Due after five years through ten years 4,834,586 4,925,000
Due after ten years 7,204,155 7,277,000
---------- ----------
69,747,976 71,393,000
---------- ----------
$85,317,289 $88,526,000
========== ==========
13
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
5. Loans Receivable
Loans receivable consist of the following:
September 30,
1993 1992
Loans secured by first mortgages on real estate:
One-to-four single family residential $60,217,948 $63,924,931
Gross construction loans 2,051,749 1,299,193
Other 6,731,399 6,880,145
---------- ----------
69,001,096 72,104,269
Less:
Undisbursed portion of construction loans 1,274,163 819,538
Net deferred loan origination fees 205,250 209,208
Loans-in-progress 13,436 10,369
Unamortized discounts on purchased loans 13,183 18,465
Allowance for loss on loans 652,689 625,301
---------- ----------
66,842,375 70,421,388
Consumer and other loans:
Secured by deposits 2,522,022 2,326,951
Other consumer and commercial 9,552,918 9,663,512
---------- ----------
12,074,940 11,990,463
Less:
Net unamortized discounts on installment loans 576,498 593,243
Allowance for loss on loans 107,301 131,055
---------- ----------
$78,233,516 $81,687,553
========== ==========
A summary of the transactions in the allowance for loss on loans is as follows:
Year Ended September 30,
1993 1992 1991
Balance, beginning $756,356 $527,035 $270,731
Provision for loan losses 122,000 253,000 264,000
Loans charged off (159,906) (26,949) (29,671)
Recoveries 1,540 3,270 21,975
Transfer from allowance for
loss on real estate owned 40,000 -- --
------- ------- -------
Balance, ending $759,990 $756,356 $527,035
======= ======= =======
14
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Nonperforming loans were $40,912 and $490,730 at September 30, 1993 and 1992,
respectively. Interest income in the amount of $44,523 and $55,523, respec-
tively, would have been recorded on nonperforming loans if they had been
performing in accordance with their contractual terms, approximately $50,800 and
$37,200 was collected during fiscal year 1993 and 1992, respectively.
As of September 30, 1993, the Bank had $2,903,150 in outstanding commitments
to originate mortgage loans; of that amount, $557,250 are for fixed rate loans
with interest rates ranging from 7.75% to 8.625%.
The Bank was not servicing loans for others on any of the dates presented in
these financial statements and there is no intent by management to sell mortgage
loans in the secondary market.
6. Office Properties and Equipment
Office properties and equipment are summarized by major classification as
follows:
September 30,
1993 1992
Land and land improvements $598,371 $598,371
Buildings and building improvements 2,113,219 2,146,826
Furniture, fixtures and equipment 758,934 1,006,843
--------- ---------
3,470,524 3,752,040
Less accumulated depreciation 1,595,423 1,764,431
--------- ---------
$1,875,101 $1,987,609
========= =========
7. Real Estate Owned
Real estate owned consists of the following:
September 30,
1993 1992
Acquired in settlement of loans $366,982 $857,735
Deduct:
Accumulated depreciation -- 127,165
Allowance for loss on real estate owned 99,410 177,361
------- -------
$267,572 $553,209
======= =======
15
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
A summary of the transactions in the allowance for loss on real estate owned is
as follows:
Year Ended September 30,
1993 1992 1991
Balance, beginning $177,361 $170,478 $210,540
Provision for loss on real estate owned -- 50,000 20,000
Real estate charged off (39,836) (64,164) (91,192)
Recoveries 1,885 21,047 31,130
Transfer to allowance for losses on loans (40,000) -- --
------- ------- -------
Balance, ending $99,410 $177,361 $170,478
======= ======= =======
8. Accrued Interest Receivable
Accrued interest receivable consists of the following:
September 30,
1993 1992
Investment securities $32,478 $153,295
Mortgage-backed securities 420,487 696,244
Real estate loans 255,826 309,008
Installment loans 203,707 206,958
Other 15,691 28,235
--------- ---------
$928,189 $1,393,740
========= =========
9. Customer Deposits Analysis
Customer deposits at September 30, 1993 and 1992, are as follows (In Thousands):
<TABLE>
<CAPTION>
--------------- September 30, ----------------
<S> <C> <C> <C> <C>
1993 % 1992 %
Passbook savings at 2.75% and 3.5%,
respectively $28,138 17% $25,643 15%
NOW and Super NOW accounts at 2.00%
- 2.5% and 3%, respectively 12,130 8% 11,373 7%
MMDA accounts at 2.75% and 3%,
respectively 17,660 11% 17,622 11%
Certificates of deposit:
2% - 2.99% 1,397 1% -- --
3% - 3.99% 46,664 29% 32,622 20%
4% - 4.99% 30,138 19% 28,046 17%
5% - 5.99% 7,004 4% 9,791 6%
6% - 6.99% 5,649 3% 11,534 7%
7% - 7.99% 2,975 2% 12,490 7%
8% - 8.99% 9,620 6% 16,303 10%
------- --- ------- ---
$161,375 100% $165,424 100%
======= === ======= 16 ===
</TABLE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
At September 30, 1993, scheduled maturities of certificates of deposit are as
follows (In Thousands):
------------------------ Amount Due -----------------------
1 - 2 2 - 3 After
1 Year Years Years 3 Years Total
2 - 2.99% $1,397 $ -- $ -- $ -- $1,397
3 - 3.99% 42,109 4,555 -- -- 46,664
4 - 4.99% 11,626 10,625 3,890 3,997 30,138
5 - 5.99% 2,158 906 2,402 1,538 7,004
6 - 6.99% 4,293 793 563 -- 5,649
7 - 7.99% 303 2,273 367 32 2,975
8 - 8.99% 8,113 1,478 11 18 9,620
------ ------ ------ ------ -------
$69,999 $20,630 $7,233 $5,585 $103,447
====== ====== ====== ====== =======
10. Stockholders' Equity
Regulatory Capital Requirements - Under the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), regulations for savings
institutions' minimum capital requirements which went into effect on December 7,
1989, require institutions to have a minimum regulatory tangible capital equal
to 1.5% of adjusted total assets, a minimum 3% leverage core capital ratio and
an 8.0% risk-based capital ratio.
The Bank, at September 30, 1993, meets all regulatory capital requirements. The
following is a reconciliation of the Bank's stockholders' equity to regulatory
capital (In Thousands):
Tangible Core Risk-based
Capital Capital Capital
Stockholders' equity $12,804 $12,804 $12,804
Non-includable subsidiary (33) (33) --
Additional capital items -
general loan loss reserves -- -- 668
------ ------ ------
Regulatory capital - computed 12,771 12,771 13,472
Minimum capital requirement 2,634 5,267 5,368
------ ------ ------
Regulatory capital - excess $10,137 $7,504 $8,104
====== ====== ======
17
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Liquidation Account - In connection with the Bank's conversion from mutual to
stock form of ownership during 1991, the Bank established a "liquidation
account" in the amount of $6,750,000 for the purpose of granting to eligible
savings account holders a priority in the event of future liquidation. Only in
such an event, an eligible account holder who continues to maintain a savings
account will be entitled to receive a distribution from the liquidation account.
The total amount of the liquidation account decreases in an amount
proportionately corresponding to decreases in the savings account balances of
the eligible account holders.
Dividend Restrictions - The Bank may not declare or pay a cash dividend on any
of its capital stock if the effect thereof would cause the net worth of the Bank
to be reduced below the amount required for the liquidation account.
Additionally, federal regulations limit dividend and capital distributions by
the Bank to (a) the greater of 75% of net income for the previous four quarters
or (b) 100% of the Bank's net income to date during the calendar year plus the
amount that would reduce by one-half its surplus capital ratio at the beginning
of the calendar year. If the Bank's capital requirement falls below its minimum
capital requirement, the Bank may not pay dividends without regulatory approval.
Earnings Per Share - Net income per share for fiscal years 1993 and 1992 is
computed on the basis of the weighted average number of shares outstanding.
Common stock equivalents have not been used in computing net income per share
because their effect is not material. Net income per share of common stock from
the date of conversion, June 18 to September 30, 1991, is computed by dividing
net income for the period by 362,250 shares, the number of shares of common
stock issued and outstanding for the period.
Pro forma net income per share of common stock is $2.40 per share for the year
ended September 30, 1991, and has been calculated as if the 362,250 common
shares were issued on October 1, 1990. Pro forma net income has been adjusted
to reflect investment of the stock proceeds for the period October 1, 1990,
through June 17, 1991, at 6.03 percent (the Bank's weighted average interest
rate on interest-earning assets for 1991, net of tax).
Federal Income Tax Bad Debt Reserve - Retained earnings include approximately
$2,600,000 at September 30, 1993, for which no provision for federal income
taxes has been made. This amount represents allocations of income to bad debt
deductions for tax purposes only. If the amounts that qualify as deductions for
federal income tax purposes are later used for purposes other than bad debt
losses, including distributions in liquidation, such distributions will be
subject to federal income tax at the then current corporate rate.
18
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
11. Employee Benefits
Pension Plans - The Bank is a participant in the Financial Institutions Retire-
ment Fund, a multi-employer defined benefit pension plan covering substantially
all employees. Employees are eligible to participate after one year of service
and are 100 percent vested at the completion of five years of participation in
the plan. The Bank's share of accumulated plan benefits and net assets
available for benefits is not available. The plan was fully funded in 1993,
1992 and 1991, thus requiring no contributions. The Bank also participates in
the Financial Institutions Thrift Plan, a defined contribution plan covering
substantially all employees, qualifying under Section 401(k) of the Internal
Revenue Code. Under the terms of the plan, voluntary employee contributions are
matched by up to 3% of the employee base pay, and employees are immediately
vested. Employer contributions charged to operations were $35,650, $34,378 and
$31,503 during 1993, 1992, and 1991, respectively.
Stock Option Plan - In connection with the conversion to the stock form of
ownership, the Company's Board of Directors adopted the First Kentucky Bancorp,
Inc. 1991 Stock Option Plan, which was approved by the stockholders at the
first annual meeting. Pursuant to the plan, 36,225 shares of the Company's
common stock have been reserved for issuance to certain employees upon exercise
of options granted to them under the plan. The exercise price of the options is
$10 per share. All options were exercised during 1993.
Employee Stock Ownership Plan - The Company has established an Employee Stock
Ownership Plan (ESOP) to provide additional retirement benefits to its
employees. Generally, all employees are eligible to participate in the ESOP
upon completion of one year of service. Employees are 100 percent vested at the
completion of five years of vested service in the plan.
The ESOP borrowed $253,570 to purchase 25,357 shares of Company common stock, or
7% of the original shares issued, pledging the stock as collateral for the loan.
Future contributions to retire the loan will be paid to the ESOP out of current
or retained earnings. The unpaid balance of the loan, representing deferred
employee benefits, has been recorded as a deduction from stockholders' equity
with a corresponding amount as a liability.
As the Bank makes annual contributions to the ESOP, these contributions plus
the dividends accumulated on the Bank stock held by the ESOP, are used to
repay the loan. As the loan is repaid, common stock is allocated to the
participants. The loan matures in the year 2001. Interest, payable quarterly
at a rate of 7.0% was $13,626, $17,745 and $7,322 for 1993, 1992 and 1991,
respectively. Contributions charged to operations during 1993, 1992 and 1991,
including interest, were $38,983, $43,102 and $32,679, respectively. Dividends
paid on shares held by the ESOP were $19,018 during 1993.
19
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Management Recognition Plan - The Company has adopted the First Kentucky
Bancorp, Inc. Management Recognition Plan (MRP), which was approved by the
stockholders, to help retain its key employees. Under the plan, 10,867 shares
were issued to the MRP Trust and have been paid to the key employees.
Compensation expense in the amount of fair market value of the Company's common
stock at the date of the grant ($12.50 per share) has been recognized in the
financial statements.
Deferred Compensation Agreements - The Bank has deferred compensation agreements
with certain directors which are partially funded currently through whole life
insurance contracts.
12. Federal Income Tax
Under the Internal Revenue Code, the Bank is allowed a special bad debt
deduction related to additions to tax bad debt reserves established for the
purpose of absorbing losses. The applicable provisions of the law permit the
Bank to deduct from taxable income an allowance for bad debts based on the
greater of a percentage of taxable income before such deductions or actual loss
experience. Because the Bank does not intend to use the reserve for purposes
other than to absorb losses, deferred income taxes have not been provided.
Deferred income taxes (credits) result from timing differences in the
recognition of income and expenses for tax and financial reporting purposes.
Timing differences and the tax effect of each are as follows:
Year Ended September 30,
1993 1992 1991
Accelerated depreciation ($10,800) $17 ($7,542)
Deferred loss from hedging activities -- (60,906) (2,466)
Deferral of loan origination fees 6,929 (22,472) 814
------ ------ ------
($3,871) ($83,361) ($9,194)
====== ====== ======
20
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Taxes on income differs from statutory amounts which are computed by applying
the federal income tax rate of 34% for all periods presented as follows:
Year Ended September 30,
1993 1992 1991
Tax at statutory rate $881,493 $746,629 $394,473
Differences between tax and book
provisions for loan losses (26,412) 36,011 56,845
Tax-exempt interest and dividend income (26,262) (23,797) (29,951)
Differences between tax and book
basis of assets sold -- -- 13,416
Other 7,265 (13,628) (1,179)
------- ------- -------
$836,084 $745,215 $433,604
======= ======= =======
The Bank intends to adopt the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," as amended, (SFAS No. 109)
by October, 1993, as required. Under SFAS No. 109, accounting for income taxes
changes from the deferral method to the asset and liability method. Under the
asset and liability method, the deferred income tax asset or liability is
adjusted each period based on the application of currently enacted tax rates and
laws that are scheduled to be in effect in the periods the temporary differences
reverse.
Under the deferred method in effect until SFAS No. 109, 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. Under the deferred method, deferred
taxes are not adjusted for subsequent changes in tax rates.
This change in accounting for income taxes may be applied retroactively by
restating previously issued financial statements or it may be shown by reporting
the cumulative effect of the change in the year of initial application. The
effect of retroactive implementation to the Bank would increase (decrease) net
income by $(45,139), $10,446, and $46,835 in the years ended September 30, 1993,
1992, and 1991, respectively. Additionally, the adoption of SFAS No. 109 would
decrease retained earnings by $157,807 at September 30, 1993. The Bank intends
to adopt SFAS No. 109 on a prospective basis for the fiscal year ended
September 30, 1994.
13. Condensed Financial Information
The following consolidating condensed financial statements summarize the
financial position and operation results of First Kentucky Bancorp, Inc. and its
subsidiary, First Kentucky Federal Savings Bank, and the Bank's wholly-owned
subsidiary, Home Service Corporation of Hartford.
21
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
CONSOLIDATING CONDENSED STATEMENTS OF FINANCIAL CONDITION
September 30, 1993 (In Thousands)
<TABLE>
<CAPTION>
Consolidated Consolidated
First Home Service First First First
Kentucky Corporation Elimi- Kentucky Kentucky Elimi- Kentucky
ASSETS FSB of Hartford nations FSB Bancorp, Inc. nations Bancorp, Inc.
<S> <C> <C> <C> <C> <C> <C> <C>
Cash, interest and non-
interest-bearing deposits $7,383 $34 ($34) $7,383 $907 ($907) $7,383
Investment securities,
at cost 15,569 -- -- 15,569 -- -- 15,569
Mortgage-backed --
securities, at cost 69,748 -- -- 69,748 -- -- 69,748
Loans receivable, net 78,233 -- -- 78,233 -- -- 78,233
Office properties
and equipment 1,875 -- -- 1,875 -- -- 1,875
Real estate owned, net 268 -- -- 268 -- -- 268
Federal Home Loan Bank stock 1,364 -- -- 1,364 -- -- 1,364
Accrued interest receivable 928 -- -- 928 -- -- 928
Prepaid and other assets 313 -- (1) 312 48 (47) 313
Investment in subsidiary 33 -- (33) 0 12,804 (12,804) 0
------- ------- ------- ------- ------- ------- -------
TOTAL ASSETS $175,714 $34 ($68) $175,680 $13,759 ($13,758) $175,681
======= ======= ======= ======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Customer deposits $162,316 $ -- ($34) $162,282 $ -- ($907) $161,375
Note payable 158 -- -- 158 -- -- 158
Advances and other
liabilities 436 1 (1) 436 8 (47) 397
------- ------- ------- ------- ------- ------- -------
TOTAL LIABILITIES 162,910 1 (35) 162,876 8 (954) 161,930
Stockholders' equity 12,804 33 (33) 12,804 13,751 (12,804) 13,751
------- ------- ------- ------- ------- ------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $175,714 $34 ($68) $175,680 $13,759 ($13,758) $175,681
======= ======= ======= ======= ======= ======= =======
</TABLE>
22
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
CONSOLIDATING CONDENSED STATEMENTS OF INCOME
Year Ended September 30, 1993 (In Thousands)
<TABLE>
<CAPTION>
First Home Service First First First
Kentucky Corporation Elimi- Kentucky Kentucky Elimi- Kentucky
FSB of Hartford nations FSB Bancorp, Inc. nations Bancorp, Inc.
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income $12,271 $1 ($1) $12,271 $15 ($15) $12,271
Interest expense 6,700 -- (1) 6,699 -- (15) 6,684
------ ------ ------ ------ ------ ------ ------
Net interest income before
provision 5,571 1 0 5,572 15 0 5,587
Provision for loan 122 -- -- 122 -- -- 122
------ ------ ------ ------ ------ ------ ------
Net interest income
after provision 5,449 1 0 5,450 15 -- 5,465
Equity in undistributed
earnings of subsidiary 2 -- (2) 0 1,786 (1,786) 0
Other income 442 7 -- 449 -- -- 449
Other expense 3,259 5 -- 3,264 58 -- 3,322
------ ------ ------ ------ ------ ------ ------
Income before income tax 2,634 3 (2) 2,635 1,743 (1,786) 2,592
Income tax (benefit) 848 1 -- 849 (13) -- 836
------ ------ ------ ------ ------ ------ ------
NET INCOME $1,786 $2 ($2) $1,786 $1,756 ($1,786) $1,756
====== ====== ====== ====== ====== ====== ======
</TABLE>
At September 30, 1993, the reconciliation of First Kentucky Federal Savings
Bank's regulatory capital as reported on the Office of Thrift Supervision (OTS)
regulatory report, to the capital as reflected in these financial statements is
as follows (in thousands):
Capital as reported to the OTS $12,843
Audit adjustments:
In-substance foreclosure (17)
Intercompany payables (22)
------
Capital per financial statements $12,804
======
23
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
14. Condensed Financial Information (Parent Company Only)
The following condensed statements summarize the financial position, operating
results and cash flows of First Kentucky Bancorp, Inc. (parent company only).
CONDENSED STATEMENTS OF FINANCIAL CONDITION
September 30,
1993 1992
ASSETS
Cash on deposit with subsidiary bank $907,369 $152,408
Investment in subsidiary bank 12,803,802 11,622,668
Other assets 48,422 16,340
---------- ----------
$13,759,593 $11,791,416
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable - conversion expenses $ -- $ --
Accounts payable other 8,220 --
---------- ----------
8,220 --
Stockholders' equity:
Preferred stock -- --
Common stock 4,093 3,731
Additional paid-in capital 3,670,279 3,282,478
Retained earnings 10,077,001 8,505,207
---------- ----------
13,751,373 11,791,416
---------- ----------
$13,759,593 $11,791,416
========== ==========
CONDENSED STATEMENTS OF INCOME
Year Ended September 30,
1993 1992 1991
Cash dividends from subsidiary $700,000 $ -- $ --
Interest income 15,176 -- 1,390
Management fees and other expenses (58,108) (27,845) --
Income tax benefit (expense) 13,429 9,504 (510)
--------- --------- ---------
Income (loss) before equity in
undistributed earnings of subsidiary 670,497 (18,341) 880
Equity in undistributed earnings
of subsidiary 1,086,046 1,469,094 725,731
--------- --------- ---------
Net income $1,756,543 $1,450,753 $726,611
========= ========= =========
24
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
CONDENSED STATEMENT OF CASH FLOWS
1993 1992 1991
Operating Activities:
Net income $1,756,543 $1,450,753 $726,611
Adjustments to reconcile net income
to net cash provided by operating
activities:
Tax benefit of exercising stock options
and dividends used to pay ESOP debt 25,913 -- --
Increase in other assets (32,081) (16,340) --
Increase (decrease) in accounts paya 8,220 (54,098) 54,098
Equity in undistributed net
income of subsidiary (1,786,046) (1,469,094) (725,731)
--------- --------- ---------
Net cash provided by (used in) operating (27,451) (88,779) 54,978
activities
Investing Activities:
Dividends received from subsidiary 700,000 -- --
Purchase of First Kentucky Federal
Savings Bank common stock -- -- (3,100,000)
--------- --------- ---------
Net cash provided by (used in)
investing activities 700,000 -- (3,100,000)
Financing Activities:
Proceeds from stock options exercised 362,250 -- --
Proceeds from issuance of stock,
net of issue cost -- -- 3,150,372
Proceeds from issuance of common
stock to MRP Trust -- 135,837 --
Dividends paid (279,838) -- --
--------- --------- ---------
Net cash provided by financing activities 82,412 135,837 3,150,372
Net increase in cash 754,961 47,058 105,350
Cash, beginning of year 152,408 105,350 --
--------- --------- ---------
Cash, end of year $907,369 $152,408 $105,350
========= ========= =========
25
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
15. Fair Values of Financial Instruments
In December, 1991, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments" (SFAS No. 107). The Statement requires disclosure of
fair value information about financial instruments, whether or not recognized in
the balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value
estimates cannot be substantiated by comparison to independent markets and, in
many cases could not be realized in immediate settlement of the instrument.
SFAS No. 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented are not intended to represent the underlying value of
the Bank.
The methods and assumptions used by the Bank in estimating its fair value
disclosures for financial instruments are presented below:
Cash and Interest-Bearing Deposits - The carrying amounts for cash and
interest-bearing deposits approximates their fair values.
Investment Securities - Fair values for investment securities are based upon _
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans, Net - For variable rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying amounts.
The fair values of other types of loans are estimated by discounting the future
cash flows using current interest rates at which similar loans would be made to
borrowers with similar credit quality and for the same remaining maturities.
Deposits - The fair values for demand deposits, savings account and certain
money market deposits are the amounts payable on demand at the reporting date.
The carrying amounts for variable-rate, money market accounts and certificates
of deposit approximate their fair values at the reporting date. Fair values for
fixed-rate certificates of deposits are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on time deposits.
26
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
Commitments to Extend Credit and Standby Letters of Credit - The fair values of
commitments to extend credit is estimated using fees currently charged to enter
into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the customer. For fixed-rate
loan commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. The fair values of standby
letters of credit are based on fees currently charged for similar agreements or
on the estimated cost to terminate them or otherwise settle the obligation with
the counter parties at the reporting date.
The estimated fair values of the Bank's financial instruments at September 30,
1993, are as follows:
Carrying Fair
Value Value
Financial assets:
Cash and interest bearing deposits $7,382,992 $7,382,992
Investment securities 15,569,313 17,133,000
Mortgage-backed securities 69,747,976 71,393,000
Loans, net 78,233,516 79,486,000
Financial liabilities:
Deposits 161,374,848 162,630,000
Unrecognized financial instruments:
Commitments to extend credit -- 2,903,150
16. Subsequent Events
In October, 1993, the Company entered into a definitive agreement to be acquired
by Peoples First Corporation in Paducah, Kentucky. The merger, which the
Corporation expects to be completed in April, 1994, is subject to regulatory
approval.
27
CONSOLIDATED BALANCE SHEETS (unaudited)
First Kentucky Bancorp, Inc. and Subsidiary
December 31, 1993 and 1992
1993 1992
_______________________________________________________________________________
ASSETS
Cash and due from banks $9,150,095 $7,067,242
Securities held for sale 23,661,090 0
Investment securities 64,160,255 85,336,808
Loans 78,326,835 81,316,980
Allowance for loan losses (777,468) (768,205)
----------- -----------
Loans, net 77,549,367 80,548,775
Premises and equipment 1,865,727 1,964,478
Other assets 1,409,966 2,200,041
----------- -----------
$177,796,500 $177,117,344
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand deposits $2,542,571 $797,456
Interest-bearing transaction accounts 27,304,851 28,996,544
Saving deposits 28,322,529 26,258,789
Time deposits 102,666,677 107,950,027
----------- -----------
160,836,628 164,002,816
Federal Home Loan Bank advances 1,000,000 0
Notes payable 158,481 202,856
Other liabilities 1,490,835 917,873
----------- -----------
Total liabilities 163,485,944 165,123,545
Stockholders' Equity
Common stock 4,093 3,731
Surplus 3,670,279 3,282,478
Retained earnings 10,039,989 8,910,446
Unrealized appreciation of securities
held for sale, net of deferred tax 754,676 0
Debt on ESOP shares (158,481) (202,856)
----------- -----------
14,310,556 11,993,799
----------- -----------
$177,796,500 $177,117,344
=========== ===========
See notes to consolidated financial statements. 28
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
First Kentucky Bancorp, Inc. and Subsidiary
For the three months ended December 31, 1993 and 1992
1993 1992
_______________________________________________________________________________
Interest Income
Taxable interest on securities $1,403,146 $1,521,261
Nontaxable interest on securities 12,563 5,444
Interest and fees on loans 1,531,017 1,726,778
--------- ---------
2,946,726 3,253,483
Interest Expense 1,493,137 1,828,263
--------- ---------
Net Interest Income 1,453,589 1,425,220
Provision for Loan Losses 18,000 18,000
--------- ---------
Net Interest Income after
provision for loan losses 1,435,589 1,407,220
Noninterest income 110,468 108,678
Noninterest expense 894,693 836,041
--------- ---------
Income Before Income Tax Expense 651,364 679,857
Income Tax Expense 249,020 248,350
--------- ---------
Net Income $402,344 $431,507
========= =========
See notes to consolidated financial statements. 29
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
First Kentucky Bancorp, Inc. and Subsidiary
For the three months ended December 31, 1993 and 1992
1993 1992
_______________________________________________________________________________
OPERATING ACTIVITIES
Net income $402,344 $431,507
Adjustmentd to reconcile net income to net
cash provided by operating activities
Depreciation and amortization 31,314 41,694
Net discount accretion and premium amortization (154,818) 7,893
Provision for loan losses 18,000 18,000
Provision for deferred income taxes 208,772 0
Stock dividends - Federal Home Loan Bank (15,400) (13,300)
Other, net 198,344 99,859
---------- ----------
Net cash provided by operating activities 688,556 585,653
INVESTING ACTIVITIES
Proceeds from maturities of debt securities 0 2,004,898
Principle collected on mortgage-backed securities 6,970,791 3,648,674
Purchase of debt and mortgage-backed securities (6,945,625) (12,055,144)
Net decrease in loans 666,149 1,120,615
Purchases of premises and equipment (21,940) (13,121)
Cash received from sale of other real estate 0 14,940
---------- ----------
Net cash provided by investing activities 669,375 (5,279,138)
FINANCING ACTIVITIES
Net decrease in deposit accounts (538,220) (1,420,738)
Federal Home Loan Bank borrowings 1,000,000 0
Other (52,607) (57,739)
---------- ----------
Net cash provided by financing activities 409,173 (1,478,477)
Net Increase (Decrease) in Cash and Cash Equivalents 1,767,104 (6,171,962)
Cash and Cash Equivalents at Beginning of Year 7,382,992 13,239,204
---------- ----------
Cash and Cash Equivalents at End of Year $9,150,096 $7,067,242
========== ==========
SUPPLEMENTAL DISCLOSURES
Cash paid for interest expense $1,478,144 $1,824,596
Cash paid for income taxes 123 117,182
Other real estate transferred to loans 0 15,000
Dividends declared not yet paid 372,501 279,838
See notes to consolidated financial statements. 30
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
First Kentucky Bancorp, Inc. and Subsidiary
For the three months ended December 31, 1993 and 1992
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three-month period ended December 31, 1993 are not
necessarily indicative of results that may be expected for future periods. For
further information, refer to the consolidated financial statements and foot-
notes thereto for the year ended September 30, 1993.
31
INTRODUCTION - PRO FORMA CONDENSED FINANCIAL STATEMENTS (unaudited)
Peoples First Corporation and Subsidiaries /
First Kentucky Bancorp, Inc. and Subsidiary
The following unaudited pro forma combined condensed balance sheet as of
December 31, 1993 gives effect to the acquisition of First Kentucky Bancorp,
Inc. and Subsidiary (First Kentucky) by Peoples First Corporation and
Subsidiaries (Peoples First) as if it had been consummated as of December 31,
1993. The following unaudited pro forma combined condensed statement of income
for the year ended December 31, 1993 gives effect to the acquisition as if it
had been consummated as of January 1, 1993. The pro forma information is based
upon the historical consolidated financial statements of Peoples First and First
Kentucky giving effect to the acquisition under the assumptions and adjustments
set forth in the accompanying notes to the pro forma combined condensed
financial statements.
These pro forma combined condensed financial statements may not be indicative of
the results that actually would have occurred if the Merger had been in effect
on the dates indicated or which may be obtained in the future. The pro forma
combined condensed financial statements should be read in conjunction with the
annual report on Form 10-K filed by Peoples First with the Securities and
Exchange Commission for the year ended December 31, 1993.
32
PRO FORMA COMBINED CONDENSED BALANCE SHEET (unaudited)
Peoples First Corporation and Subsidiaries /
First Kentucky Bancorp, Inc. and Subsidiary
(in thousands)
<TABLE>
<CAPTION>
Peoples First Historical Adjust- Pro forma
December 31, 1993 First Kentucky Combined ments Combined
______________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $27,272 $9,150 $36,422 $36,422
Federal funds sold 2,100 0 2,100 2,100
Securities held for sale 42,934 23,661 66,595 66,595
Investment securities 182,279 64,160 246,439 246,439
Loans 557,232 78,327 635,559 635,559
Allowance for loan losses (9,058) (778) (9,836) (9,836)
------- ------- --------- ---------
Loans, net 548,174 77,549 625,723 625,723
Excess of cost over net assets
of purchased subsidiaries 10,907 0 10,907 10,907
Premises and equipment 12,124 1,866 13,990 13,990
Other assets 11,791 1,410 13,201 13,201
------- ------- --------- ------- ---------
$837,581 $177,796 $1,015,377 $0 $1,015,377
======= ======= ========= ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand deposits $70,720 $2,543 $73,263 $73,263
Interest-bearing transaction accounts 182,225 27,305 209,530 209,530
Saving deposits 64,996 28,322 93,318 93,318
Time deposits 394,217 102,667 496,884 496,884
------- ------- --------- ---------
712,158 160,837 872,995 872,995
Repurchase agreements 19,705 0 19,705 19,705
Federal funds purchased 12,600 1,000 13,600 13,600
Notes payable 9,589 158 9,747 9,747
Other liabilities 5,728 1,491 7,219 158 (1e) 7,377
------- ------- --------- ---------
Total liabilities 759,780 163,486 923,266 923,424
Stockholders' Equity
Common stock 4,813 4 4,817 723 (1c) 5,540
Surplus 27,903 3,670 31,573 (723)(1d) 30,850
Retained earnings 44,918 10,040 54,958 (158)(1e) 54,800
Unrealized appreciation of securities
held for sale, net of deferred tax 167 754 921 921
Debt on ESOP shares 0 (158) (158) (158)
------- ------- --------- ------- ---------
77,801 14,310 92,111 (158) 91,953
------- ------- --------- ------- ---------
$837,581 $177,796 $1,015,377 $0 $1,015,377
======= ======= ========= ======= =========
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
33
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (unaudited)
Peoples First Corporation and Subsidiaries /
First Kentucky Bancorp, Inc. and Subsidiary
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Peoples First Historical Adjust- Pro forma
For the year ended December 31, 1993 First Kentucky Combined ments Combined
______________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Interest on Federal funds sold $104 $0 $104 $104
Taxable interest on securities 10,969 5,472 16,441 16,441
Nontaxable interest on securities 3,925 31 3,956 3,956
Interest and fees on loans 44,164 6,402 50,566 50,566
------ ------ ------ ------
59,162 11,905 71,067 71,067
Interest Expense 26,869 6,349 33,218 33,218
------ ------ ------ ------
Net Interest Income 32,293 5,556 37,849 37,849
Provision for Loan Losses 2,107 122 2,229 2,229
------ ------ ------ ------
Net Interest Income after
Provision for loan losses 30,186 5,434 35,620 35,620
Noninterest income 5,293 362 5,655 5,655
Noninterest expense 22,509 3,313 25,822 25,822
------ ------ ------ ------
Income Before Income Tax Expense 12,970 2,483 15,453 15,453
Income Tax Expense 3,436 823 4,259 4,259
------ ------ ------ ------
Net Income $9,534 $1,660 $11,194 $0 $11,194
====== ====== ====== ====== ======
Weighted Average Common Shares and
Common Stock Equivalents Outstanding 6,408 7,338
Net Income per Common Share $1.49 $1.53
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (unaudited)
Peoples First Corporation and Subsidiaries /
First Kentucky Bancorp, Inc. and Subsidiary
Transaction
Peoples First acquired First Kentucky as outlined in the Merger Agreement. The
Merger Agreement provided that Peoples First obtained 100% ownership of the
outstanding stock of First Kentucky for 930,000 shares of Peoples First Common
Stock.
Assumptions
1. The pro forma combined condensed balance sheet of Peoples First and First
Kentucky as of December 31, 1993 has been prepared with the following
assumptions:
a. The Merger occurred on December 31, 1993.
b. The pooling-of-interest method of accounting was used to account for
the business combination and, accordingly, the recorded assets and
liabilities of First Kentucky are carried forward to the combined
entity at their recorded amounts.
c. Pro forma adjustment to record Peoples First's issuance of 930,000
shares of Peoples First Common Stock at a stated value of $0.7812
per share.
d. Pro forma adjustment to record the excess of First Kentucky's total
stockholders' equity over the total of the stated value of the Peoples
First stock issued and First Kentucky's retained earnings.
e. Pro forma adjustment to record First Kentucky's deferred income taxes
payable pursuant to Financial Standard No. 109 (FAS 109). Peoples
First adopted the provisions of FAS 109 effective on Janauary 1, 1992,
changing the method of accounting for income taxes on a prospective
basis. To conform to the accounting principles used for income taxes
by Peoples First, First Kentucky's cumulative adjustment would have
been $158,000 for 1992 to adopt FAS 109.
2. The pro forma combined condensed statements of income presented herein have
been prepared in accordance with the following financial assumptions:
a. The Merger was consummated at the beginning of the year presented.
b. The pooling-of-interest method of accounting was used for the business
combination.
c. No pro forma adjustments to the historical combined statements of
income are necessary to reflect the Merger. The reported income of
Peoples First and First Kentucky for prior periods was combined and
stated as income of the combined entity.
35
SIGNATURE
_______________________________________________________________________________
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 24, 1994.
PEOPLES FIRST CORPORATION
By: /s/ Allan B. Kleet
Allan B. Kleet
Principal Financial Officer
36
INDEX TO EXHIBITS Page
_______________________________________________________________________________
(23.1) Consent of Whelan, Doerr, Pike & Pawley, PSC 38
37
EXHIBIT 23.1 - CONSENT OF WHELAN, DOERR, PIKE & PAWLEY, PSC INDEPENDENT PUBLIC
ACCOUNTANTS
________________________________________________________________________________
The Board of Directors
Peoples First Corporation:
We consent to inclusion in the March 10, 1994, Form 8-K of Peoples First Corp-
oration, of our report dated November 3, 1993, relating to the consolidated
balance sheets of First Kentucky Bancorp, Inc. and Subsidiary as of September
30, 1993 and 1992, and the related consolidated statements of income, changes
in stockholders' equity, and cash flows for each of the years in the three-year
period ended September 30, 1993.
/s/ Whelan, Doerr, Pike & Pawley, PSC
Elizabethtown, Kentucky
March 23, 1994
38
