_______________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934, For the Fiscal Year Ended December 31, 1993
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
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
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing require-
ments for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 16, 1994: Common stock, no par value - $130,060,000.
The number of shares outstanding of the Registrant's only class of stock as of
February 16, 1994: Common stock, no par value - 6,169,355 shares outstanding.
Documents Incorporated by Reference
Portions of Peoples First Corporation's definitive proxy statement dated
March 24, 1994 are incorporated into Part III.
______________________________________________________________________________1
INDEX
Page
_______________________________________________________________________________
PART I.
Item 1. Business 3
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Maters to a Vote of Securities Holders 15
PART II.
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Item 8. Financial Statements and Supplementary Data 28
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 58
PART III.
Item 10. Directors and Executive Officers of the Registrant 58
Item 11. Executive Compensation 59
Item 12. Security Ownership of Certain Beneficial Owners
and Management 59
Item 13. Certain Relationships and Related Transactions 59
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 59
Signatures 61
2
PART I
Item 1. Business
Peoples First Corporation (the "Company") is a bank holding company registered
with the Board of Governors of the Federal Reserve System ("Federal Reserve
Board") under the Bank Holding Company Act of 1956, as amended. The Company
conducts a complete range of commercial and personal banking activities through
five wholly owned subsidiaries located in Kentucky - The Peoples First National
Bank & Trust Company of Paducah in McCracken County, First Liberty Bank of
Calvert City in Marshall County, First National Bank of LaCenter in Ballard
County, Salem Bank in Livingston County and Bank of Murray in Calloway County
(together, the "Banks"). Peoples First Corporation's principal executive
offices are located at 100 South Fourth Street, Paducah, Kentucky 42002-2200.
The Company is a Kentucky Corporation incorporated on March 1, 1983. The
Company became a bank holding company when it acquired Peoples First National
Bank & Trust Company ("Peoples Bank") in 1983. The Company acquired First
Liberty Bank ("Liberty Bank") in 1985, First National Bank of LaCenter
("LaCenter Bank") in 1987 Salem Bank, Inc. ("Salem Bank") in 1989 and Bank of
Murray in 1992. Management considers employee relations to be good with all of
the bank employees, none of which are covered by a collective bargining
agreement.
Dividends from the banks are the principal source of cash income for the
Company. Legal limitations are imposed on the amount of dividends that may be
paid by the individual banks. Although the Company may engage in other
activities, subject to rules and regulations of the Federal Reserve Board and
Kentucky Department of Financial Institutions, it is currently expected that the
banks will remain the principal source of operating revenues.
Peoples Bank, organized in 1926, provides a full range of banking services to
the region through five full service branch offices, three limited service
branch offices and one business operations office all located in McCracken
County, Kentucky. Commercial lending services provided to medium-size and small
businesses, real estate mortgage lending and individual consumer lending
services are the primary sources of operating revenues. Peoples Bank had total
deposits of $398.2 million at December 31, 1993 and is the second largest
commercial bank in McCracken County. At December 31, 1993, Peoples Bank had 208
full-time and 34 part-time employees.
Liberty Bank, organized in 1965, provides a wide variety of banking services to
its local area through two full service branches, both located in Marshall
County, Kentucky. Commercial, real estate and consumer lending are the primary
sources of operating revenues. Liberty Bank is the third largest commercial
bank in Marshall County and had total deposits of $31.3 million at December 31,
1993. At December 31, 1993, Liberty Bank had 10 full-time and 2 part-time
employees.
First National Bank of LaCenter Bank, organized in 1953, serves its local area
with a variety of banking services from its banking office in Ballard County,
Kentucky. Agriculture related, real estate and consumer lending are the primary
3
sources of operating revenues. LaCenter Bank had total deposits of $30.8
million at December 31, 1993, and is the second largest commercial bank in
Ballard County. At December 31, 1993, LaCenter Bank had 11 full-time and 3
part-time employees.
Salem Bank, organized in 1902, serves the Livingston County and western
Crittenden County, area through full service branches located in Salem and
Smithland, Kentucky. Agricultural related, real estate and consumer lending
are the primary sources of operating income. Salem Bank had total deposits
of $37.5 million at December 31, 1993, and was the largest commercial bank in
Livingston County. At December 31, 1993, Salem Bank had 13 full-time employees.
Bank of Murray, organized in 1889, serves the Calloway County, area through
three full service branches in Murray, Kentucky. Community-based commercial
and consumer loans, including agricultural, automobile, real estate and student
loans are the primary sources of operating income. Bank of Murray is the
largest financial institution headquartered in Calloway County, Kentucky with
total deposits of $215.8 million at December 31, 1993. At December 31, 1993,
Bank of Murray had 90 full-time and 14 part-time employees.
Pending Acquisitions
The acquisition of First Kentucky Federal Savings Bank (First Kentucky FSB) as
more fully described in Footnote 2. to the consolidated financial statements,
was consumated on March 10, 1994. First Kentucky FSB, organized in 1934, con-
verted to a federally chartered savings bank in 1990. In June 1991, the organ-
ization converted from a mutual to a stock form. First Kentucky FSB conducts
its operations through its main office in Central City, Kentucky and five branch
offices in Muhlenberg, Ohio, McLean and Butler Counties. Residential real
estate mortgage lending is the primary source of operating revenues. First
Kentucky FSB is the largest financial institution in their immediate market area
with total deposits of $160.8 million at December 31, 1993.
On February 24, 1994, the Company entered into a Definitive Merger Agreement
with Libsab Bancorp, Inc. and its wholly-owned subsidiary, Liberty Bank & Trust
Company (Liberty). The merger is subject to the approval of Libery shareholders
and applicable regulatory agencies and is expected to be finalized in the third
quarter of 1994. The Company will issue 1,118,000 shares of the Copmpany's
stock for all the outstanding stock of Liberty. Liberty has offices in Mayfield
and Symsonia and is the largest financial institution in Graves County,
Kentucky, with assets of approximately $141.7 million at December 31, 1993.
Competition
The Banks actively compete on local and regional levels with other commercial
banks and financial institutions for all types of deposits, loans, trust
accounts and the provision of financial and other services. With respect to
certain banking services, the Banks compete with insurance companies, savings
and loan associations, credit unions and other financial institutions. Many of
the Banks' competitors are not commercial banks. For example, the Banks compete
for funds with savings and loan associations, money market mutual funds,
4
brokerage houses, and governmental and private issuers of money market
instruments. The Banks also compete for loans with other financial institutions
and private concerns providing financial services. These include savings and
loan associations, finance companies, credit unions, certain governmental
agencies and merchants who extend their own credit selling to consumers and
other customers. Many of the banks, financial institutions and other interests
with which the Banks compete have capital resources substantially in excess of
the capital and resources of the Banks.
Supervision and Regulation
The Registrant is a bank holding company within the meaning of the Bank Holding
Company Act. As such, it is registered with the Federal Reserve Board and files
reports with and is subject to examination by that body.
Peoples Bank and LaCenter Bank, both chartered under the National Bank Act, are
subject to the supervision of and are regularly examined by the Comptroller of
the Currency of the United States. By law, they are members of the Federal
Reserve System and insured members of the Federal Deposit Insurance Corporation.
As such, they are subject to regulation by these federal agencies.
Liberty Bank, Salem Bank and Bank of Murray, all chartered under the Common-
wealth of Kentucky, are subject to the supervision of and are regularly examined
by the Kentucky Department of Financial Institutions. They are insured members
of the Federal Deposit Insurance Corporation, and, as such, are subject to regu-
lation and examined by that federal agency.
Governmental Monetary Policies and Economic Growth
The continuing volatile conditions in the national economy and in the money
markets, together with the effects of actions by monetary and fiscal authorities
in recent years, make it exceedingly difficult to predict with any reasonable
accuracy the possible future changes in interest rates and their effect on
deposit levels, loan demand and the business and earnings of the Registrant and
its subsidiaries.
5
Statistical Disclosures
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates
and Interest Differential
A. AVERAGE BALANCE SHEETS For the Year Ended December 31,
(in thousands) 1993 1992 1991
_______________________________________________________________________________
INTEREST-EARNING ASSETS
Federal funds sold $3,368 $6,996 $3,663
Taxable securities 181,114 170,752 101,299
Non-taxable securities 62,470 54,322 44,649
Loans (1) 514,381 423,972 324,841
------- ------- -------
761,333 656,042 474,452
NONINTEREST-EARNING ASSETS
Cash and due from banks 25,325 22,526 15,655
Allowance for loan losses (8,329) (6,523) (5,603)
Other assets 34,131 29,888 16,721
------- ------- -------
$812,460 $701,933 $501,225
======= ======= =======
INTEREST-BEARING LIABILITIES
Transaction accounts $172,018 $143,394 $112,511
Saving deposits 64,960 49,571 26,764
Time deposits 385,381 353,310 273,707
Repurchase agreements 20,633 23,286 3,422
Notes payable 11,962 8,359 453
Other liabilities 11,893 1,073 2,233
------- ------- -------
666,847 578,993 419,090
NONINTEREST-BEARING LIABILITIES
Demand deposits 65,276 54,024 35,615
Other liabilities 6,955 8,705 4,365
STOCKHOLDERS' EQUITY 73,382 60,211 42,155
------- ------- -------
$812,460 $701,933 $501,225
======= ======= =======
(1) Nonperforming loans are included in
average loans
6
B. ANALYSIS OF NET INTEREST EARNINGS For the Year Ended December 31,
(in thousands) 1993 1992 1991
_______________________________________________________________________________
INTEREST INCOME
Federal funds sold $104 $255 $202
Taxable securities 11,041 11,681 8,550
Non-taxable securities (TE) (2) 5,777 5,087 4,293
Loans 44,251 40,329 36,074
------ ------ ------
61,173 57,352 49,119
INTEREST EXPENSE
Transaction accounts 4,875 4,700 5,892
Saving deposits 1,870 1,745 1,371
Time deposits 18,269 20,497 20,006
Repurchase agreements 667 906 187
Notes payable 774 579 26
Other liabilities 414 33 149
------ ------ ------
26,869 28,460 27,631
------ ------ ------
NET INTEREST INCOME (TE) (2) 34,304 28,892 21,488
TE Basis Adjustment (2,011) (1,679) (1,355)
------ ------ ------
NET INTEREST EARNINGS $32,293 $27,213 $20,133
====== ====== ======
(2) Tax equivalent (TE) interest income is based
upon a Federal income tax rate of 35%.
7
For the Year Ended December 31,
B. AVERAGE YIELDS AND RATES PAID
1993 1992 1991
_______________________________________________________________________________
AVERAGE YIELDS FOR INTEREST-EARNING ASSETS
Federal funds sold 3.09% 3.64% 5.51%
Taxable securities 6.10% 6.84% 8.44%
Non-taxable securities (TE) (2) 9.25% 9.36% 9.61%
Loans (1) 8.60% 9.51% 11.11%
All interest-earning assets 8.03% 8.74% 10.35%
AVERAGE RATES FOR INTEREST-BEARING LIABILITIES
Transaction accounts 2.83% 3.28% 5.24%
Saving deposits 2.88% 3.52% 5.12%
Time deposits 4.74% 5.80% 7.31%
Repurchase agreements 3.23% 3.89% 5.46%
Notes payable 6.47% 6.93% 5.74%
Other liabilities 3.48% 3.08% 6.67%
All interest-bearing liabilities 4.03% 4.92% 6.59%
---- ---- ----
NET INTEREST-RATE SPREAD (TE) (2) 4.00% 3.82% 3.76%
==== ==== ====
NET YIELD ON INTEREST-EARNING ASSETS 4.51% 4.40% 4.53%
==== ==== ====
(1) Nonperforming loans are included in
average loans
(2) Tax equivalent (TE) interest income is based
upon a Federal income tax rate of 35%.
8
C. FOR THE LAST TWO FISCAL YEARS
CHANGES ATTRIBUTABLE TO VOLUME AND RATE Change Due to Due to
(in thousands) 1993/1992 Volume Rate (3)
_______________________________________________________________________________
INTEREST INCOME
Federal funds sold ($151) ($132) ($19)
Taxable securities (640) 709 (1,349)
Non-taxable securities (TE) (2) 690 763 (73)
Loans (1) 3,922 8,600 (4,678)
------
3,821 9,205 (5,384)
INTEREST EXPENSE
Transaction accounts 175 938 (763)
Saving deposits 125 542 (417)
Time deposits (2,228) 1,861 (4,089)
Repurchase agreements (239) (103) (136)
Notes payable 195 250 (55)
Other liabilities 381 333 48
------
(1,591) 4,318 (5,909)
------ ------ ------
NET INTEREST INCOME (TE) (2) $5,412 $4,887 $525
====== ====== ======
(1) Nonperforming loans are included in average loans.
(2) Tax equivalent (TE) net interest income is based upon a Federal income
tax rate of 35%.
(3) Changes due to both rate and volume are included in due to rate.
9
CHANGES ATTRIBUTABLE TO VOLUME AND RATE Change Due to Due to
(in thousands) 1992/1991 Volume Rate (3)
_______________________________________________________________________________
INTEREST INCOME
Federal funds sold $53 $184 ($131)
Taxable securities 3,131 5,862 (2,731)
Non-taxable securities (TE) (2) 794 930 (136)
Loans (1) 4,255 11,009 (6,754)
------
8,233 18,800 (10,567)
INTEREST EXPENSE
Transaction accounts (1,192) 1,617 (2,809)
Saving deposits 374 1,168 (794)
Time deposits 491 5,818 (5,327)
Repurchase agreements 719 1,085 (366)
Notes payable 553 454 99
Other liabilities (116) (77) (39)
------
829 10,543 (9,714)
------ ------ ------
NET INTEREST INCOME (TE) (2) $7,404 $8,257 ($853)
====== ====== ======
(1) Nonperforming loans are included in average loans.
(2) Tax equivalent (TE) net interest income is based upon a Federal income
tax rate of 35%.
(3) Changes due to both rate and volume are included in due to rate.
10
II. Debt Security Portfolios
A. Footnote 4 to the Financial Statements included herein on page 39 presents
the book value as of the end of 1993 and 1992 of debt securities by type of
security.
B. Footnote 4 to the Financial Statements included herein on page 40 presents
the amortized cost, estimated market value and the weighted average yield of
debt securities at December 31, 1993, by contractual maturity range.
C. As of December 31, 1993, the Company owned no securities (other than U. S.
Government and U. S. Government agencies and corporations) issued by one issuer
for which the book value exceeded ten percent of stockholders' equity.
III. Loan Portfolio
A. The table of Types of Loans in Management's Discussion and Analysis of
Financial Condition and Results of Operations (MDA) included herein on page 20
presents the amount of all loans in various categories as of the end of 1993
and 1992.
B. The following table presents the maturities in the loan portfolio, excluding
commercial paper, real estate mortgage, installment, consumer revolving credit
and other loans at December 31, 1993:
Loan Portfolio Maturities 1 year 1 to 5 Over
December 31, 1993 or less years 5 years Total
_______________________________________________________________________________
(in thousands)
Commercial, financial
and agricultural $56,450 $34,215 $21,667 $112,312
Real estate construction 8,836 514 416 9,766
------- ------- ------- -------
$65,286 $34,729 $22,083 $122,078
======= ======= ======= =======
The amounts of these loans due after one year which have predetermined rates
and adjustable rates are $4.7 million and $52.1 million, respectively.
C. Risk Elements
1. The table of Nonperforming Assets in MDA included herein on page 22 states
the amount of nonaccrual, past due and restructured loans. The following table
states the gross interest income that would have been recorded for the years
ended December 31, 1989 through 1993, if the nonaccrual and renegotiated loans
had been current in accordance with their original terms, and the amount of
interest income that was included in net income for each year:
11
<TABLE>
<CAPTION>
Interest Income on Nonaccrual
and Restructured Loans
Year ended December 31, 1993 1992 1991 1990 1989
____________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C> <C> <C>
Contractual interest ($343) ($359) ($488) ($250) ($199)
Interest recognized 228 88 411 100 125
</TABLE>
2. Potential Problem Loans
Internal credit review procedures are designed to alert management of possible
credit problems which would create serious doubts as to the future ability of
borrowers to comply with loan repayment terms. At December 31, 1993, loans with
a total principal balance of $13.9 million had been identified that may become
nonperforming in the future, compared to $11.3 million at December 31, 1992.
Potential problem loans are not included in nonperforming assets since the
borrowers currently meet all applicable loan agreement terms. The identified
potential problem loan totals consist of many different loans and are generally
loans for which the collateral appears to be sufficient but that have potential
financial weakness evidenced by internal credit review's analysis of historical
financial information. At December 31, 1993, a total of $7.2 million of
potential problem loans were to three borrowers.
3. Foreign Outstandings
There were no foreign outstandings at anytime during the last three years.
4. Loan Concentrations
As of December 31, 1993, there was no concentration of loans exceeding 10% of
total loans which are not otherwise disclosed in the Types of Loans table
pursuant to III. A. There were no amounts loaned in excess of 10% of total
loans to a multiple of borrowers engaged in similar activities which would
cause them to be similarly impacted by economic or other conditions. Most
loans are originated in the immediate market area of the Banks.
D. Other Interest Bearing Assets
The Company has no other interest earning assets that would be required to
be disclosed under Item III. C.1. or 2. if such assets were loans.
12
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. The following table presents an analysis of loss experience and the allow-
ance for loan losses for the years ended December 31, 1993, 1992, 1991, 1990
and 1989:
<TABLE>
<CAPTION>
Analysis of the Allowance
for Loan Losses
Year ended December 31, 1993 1992 1991 1990 1989
____________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
year $7,259 $5,438 $5,147 $4,767 $3,928
Balance of subsidiary banks
at acquisition -- 1,484 -- -- 321
Provision charged to
expense 2,107 2,773 2,074 1,777 1,873
Loan charge-offs
Commercial, financial
and agricultural (463) (1,839) (794) (841) (1,026)
Real estate mortgage (108) (397) (698) (345) (74)
Installment loans (266) (494) (408) (388) (355)
Consumer revolving
credit (24) (58) (63) (45) (39)
----- ----- ----- ----- -----
(861) (2,788) (1,963) (1,619) (1,494)
Loan charge-off recoveries
Commercial, financial
and agricultural 376 187 84 96 71
Real estate mortgage 51 30 27 47 7
Installment loans 122 130 63 74 57
Consumer revolving
credit 4 5 6 5 4
----- ----- ----- ----- -----
553 352 180 222 139
----- ----- ----- ----- -----
Net loan charge-offs (308) (2,436) (1,783) (1,397) (1,355)
----- ----- ----- ----- -----
Balance at end of year $9,058 $7,259 $5,438 $5,147 $4,767
===== ===== ===== ===== =====
</TABLE>
13
B. The following tables present a breakdown of the allowance for loan losses
at December 31, 1993, 1992, 1991, 1990 and 1989:
<TABLE>
<CAPTION>
Allocation of the Allowance
for Loan Losses
December 31, 1993 1992 1991 1990 1989
____________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $5,186 $4,014 $2,891 $3,054 $3,337
Real estate mortgage 1,864 1,450 992 613 286
Installment loans 1,836 1,645 1,435 1,380 1,001
Consumer revolving credit 172 150 120 100 143
----- ----- ----- ----- -----
$9,058 $7,259 $5,438 $5,147 $4,767
===== ===== ===== ===== =====
Percent of Loans in Each
Category to Total Loans
December 31, 1993 1992 1991 1990 1989
____________________________________________________________________________________________
(in thousands)
Commercial, financial
and agricultural 19.5% 22.8% 28.7% 31.4% 33.6%
Real estate mortgage 53.0% 50.3% 41.5% 36.3% 33.7%
Installment loans 26.4% 25.4% 27.9% 28.1% 29.2%
Consumer revolving credit 1.1% 1.5% 1.9% 4.2% 3.5%
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
V. DEPOSITS
A.B. Average Balances and Rates Paid by Deposit
The Average Balance Sheets table and Average Yields and Rates Paid table in-
cluded herein on pages 6 and 8 present the average amount of and the average
rate paid for the years ended December 31, 1993, 1992 and 1991.
C. Foreign Deposits
The Company had no foreign deposits during the past three years.
14
D.E. Maturity Distribution of Time Deposits of $100,000 or More
The following table states the amount of time certificates of deposit at
December 31, 1993, of $100,000 or more by maturity:
Maturity of $100,000 Time Deposits
December 31, 1993
_______________________________________________________________________________
(in thousands)
Maturing 3 months or less $20,338
Maturing over 3 months through 6 months 5,140
Maturing over 6 months through 12 months 11,450
Maturing over 12 months 38,317
------
$75,245
======
For the Year Ended December 31,
VI. RETURN ON EQUITY AND ASSETS 1993 1992 1991
_______________________________________________________________________________
1. Return on average assets 1.17% 1.08% 1.27%
2. Return on average equity 12.99% 12.57% 15.10%
3. Dividend payout ratio 26.85% 27.69% 23.85%
4. Equity to assets ratio 9.03% 8.58% 8.41%
VII. SHORT-TERM BORROWINGS
For 1993, the Company had no short-term borrowings for which the average balance
outstanding during the year was more than 30 percent of stockholders' equity at
the end of the period. For 1992, the amount of repurchase agreements outstand-
ing at the end of the year was $19.5 million, the maximum amount outstanding
during 1992 was $28.7 million, the average amount outstanding during 1992 was
$23.3 million and the approximate weighted average interest rate thereon was
3.89%.
Item 2. PROPERTIES
The Company's investments in premises and equipment are comprised of properties
owned and leased by the Banks. Peoples Bank owns the building housing its main
offices, which contains 17,325 square feet of space and is located at 401
Kentucky Avenue. Peoples Bank also owns its Service Center, located at 100
South Fourth Street, which contains 50,000 square feet of space and houses the
Company's executive offices. Of the twelve other banking offices of the Banks,
ten are owned and two are leased by their respective Banks.
Item 3. LEGAL PROCEEDINGS - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
15
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
Market Information, Dividends
The registrant's only class of common stock is traded on the National Associa-
tion of Securities Dealers Automated Quotation System National Market System.
Peoples First Corporation's common stock symbol is "PFKY". The high and low
stock prices and the quarterly dividends declared on the Company's common stock
for each quarter of 1993 and 1992 are as follows:
High and Low Stock Prices First Second Third Fourth
Dividends Declared quarter quarter quarter quarter
_______________________________________________________________________________
High 1993 $16.50 $16.88 $20.00 $25.50
Low 1993 16.00 16.00 16.63 19.25
Dividends declared 0.095 0.095 0.105 0.105
High 1992 $15.13 $17.38 $17.25 $16.50
Low 1992 11.88 15.38 15.75 15.63
Dividends declared 0.085 0.085 0.095 0.095
Holders
The approximate number of holders of registrant's only class of common stock as
of February 16, 1994, was 1,363.
16
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
December 31, 1993 1992 1991 1990 1989
____________________________________________________________________________________________
(in thousands)
<S>
Interest-Earning Assets <C> <C> <C> <C> <C>
Net loans $548,173 $474,873 $329,914 $308,244 $280,958
Debt securities 225,214 253,482 155,482 135,516 120,810
Federal funds sold 2,100 13,750 9,500 13,200 5,550
------- ------- ------- ------- -------
775,487 742,105 494,896 456,960 407,318
Cash and due from banks 27,272 24,713 19,624 16,401 20,169
Premises and equipment 12,124 12,052 8,425 8,358 7,572
Other assets 22,699 23,280 9,643 9,502 6,527
------- ------- ------- ------- -------
$837,582 $802,150 $532,588 $491,221 $441,586
======= ======= ======= ======= =======
Liabilities and Stockholders' Equity
Interest-bearing deposits $641,439 $627,516 $415,963 $409,291 $362,858
Noninterest-bearing deposits 70,720 67,137 43,075 37,206 38,774
Repurchase agreements 19,705 19,534 23,890 0 0
Federal funds purchased 12,600 0 0 0 0
Notes payable 9,589 12,117 84 44 546
Other liabilities 5,728 6,091 4,501 4,906 4,579
------- ------- ------- ------- -------
759,781 732,395 487,513 451,447 406,757
Stockholders' equity 77,801 69,755 45,075 39,774 34,829
------- ------- ------- ------- -------
$837,582 $802,150 $532,588 $491,221 $441,586
======= ======= ======= ======= =======
<FN>
____________________________________________________________________________________________
As more fully explained in Footnote 2. to the consolidated financial statements,
additional banking organizations were acquired in 1992 and 1989.
</TABLE>
17
<TABLE>
<CAPTION>
Year ended December 31, 1993 1992 1991 1990 1989
____________________________________________________________________________________________
(in thousands except per share data)
<S> <C> <C> <C> <C> <C>
Results of Operations
Net interest income $32,293 $27,213 $20,133 $17,627 $15,363
Provision for loan losses 2,107 2,773 2,074 1,777 1,873
Net interest income after ------ ------ ------ ------ ------
provision for loan losses 30,186 24,440 18,059 15,850 13,490
Noninterest income 5,293 5,078 3,400 3,426 3,086
Noninterest expense 22,509 19,425 13,136 11,724 10,415
------ ------ ------ ------ ------
Income before tax expense 12,970 10,093 8,323 7,552 6,161
Income tax expense 3,436 2,524 1,956 1,765 1,443
------ ------ ------ ------ ------
Net Income $9,534 $7,569 $6,367 $5,787 $4,718
====== ====== ====== ====== ======
Average shares outstanding 6,408 5,842 4,888 4,820 4,418
Net income per common share $1.49 $1.30 $1.30 $1.20 $1.07
Dividends per common share 0.40 0.36 0.31 0.25 0.19
<FN>
____________________________________________________________________________________________
Shares outstanding and per share amounts have been adjusted for two-for-one
stock splits on January 4, 1994 and December 29, 1989.
As more fully explained in Footnote 2. to the consolidated financial statements,
additional banking organizations were acquired in 1992 and 1989.
</TABLE>
18
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The purpose of this discussion and analysis is to provide annual report readers
with information relevant to understanding and assessing the financial condition
and results of operations of Peoples First Corporation (Company). Headquartered
in Paducah, Kentucky, the Company is a registered bank holding company serving
primarily the western Kentucky and contiguous interstate area. This discussion
should be read in conjunction with the consolidated financial statements and
accompanying notes.
The following table provides certain information regarding the Company's five
banking subsidiaries as of December 31, 1993 (dollars in millions):
Year
Subsidiary acquired Assets Loans Deposits
________________________________________________________________________________
Peoples First National Bank 1983 $475,367 $356,086 $398,232
Bank of Murray 1992 254,405 144,336 215,814
Salem Bank, Inc. 1989 41,686 16,602 37,512
First Nat'l Bank of LaCenter 1987 36,139 20,799 30,848
First Liberty Bank 1985 34,496 19,408 31,285
The above amounts do not total to consolidated amounts due to eliminating
entries and parent company amounts.
EARNING ASSETS
Earning assets were significantly impacted by the May 4, 1992 acquisition of
Bank of Murray (Murray). Average earning assets of the Company for 1993,
increased 16.1%, or $105.3 million to $761.3 million from $656.0 million for
1992. Internal growth of earning assets, hindered by slowed deposit generation
in the low interest-rate environment, was 4.3% for 1993, compared to internal
earning asset growth of 7.5% and 8.7% for 1992 and 1991, over respective
previous years.
The Company maintains a consistently favorable ratio of average earning assets
to average total assets. The ratio was 93.7% for 1993, compared to 93.5% and
94.7% for 1992 and 1991, respectively. The changes in the 1993 and 1992 ratios
from prior levels is mostly attributable to the nonearning asset, goodwill,
associated with the Murray acquisition.
Loans are the Company's primary earning asset. Loan demand was strong in 1993.
Loans, net of unearned income, increased $75.1 million during 1993, compared to
$22.8 million (excluding the initial effect of the Murray acquisition) and $22.0
million increases for 1992 and 1991 over respective prior years. Internal
average loan growth for 1993 was 11.0%, up from a 7.4% increase in average loans
for 1992 from 1991, and compared to a 8.4% increase in average loans for 1991
from 1990. Prior to 1993, loans had been a decreasing portion of earning
assets. Average loans for 1993 were 67.6% of total average earning assets,
compared to 64.6% and 68.5% during 1992 and 1991, respectively.
19
Management attributes the current reversal of the declining loan composition
trend to their focus on improving the earning asset composition of Murray,
strong loan demand and a slowed growth of total deposits. The potential mix of
earning assets will be significantly impacted by the acquisition of additional
subsidiary financial institutions and future loan demand.
The Company primarily directs lending activities to its regional market from
which deposits are drawn. Management has focused on secured lending and the
growth of residential and commercial real estate mortgage loans over the last
three years.
<TABLE>
<CAPTION>
Types of Loans
December 31, 1993 1992 1991 1990 1989
____________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $110,151 $111,841 $98,009 $100,636 $98,192
Real estate
Construction 9,766 4,233 3,856 3,202 4,356
Residential mortgage 183,666 154,804 85,148 79,639 65,234
Commercial mortgage 106,013 87,605 53,039 33,531 29,163
Installment loans to
individuals 149,259 124,423 95,347 90,155 85,330
Lease financing -- -- -- 20 416
Consumer revolving credit 3,922 3,322 3,844 4,157 5,352
Loans held for sale 504 1,241 -- -- --
Other 2,161 2,768 2,761 9,093 4,567
------- ------- ------- ------- -------
565,442 490,237 342,004 320,433 292,610
Unearned income (8,211) (8,105) (6,651) (7,042) (6,886)
------- ------- ------- ------- -------
$557,231 $482,132 $335,353 $313,391 $285,724
======== ======== ======== ======== ========
</TABLE>
A portion of the proceeds from the sale and maturity of debt securities and the
principal collected on mortgage-backed securities was used to fund high loan
demand. Debt securities decreased $28.3 million during 1993 and $3.6 million
(excluding the initial effect of the Murray acquisition) during 1992. The
Company maintains a portfolio of securities held for sale as a partial source of
available funding for loan growth.
FUNDING
The total of average deposits and repurchase agreements, which management relies
on as a stable source of funding, of the Company for 1993 increased 13.6%, or
$84.7 million to $708.3 million from $623.6 million for 1992. Internal growth
was 1.0% for 1993 compared to average funding growth of 7.4% and 8.1% for 1992
and 1991, over respective previous year periods. Recently, the Company has been
able to reflect greater relative increases in the total of deposits and repur-
chase agreements than time deposits, which heretofore exhibited a greater
relative increase. Management attributes this to a generally declining interest
20
rate environment and believes that sustained lower interest rates do not benefit
funding growth rates. Highly competitive markets for deposits still exist.
During periods of slow internal deposit growth, management partially relies on
brokered deposits and Federal funds purchased to fund loan growth. Brokered
deposits amounted to $19.2 million at December 31, 1993.
NONPERFORMING ASSETS AND RISK ELEMENTS
The level of nonperforming assets at December 31, 1993 has improved since
December 31, 1992. Diversification within the loan portfolio is an important
means of reducing inherent lending risks. At December 31, 1993, the Company had
no concentrations of ten percent or more of total loans in any single industry
nor any geographical area outside of the Paducah, Kentucky, western Kentucky
region, the immediate market area of the subsidiary banks.
The Company discontinues the accrual of interest on loans which become ninety
days past due as to principal or interest, unless the loans are adequately
secured and in the process of collection. Other real estate owned is carried at
the lower of cost or fair value. A loan is classified as a renegotiated loan
when the interest rate is materially reduced or the term is extended beyond the
original maturity date because of the inability of the borrower to service the
debt under the original terms.
Management continues to exert efforts to monitor and minimize nonperforming
assets and to maintain aggressive charge-off practices, even though the
nonperforming totals are significantly lower than peer bank holding company
ratios. Significant focus on underwriting standards is maintained by management
and the subsidiary bank boards.
Internal credit review procedures are designed to alert management of possible
credit problems which would create serious doubts as to the future ability of
borrowers to comply with loan repayment terms. At December 31, 1993, loans with
a total principal balance of $13.9 million have been identified that may become
nonperforming in the future, compared to $11.3 million at December 31, 1992 and
$16.8 million that had been identified at December 31, 1991. Performance of
borrowers is aided by the current lower interest carrying costs. Potential
problem loans are not included in nonperforming assets since the borrowers
currently meet all applicable loan agreement terms.
Nonperforming assets at December 31, 1993 were 1.00% of total loans and other
real estate, down from 1.40% at December 31, 1992. A small number of loans and
one tract of undeveloped land in Nashville, Tennessee, represent most of the
nonperforming balance for the last three years.
21
<TABLE>
<CAPTION>
Nonperforming Assets
December 31, 1993 1992 1991 1990 1989
____________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $620,536 $3,391,629 $2,781,957 $1,386,181 $267,805
Other real estate owned 1,990,237 2,107,937 2,431,684 2,428,404 56,857
Renegotiated loans 2,994,976 1,259,044 1,296,491 245,967 264,005
--------- --------- --------- --------- ---------
$5,605,749 $6,758,610 $6,510,132 $4,060,552 $588,667
========= ========= ========= ========= =========
Nonperforming assets as a
percent of total loans
and other real estate 1.00% 1.40% 1.93% 1.29% 0.21%
Loans past due ninety
days and still accruing
interest $33,823 $77,324 $202,383 $166,631 $116,147
Allowance for loan losses
coverage of nonperform-
ing assets 162% 107% 84% 127% 810%
</TABLE>
CAPITAL RESOURCES AND DIVIDENDS
Stockholders' equity was 9.3% of assets at December 31, 1993, an increase of
0.6% from December 31, 1992. Stockholders' equity increased $8.0 million, or
11.5%, during 1993 due to a 73.2% earnings retention rate and sale of common
stock through shareholder and employee plans ($797,034). This compares to an
increase of $24.7 million during 1992 when the earnings retention rate was
73.2%, proceeds from the sale of common stock through shareholder and employee
plans was $833,087 and common stock issued in the acquisition of Murray
amounted to $18,257,866.
The quarterly dividend was raised to $0.095 per share in the third quarter of
1992 and to $0.105 per share in the third quarter of 1993. The board of direc-
tors develops and reviews the capital goals of the consolidated entity and each
of the subsidiary banks. The Company's dividend policy is designed to retain
sufficient amounts for healthy financial ratios, considering future planned
asset growth and other prudent financial management principles. Subsidiary bank
dividends are the principal source of funds for the Company's payment of
dividends to its stockholders. At December 31, 1993, approximately $13.8
million, compared to $13.6 million at December 31, 1992, in retained earnings of
subsidiary banks were available for dividend payments to the Company without
regulatory approval or without reducing capital of the respective banks below
minimum standards.
Bank regulatory agencies' minimum capital guidelines assign relative measures of
credit risk to balance sheet assets and off-balance sheet exposures. Based upon
the nature and makeup of their current businesses and growth expectations,
management expects all of the reporting entities' capital ratios to continue to
exceed regulatory minimums. At December 31, 1993 and 1992, the Company and the
subsidiary banks' capital ratios were as follows:
22
<TABLE>
<CAPTION>
Risk-based capital
Total Tier I Leverage ratio
December 31, 1993 1992 1993 1992 1993 1992
_________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Company 13.09% 12.75% 11.84% 11.50% 8.18% 7.47%
Peoples First National Bank 13.13 13.32 11.88 12.07 9.24 8.87
Bank of Murray 16.54 17.52 15.29 16.27 9.17 8.58
Salem Bank, Inc. 23.91 23.93 22.66 22.68 9.71 9.86
First Nat'l Bank of LaCenter 16.74 15.89 15.49 14.64 8.81 8.18
First Liberty Bank 15.13 15.99 13.88 14.74 7.62 7.68
</TABLE>
RESULTS OF OPERATIONS
Earnings for 1993 met management's expectations. Increased earnings for 1993
over 1992 are attributable to an improved net interest income margin, reduced
provision for loan losses and no change in the noninterest expense net of non-
interest income (excluding securities gains) ratio. Net income per common share
and common share equivalent for the year ended December 31, 1993 increased 14.6%
to $1.49, from $1.30 for the year ended December 31, 1992, which was the same as
the year ended December 31, 1991. Net income per common share and common share
equivalent for the fourth quarter of 1993 increased 22.6% to $0.38 from $0.31
for the fourth quarter of 1992 (principally due to decreased provision for loan
losses) and compared to $0.35 per share for the fourth quarter of 1991.
Return on average stockholders' equity for the year ended December 31, 1993,
1992 and 1991 was 12.99%, 12.57% and 15.10%, respectively. Return on average
assets for the year ended 1993, 1992 and 1991 was 1.17%, 1.08% and 1.27%,
respectively. Earnings performance was down in 1992 due to first-year dilution
associated with the Murray acquisition.
NET INTEREST INCOME
The amount by which interest earned on assets exceeds the interest paid on sup-
porting funds, constitutes the primary source of income for the Company. For
the year ended December 31, 1993, net interest income (TE) increased 18.7%, or
$5.4 million to $34.3 million as compared to $28.9 million for 1992. The 1993
increase is mostly attributable to growth of average earning assets. Average
earning asset growth accounted for all of the increased net interest income for
the year ended December 31, 1992 over 1991. The earning assets of the newest
bank acquisition significantly impacted 1993 and 1992 with increased volume of
earning assets carrying lower margins. Net interest income on a tax- equivalent
basis as a percent of average earning assets was 4.51%, 4.40% and 4.53% for the
years ended December 31, 1993, 1992 and 1991, respectively. Margins in 1993 and
1992 were unfavorably affected by the purchase accounting recognition of
interest income on certain investment securities at market yields. Net interest
income margins continue to benefit from a favorable mix of earning assets and a
favorable mix of funding sources.
Net interest income was favorably affected by repricing of savings deposit and
certain transaction account liabilities heretofore considered not to be repriced
during the one-year period. Generally, the subsidiary banks maintain a
23
relatively balanced position between volumes of rate-repricing assets and
liabilities to guard against adverse effects to net interest income from
possible fluctuations in interest rates. Low levels of nonperforming loans and
a greater relative growth in deposits other than time deposits contributed to
margins each period.
PROVISION FOR LOAN LOSSES
A significant factor in the Company's past and future operating results is the
level of the provision for loan losses. Management desires to provide assurance
through sufficient provision for loan losses that future earnings will be less
susceptible to changing economic cycles. The provision for loan losses amounted
to $2.1 million for 1993, a decrease of $0.7 million or 25.0% when compared to
$2.8 million in 1992. The decline in the 1993 provision for loan losses was
influenced by a significant decline in net charge-offs and a modest decline in
nonperforming assets. The provision for loan losses as a percentage of average
loans was 0.41% for the year ended December 31, 1993, down from 0.65% and 0.64%
for the years ended December 31, 1992 and 1991, respectively. Levels of pro-
viding for loan losses reflect, among other things, management's evaluation of
potential problem loans, which are currently at lower levels than in much of the
past five years.
Net chargeoffs as a percentage of average loans were 0.06% for 1993, a period
of unusally low net chargeoffs, down from 0.57% and 0.55% for 1992 and 1991.
Net chargeoffs as a percent of average loans were 0.43% for the five-year period
ended December 31, 1993. The allowance for loan losses was 1.63% of outstanding
loans at December 31, 1993, which approximates the average during the last five
years. The December 31, 1993 allowance is 162% compared to 107% at December 31,
1992, of nonperforming assets and is maintained at a level which management
considers adequate to absorb estimated potential losses in the loan portfolio,
after reviewing the individual loans and in relation to risk elements in the
portfolios and giving consideration to the prevailing economy and anticipated
changes.
NONINTEREST INCOME
Noninterest income amounted to $5.3 million in 1993, a 3.9% increase from $5.1
million in 1992. Excluding securities gains of $40,577 in 1993 and $580,145 in
1992, the increase was 16.8% in 1993. The additional bank accounted for 7.9%,
or $353,573 of this increase. A variety of issues contributed to the remaining
increase. Excluding the newest bank, service charges on deposit accounts, the
largest component of noninterest income, increased 6.4% in 1993 over 1992.
During the recent year, some of the subsidiary banks adjusted fee schedules to
recapture higher operating costs and to provide more uniform pricing among the
affiliated banks.
Gains totaling $40,577 were recognized on $2.5 million of mortgage-backed
securities held for sale which were sold during the first quarter of 1993 and
$0.4 million of municipal bonds which were called during the year. Gains were
recognized on $14.1 million of debt securities sold during 1992 to reduce, to
the extent possible, the Company's interest rate sensitivity on assets.
24
Trust fees for 1993 increased 13.9% from 1992 without the effects of the addi-
tional bank. Fee arrangements were altered during the last two years and total
assets under management by the trust department have increased to generate
better levels of fee income. Trust fees, which are recognized on a cash basis,
are usually greater in the fourth quarter than other quarters of the year
because of billing cycles. The increase in insurance commissions for 1993 over
1992 is all attributable to the additional bank, as the penetration of this
product to consumer loan customers has lessened during the last three years.
During 1993, the amount of home refinancing was unusually high and fee income
from secondary-market mortgage loan services accounted for most of the remaining
other noninterest income increase. The relative improvement in fee income is
slightly less than the growth in net interest income. Noninterest income ex-
cluding securities gains was 14.0% of total net interest income plus noninterest
income for 1993, compared to 14.2% and 14.4%, respectively, for 1992 and 1991.
NONINTEREST EXPENSE
The ratio of noninterest expense as a percent of average assets was 2.77% for
1993 and 1992, compared to 2.62% for 1991. Excluding the effects of the addi-
tional bank acquisition, noninterest expense for 1993 only increased approxi-
mately $689,000, or 4.5%, from 1992. Since internal asset growth has slowed,
management continues to focus on controlling the rate of increase of noninterest
expense by reconfiguring certain functions to gain more employee productivity
and consolidating some operational tasks of the various banks. Based upon the
analysis of the operations of the three smaller banking subsidiaries, the
Company has consolidated some of their operations to provide consistency in
services, to assure quality in service delivery and to gain some employee
efficiency.
The ratio of personnel expense has been relatively constant as a percentage of
average total assets and was 1.29% for 1993, compared to 1.28% and 1.31%, re-
spectively for 1992 and 1991. The increase in occupancy expense for 1993 is
totally related to the additional bank, while 1992 increased only 3.1%, exclud-
ing the effects of the additional bank. Equipment expense increased 11.3% in
1993 from 1992, following a 7.9% increase in 1992 from 1991 without the effects
of Murray. The Company has made investments in equipment as technolgy has
advanced and the need to control personnel costs has intensified.
Increased data processing expense is attributable to some greater volume of
activity and the outsourcing of a portion of some functions in 1993. Excluding
the effects of the Murray acquisition, data processing expense increased 10.7%
and 2.4% during the past two years, respectively. The Company's bank subsid-
iaries are required to pay deposit insurance assessments to the FDIC, to
maintain significant noninterest-bearing balances with the Federal Reserve, and
to pay fees to regulatory agencies for periodic examinations by the agencies.
Assessments for deposit insurance were $1.5 million, $1.3 million and $0.9
million, respectively, in 1993, 1992 and 1991. Beginning in 1993, the assess-
ments were based not only on deposits but also on the risk characteristics of
the individual financial institutions. All of the Company's subsidiaries
received the lowest deposit assessment rate from the FDIC.
25
Bankshare taxes imposed by the State of Kentucky have been increasing and are
expected to continue to increase in future years. Kentucky has raised the
assessment level and is attempting to significantly increase this taxation,
which is based upon net income of the subsidiaries. Without the effects of
the additional bank, bankshare taxes increased 12.6% in 1993, following a 15.0%
increase in 1992 and a 17.4% increase in 1991. Included in other noninterest
expense for 1993 was approximately $145,000 of professional fees to date related
to a pending merger expected to be completed in the second quarter of 1994 and
to be accounted for as a pooling-of-interests.
INCOME TAXES
The increase in income tax expense for the year ended December 31, 1993, is pri-
marily attributable to higher operating earnings. The effective tax rate is
increasing, and was 26.5% for the year ended December 31, 1993, compared to
25.0% for 1992 and 23.5% for 1991. Compared to 1992, a lesser portion of 1993
pretax income was derived from nontaxable sources and nondeductible goodwill
amortization was greater in 1993 than in 1992 and 1991. The Company manages the
effective tax rate based upon changing tax laws, particularly new alternative
minimum tax provisions, the availability and price of nontaxable investment
securities and other portfolio considerations.
Effective January 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109, changing the method of accounting for income taxes on a
prospective basis. This method of accounting for income taxes accounts for
income taxes using a balance sheet approach known as the "liability method"
compared to the previous income statement approach known as the "deferred
method". The liability method accounts for deferred income taxes by applying
statutory rates in effect at the date of the balance sheet to differences
between book and tax bases of assets and liabilities.
LIQUIDITY AND INTEREST-RATE SENSITIVITY
The Company's objective of liquidity management is to ensure the ability to
access funding which enables each bank to efficiently satisfy the cash flow
requirements of depositors and borrowers. Asset/Liability management (ALM)
involves the funding and investment strategies necessary to maintain an
appropriate balance between interest sensitive assets and liabilities as well
as to assure adequate liquidity. The Company's ALM committee monitors funds
available from a number of sources to meet its objectives. The primary source
of liquidity for the banks, in addition to loan repayments, is their debt
securities portfolios. Debt securities classified as held for sale are those
that the Company intends to use as part of its asset/liability management and
that may be sold prior to maturity in response to changes in interest rates,
resultant prepayment risks and other factors. The Company's access to the
retail deposit market through individual banks located in five different
counties has been a reliable source of funds. Additional funds for liquidity
are available by borrowing of Federal funds from correspondent banks, Federal
Home Loan Bank borrowings and brokered deposits. Various types of analyses are
performed to ensure adequate liquidity, and to evaluate the desirability of the
relative interest rate sensitivity of assets and liabilities. In the past, as
was typical for most financial institutions, the Company's cash flows provided
26
by financing activities (primarily through deposit and repurchase agreement
generation) generally greatly exceeded cash flows from operations and were used
to fund investing activities. During 1993, due to the current strong loan de-
mand coupled with the low interest-rate environment, which hinders area deposit
growth, financing activities funding was partially derived from increased levels
of Federal funds purchased and brokered deposits. Cash flows from operations
for 1993 have increased due to greater net income and to increased amortization
expense primarily related to the 1992 bank acquisition. Securities held for
sale totaling $2.5 million and $14.1 million in 1993 and 1992, respectively,
were sold to adjust repricing characteristics as determined to be desirable by
the ALM Committee. During 1992, the Company established debt securities with
a carrying value of $42.0 million and an aggregate market value of $42.9 million
as securities held for sale as part of ongoing asset/liability management stra-
tegies. Management considers current liquidity positions of the subsidiary
banks to be adequate to meet depositor and borrower needs.
Because banks must assume interest rate risks as part of their normal opera-
tions, the Company actively manages its interest rate sensitivity as well as
liquidity positions. Both interest rate sensitivity and liquidity are affected
by maturing assets and sources of funds; however, management must also consider
those assets and liabilities with interest rates which are subject to change
prior to maturity. The primary objective of the ALM Committee is to optimize
earnings results, while controlling interest rate risks within internal policy
constraints. The subsidiary banks and the Company collectively measure their
level of earnings exposure to future interest rate movements. Currently, the
Company does not employ interest rate swaps, financial futures or options to
affect interest rate risks. The Company expects a greater amount of assets will
reprice than liabilities in the first six months of 1994. This position is
subject to change in response to the dynamics of the Company's balance sheet
and general market conditions. Rising interest rates are likely to increase
net interest income in a positive gap position (greater amount of repricing
assets than liabilities) and falling rates would likely decrease net interest
income.
INDUSTRY DEVELOPMENTS
In December of 1991, the Federal Deposit Insurance Corporation Improvement Act
(FDICIA) was enacted. Extremely broad in scope, it included many significant
provisions that affect the Company's operations. The Act established new and
expanded reporting and auditing standards, expanded regulatory supervision and
established new consumer provisions. Management currently anticipates that
while the cost of compliance with FDICIA will add to regulatory costs, it should
not have a material impact on the financial condition of the Company.
27
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
_______________________________________________________________________________
The Board of Directors and Stockholders
Peoples First Corporation
We have audited the accompanying consolidated balance sheets of Peoples First
Corporation and subsidiaries as of December 31, 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 December 31, 1993.
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 upon 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 First
Corporation and subsidiaries as of December 31, 1993 and 1992, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1993, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for investment securities to adopt the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in Debt and
Equity Securities, at December 31, 1993.
/s/ KPMG Peat Marwick
St. Louis, Missouri
January 26, 1994
28
December 31, December 31,
CONSOLIDATED BALANCE SHEETS 1993 1992
_______________________________________________________________________________
ASSETS
Cash and due from banks $27,272,307 $24,712,567
Federal funds sold 2,100,000 13,750,000
Securities held for sale 42,934,154 41,858,786
Investment securities 182,279,326 211,623,602
Loans 557,231,497 482,132,051
Allowance for loan losses (9,058,060) (7,259,336)
----------- -----------
Loans, net 548,173,437 474,872,715
Excess of cost over net assets 10,907,401 11,737,239
of purchased subsidiaries 12,123,653 12,051,880
Premises and equipment 11,791,236 11,543,490
Other assets ----------- -----------
$837,581,514 $802,150,279
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand deposits $70,719,943 $67,137,457
Interest-bearing transaction accounts 182,225,399 176,238,461
Savings deposits 64,995,943 62,152,111
Time deposits 394,217,169 389,124,956
----------- -----------
712,158,454 694,652,985
Repurchase agreements 19,704,809 19,534,280
Federal funds purchased 12,600,000 0
Notes payable 9,589,292 12,116,993
Other liabilities 5,727,543 6,090,931
----------- -----------
Total liabilities 759,780,098 732,395,189
Stockholders' Equity
Common stock 4,812,751 4,774,835
Surplus 27,903,418 27,144,300
Retained earnings 44,917,658 37,835,955
Unrealized appreciation of securities held
for sale, net of deferred income tax 167,589 --
----------- -----------
77,801,416 69,755,090
----------- -----------
$837,581,514 $802,150,279
=========== ===========
Fair value of securities held for sale $42,934,000 $41,957,000
Fair value of investment securities 190,214,000 217,747,000
Common shares issued and outstanding 6,160,322 6,111,790
See accompanying notes to consolidated financial statements. 29
Year Ended December 31,
CONSOLIDATED STATEMENTS OF INCOME 1993 1992 1991
_______________________________________________________________________________
INTEREST INCOME
Interest on Federal funds sold $103,800 $255,259 $201,927
Taxable interest on securities 10,968,716 11,725,047 8,635,296
Nontaxable interest on securities 3,925,215 3,463,436 2,956,988
Interest and fees on loans 44,163,930 40,229,586 35,969,827
---------- ---------- ----------
59,161,661 55,673,328 47,764,038
INTEREST EXPENSE
Interest on deposits 25,012,386 26,941,881 27,268,339
Interest on repurchase agreements 666,551 906,179 187,509
Other interest expense 1,189,751 612,125 174,743
---------- ---------- ----------
26,868,688 28,460,185 27,630,591
---------- ---------- ----------
Net Interest Income 32,292,973 27,213,143 20,133,447
Provision for Loan Losses 2,107,000 2,772,800 2,074,150
---------- ---------- ----------
Net Interest Income after
Provision for Loan Losses 30,185,973 24,440,343 18,059,297
Noninterest Income 5,293,074 5,077,550 3,400,272
Noninterest Expense 22,509,005 19,425,099 13,136,851
---------- ---------- ----------
Income Before Income Tax Expense 12,970,042 10,092,794 8,322,718
Income Tax Expense 3,436,371 2,523,864 1,956,003
---------- ---------- ----------
NET INCOME $9,533,671 $7,568,930 $6,366,715
========== ========== ==========
Net Income per Common Share
and Common Share Equivalent $1.49 $1.30 $1.30
Cash Dividend per Common Share 0.40 0.36 0.31
See accompanying notes to consolidated financial statements. 30
<TABLE>
<CAPTION>
Unrealized
CONSOLIDATED STATEMENTS OF CHANGES Common Retained securities
IN STOCKHOLDERS' EQUITY stock Surplus earnings appreciation Total
_________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1990 $3,715,864 $8,699,239 $27,359,241 -- $39,774,344
Net income 6,366,715 6,366,715
Cash dividends declared ($0.31 per share) (1,478,965) (1,478,965)
Stock issued pursuant to shareholder
and employee plans 37,475 375,604 413,079
---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1991 3,753,339 9,074,843 32,246,991 -- 45,075,173
Net income 7,568,930 7,568,930
Cash dividends declared ($0.36 per share) (1,979,966) (1,979,966)
Stock issued pursuant to shareholder
and employee plans 70,524 762,563 833,087
Stock issued in acquisition 950,972 17,306,894 18,257,866
---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1992 4,774,835 27,144,300 37,835,955 -- 69,755,090
Net income 9,533,671 9,533,671
Cash dividends declared ($0.40 per share) (2,451,968) (2,451,968)
Stock issued pursuant to shareholder
and employee plans 37,916 759,118 797,034
Adjustment of securities held for
sale to fair value 167,589 167,589
---------- ---------- ---------- ---------- ----------
BALANCE AT DECEMBER 31, 1993 $4,812,751 $27,903,418 $44,917,658 $167,589 $77,801,416
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements. 31
Year Ended December 31,
CONSOLIDATED STATEMENTS OF CASH FLOWS 1993 1992 1991
_______________________________________________________________________________
OPERATING ACTIVITIES
Net income $9,533,671 $7,568,930 $6,366,715
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,955,155 1,516,857 750,143
Net (discount accretion) premium
amortization 2,535,996 1,668,379 (122,536)
Provision for loan losses 2,107,000 2,772,800 2,074,150
Net (increase) decrease in loans
held for sale 737,377 (1,241,477) --
Provision for deferred income taxes (1,219,013) (932,153) (142,103)
Other, net 907,270 52,059 (490,013)
---------- ---------- ----------
Net Cash Provided by Operating
Activities 16,557,456 11,405,395 8,436,356
INVESTING ACTIVITIES
Net decrease in Federal funds sold 11,650,000 10,050,000 3,700,000
Proceeds from sales of securities
held for sale 2,536,445 14,129,438 3,174,840
Proceeds from maturities of securities
held for sale 2,500,000 1,950,000 --
Proceeds from maturities of investment
securities 45,955,797 58,512,934 20,093,769
Principal collected on mortgage-backed
securities held for sale 4,619,450 571,630 --
Principal collected on mortgage-backed
investment securities 12,697,797 12,221,578 3,296,975
Purchase of securities held for sale (10,928,126) (3,526,726) --
Purchase of investment securities (31,350,251) (81,389,988) (46,473,282)
Net increase in loans (76,562,466) (35,927,383) (23,655,718)
Purchases of premises and equipment (1,151,481) (858,307) (756,216)
Net cash paid for acquisition
of subsidiary -- (7,453,592) --
---------- ---------- ----------
Net Cash Used by Investing Activities (40,032,835) (31,720,416) (40,619,632)
See accompanying notes to consolidated financial statements. 32
CONSOLIDATED STATEMENTS OF CASH FLOWS - Year Ended December 31,
CONTINUED 1993 1992 1991
_______________________________________________________________________________
FINANCING ACTIVITIES
Net increase in deposits 17,505,469 29,997,777 12,541,639
Net increase (decrease) in repurchase
agreements 170,529 (5,355,499) 23,889,779
Net increase in Federal funds purchased 12,600,000 0 0
Proceeds from notes payable borrowings 6,200,000 2,700,000 53,496
Repayments of notes payable (8,727,701) (691,780) (13,646)
Proceeds from issuance of common stock 299,352 386,116 142,419
Cash dividends paid (2,012,530) (1,632,551) (1,208,305)
---------- ---------- ----------
Net Cash Provided by Financing
Activities 26,035,119 25,404,063 35,405,382
---------- ---------- ----------
Net Increase in Cash and Cash
Equivalents 2,559,740 5,089,042 3,222,106
Cash and Cash Equivalents at Beginning
of Year 24,712,567 19,623,525 16,401,419
---------- ---------- ----------
Cash and Cash Equivalents at End of
Year $27,272,307 $24,712,567 $19,623,525
========== ========== ==========
SUPPLEMENTAL DISCLOSURES
Cash paid for interest expense $27,195,633 $29,194,190 $27,929,356
Cash paid for income tax 4,826,520 3,131,812 2,383,326
NONCASH INVESTING AND FINANCING TRANSACTIONS
Other real estate transferred
from loans, net 249,267 13,000 3,280
Dividends reinvested 439,438 347,415 270,660
Notes payable issued in acquisition
of subsidiary -- 10,025,000 --
Common stock issued in acquisition
of subsidiary -- 18,257,866 --
See accompanying notes to consolidated financial statements. 33
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Peoples First Corporation (Company) through its subsidiaries, Peoples First
National Bank and Trust Company, First Liberty Bank, First National Bank of
LaCenter, Salem Bank, Inc. and Bank of Murray, provides a full range of banking
services to individual and corporate customers in the western Kentucky and
contiguous interstate area. The Company and the subsidiary banks are subject to
the regulations of various Federal and state agencies and undergo periodic
examination by regulators.
The accounting policies and reporting practices of the Company are based upon
generally accepted accounting principles and conform to predominant practices
within the banking industry. In preparing financial statements, management is
required to make assumptions and estimates which affect the Company's reported
amounts of assets and liabilities and the results of operations. The more
significant policies are summarized below.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the parent company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated.
SECURITIES HELD FOR SALE AND INVESTMENT SECURITIES
The Company adopted Financial Accounting Standard No. 115 "Accounting for Cer-
tain Investments in Debt and Equity Securities" (FAS 115) as of the end of 1993.
This new accounting policy expands the use of fair value accounting for secur-
ities for which there is not a positive intent and ability to hold to maturity.
At acquisition, FAS 115 requires that securities be classified into one of three
catergories: trading, held for sale or investment. Trading securities are
bought and held principally with the intention of selling them in the near term.
The Company has no trading securities. Investment securities are those securi-
ties for which the Company has the ability and intent to hold until maturity.
All other debt securities are classified as held for sale. There was no effect
of this change on 1993 net income.
Securities held for sale are stated at fair value for December 31, 1993 and at
the lower of amortized cost or market for December 31, 1992. Fair value is
based on market prices quoted in financial publications or other independent
sources. Subsequent to adoption of FAS 115, net unrealized gains or losses are
excluded from earnings and reported, net of deferred income taxes, as a separate
component of shareholders' equity until realized. The adjusted cost of the
specific security held for sale that is sold is used to compute any gain or loss
upon sale.
Investment securities are carried at cost, adjusted for amortization of premiums
and accretion of discounts, which are recognized as adjustments to interest
income on the level-yield method. Gain or loss is recorded when realized on a
specific identity basis or when, in the opinion of management, an unrealized
loss is other than temporary in nature. Mortgage-backed securities represent a
significant portion of the investment security portfolio. Amortization of pre-
miums and accretion of discounts on mortgage-backed securities are analyzed in
relation to the corresponding prepayment rates, both historical and estimated,
using a method which approximates the level-yield method.
34
Transfers of debt securities between categories are recorded at fair value at
the date of transfer. Unrealized gains or losses associated with transfers of
debt securities from the investment to the held for sale category are recorded
and maintained as a separate component of stockholders' equity. The unrealized
gains or losses included as a separate component of stockholders' equity for
debt securities transferred to the investment from the held for sale category
are maintained and amortized into earnings over the remaining life of the debt
securities as an adjustment to yield in a manner consistent with the amortiza-
tion or accretion of premiums or discounts on the associated securities.
At the end of the third quarter of 1992, the Company evaluated the conditions
under which it might sell any of its debt securities. As a result, management
decided that certain types of debt securities might be sold in the future as
part of the Company's efforts to manage interest rate risk or in response to
changes in interest rates or other economic factors. Based upon this decision,
the Company classified these selected securities as held for sale. At December
31, 1992 (prior to adoption of FAS 115), debt securities classified as held for
sale were stated at the lower of amortized cost or market.
LOANS RECEIVABLE
Loans receivable held for investment are carried at cost, as the Company has the
ability and it is management's intention to hold them to maturity. Interest on
commercial and real estate mortgage loans is accrued if deemed collectible and
credited to income based upon the principal amount outstanding. Consumer
installment loans are generally made on a discount basis. The unearned discount
attributable to these loans is credited to income using a method which approxi-
mates the level yield method. Mortgage loans originated principally under
programs with the Government National Mortgage Association (GNMA) or the Federal
National Mortgage Association (FNMA) and held for sale, are carried at the lower
of cost or market value.
The Company evaluates the collectibility of both contractual interest and
contractual principal of all receivables when assessing the need for a loss
accrual. When in the opinion of management the collection of interest on a loan
is unlikely or when either principal or interest is past due over 90 days, that
loan is generally placed on nonaccrual status and interest is not recognized
unless received in cash. When a loan is placed in nonaccrual status, accrued
interest for the current period is reversed and charged against earnings and
accrued interest from prior periods is charged against the allowance for loan
losses. A loan remains on nonaccrual status until the loan is current as to
payment of both principal and interest and/or the borrower demonstrates the
ability to pay and remain current. Interest payments received on nonaccrual
loans are applied to principal if there is any doubt as to the collectibility of
total principal, otherwise these payments are recorded as interest income.
ALLOWANCE FOR LOAN LOSSES
The allowance is increased by provisions for loan losses charged to operations
and is maintained at an adequate level to absorb estimated credit losses
associated with the loan portfolio, including binding commitments to lend and
off-balance sheet credit instruments. At the end of each quarter, or more
frequently if warranted, management uses a systematic, documented approach in
determining the appropriate level of the allowance for loan losses.
35
Management's approach provides for general and specific allowances and is based
upon current economic conditions, past losses, collection experience, risk
characteristics of the loan portfolio, assessment of collateral values and such
other factors which in management's judgement deserve current recognition in
estimating potential loan losses.
During May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" (FAS 114), which is effective for fiscal years beginning after
December 15, 1994. FAS 114 requires that impaired loans be measured at the
present value of expected future cash flows discounted at the loan's effective
interest rate, or at the loan's observable market price or the fair value of
the collateral if the loan is collateral dependent. The Company is currently
evaluating when and how it will adopt FAS 114, as well as the possible financial
impact to the Company.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. The provision for depreciation and amortization is computed using
the straight-line method over the estimated useful lives of the assets. Esti-
mated useful lives on buildings range from ten to thirty years and two to ten
years on equipment. Leasehold improvements are amortized over the term of the
related leases. Expenditures for major renewals and betterments of premises and
equipment are capitalized and those for maintenance and repairs are expensed as
incurred.
OTHER REAL ESTATE
Real estate acquired through foreclosure or deed in lieu of foreclosure is in-
cluded in other assets, and is recorded at the lower of cost or the property's
fair value at the time of foreclosure less estimated disposal costs, if any.
The excess of cost over fair value of other real estate at the date of
acquisition is charged to the allowance for loan losses. Subsequent reductions
in carrying value to reflect current fair value and any other period costs are
charged to expense as incurred. In-substance foreclosed assets are accounted
for the same as foreclosed assets.
INCOME TAXES
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (FAS 109), was issued by the Financial Accounting Standards Board in
February 1992, to be effective January 1, 1993 with earlier adoption encouraged.
The Company elected to adopt the new standard effective January 1, 1992 on a
prospective basis. FAS 109 provides for the recognition of a current tax
liability or asset for the estimated taxes payable or refundable on tax returns
for the current year. A deferred tax liability or asset is recognized for the
estimated future tax effects attributable to temporary differences and carry-
forwards. The measurement of current and deferred tax liabilities and assets is
based on provisions of enacted tax laws. The measurement of deferred tax assets
is reduced, if necessary, by the amount of any tax benefits that, based upon
management's judgement of available evidence, are not expected to be realized.
36
The deferred method of accounting for income taxes under APB Opinion 11, which
applied in 1991 and prior years, requires the recognition of deferred income
taxes for income and expense items that are reported in different years for
financial reporting purposes and for income tax purposes using the tax rate
applicable for the year of the calculation. Under this method, deferred taxes
are not adjusted for subsequent changes in tax rates.
The significant components of deferred tax assets and liabilities are
principally related to provisions for loan losses, amortization of premiums on
debt securities, depreciation and deferred compensation.
NET INCOME PER COMMON SHARE AND COMMON SHARE EQUIVALENT
Net income per common share and common share equivalent is determined by divid-
ing net income by the weighted average number of common shares actually out-
standing and common stock equivalents pertaining to common stock options. The
average number of shares outstanding including common stock equivalents for
1993, 1992 and 1991 were 6,407,528, 5,842,484 and 4,888,060, respectively.
The computations of average shares outstanding is based upon the new number
of shares outstanding as a result of a two-for-one stock split effected on
January 4, 1994. Common stock equivalents have no material dilutive effect.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all cash and
due from banks to be cash equivalents.
PURCHASE ACCOUNTING
In accordance with the purchase method of accounting, the assets and liabilities
of purchased institutions are stated at estimated fair values at the date of
acquisition less accumulated amortization and depreciation. Intangible assets
related to purchased banks are amortized primarily on the straight-line method
over a fifteen year period.
RECLASSIFICATIONS
Certain amounts in the 1992 and 1991 consolidated financial statements have been
reclassified to conform with the 1993 presentation.
2. BUSINESS COMBINATIONS
On May 4, 1992, the Company consummated the acquisition of an additional banking
organization, Bank of Murray. At acquisition, the bank had total assets of
approximately $235.3 million. The purchase price of approximately $42.4 million
consisted of 1,217,246 shares of the Company's common stock, $10.0 million of
subordinated two-year notes with an interest rate of 7.25% and $14.1 million
in cash. The transaction was accounted for using the purchase method of
accounting. The results of operations of the acquired entity are included in
the consolidated financial statements subsequent to its acquisition date and the
excess of the cost over fair value of the net assets acquired, $11.9 million, is
being amortized over fifteen years on a straight-line basis. The following
table presents unaudited pro forma results of operations for the years ended
December 31, 1992 and 1991, assuming the purchase of Bank of Murray had taken
place on January 1, 1991:
37
Pro Forma Statements of Income (unaudited)
Year Ended December 31, 1992 1991
_______________________________________________________________________________
(in thousands, except per share data)
Interest income $60,939 $65,198
Interest expense 31,939 40,057
------ ------
Net interest income 29,000 25,141
Provision for loan losses 3,246 2,534
------ ------
Net interest income after
provision for loan losses 25,754 22,607
Noninterest income 5,501 4,543
Noninterest expense 21,715 19,031
------ ------
Income before income tax expense 9,540 8,119
Income tax expense 2,412 1,866
------ ------
Net income $7,128 $6,253
====== ======
Net income per common share
and common share equivalent $1.14 $1.03
_______________________________________________________________________________
This pro forma information is not necessarily indicative of the actual results
of operations which would have occurred had the acquisition of Bank of Murray
been consummated as of January 1, 1991, nor is it necessarily indicative of
future operating results.
On October 16, 1993, the Company entered into a Merger Agreement providing for
the acquisition, which is expected to be consummated in the first quarter of
1994, of a significant subsidiary. The Merger Agreement with First Kentucky
Bancorp, Inc. and its wholly-owned subsidiary, First Kentucky Federal Savings
Bank (First Kentucky), is subject to the approval of First Kentucky Bancorp,
Inc.'s shareholders and regulators. The Company will issue 930,000 shares of
the Company's stock for all the outstanding stock of First Kentucky Bancorp,
Inc.
First Kentucky is a federally chartered savings bank with total assets of
approximately $178 million at December 31, 1993 that is well established in
western Kentucky with its principal office in Central City, Kentucky. The
business combination will be accounted for as a pooling-of-interests. Peoples
First Corporation will report the results of operations for 1994 as though
First Kentucky had been combined as of the beginning of 1994 and financial
statements for prior years will then be restated on a combined basis to furnish
comparative information.
38
3. CASH AND DUE FROM BANKS
The Company's bank subsidiaries are required to maintain certain reserve
balances in accordance with Federal Reserve Board requirements. The reserve
balances maintained in accordance with such requirements as of December 31, 1993
and 1992 were $6,747,000 and $6,321,000, respectively.
4. SECURITIES HELD FOR SALE AND INVESTMENT SECURITIES
The amortized cost and fair value of securities held for sale as of
December 31, 1993 and 1992 are summarized as follows:
Gross Gross
Securities Held For Sale Amortized unrealized unrealized Fair
December 31, 1993 cost gains losses value
_______________________________________________________________________________
U.S. treasury and agencies $16,885,564 $243,436 $0 $17,129,000
Mortgage-backed securities 25,794,667 94,136 (83,803) 25,805,000
----------- ---------- ---------- -----------
$42,680,231 $337,572 ($83,803) $42,934,000
=========== ========== ========== ===========
Gross Gross
Securities Held For Sale Amortized unrealized unrealized Fair
December 31, 1992 cost gains losses value
_______________________________________________________________________________
U.S. treasury and agencies $16,318,426 $422,457 ($24,883) $16,716,000
Mortgage-backed securities 25,540,360 73,921 (373,281) 25,241,000
----------- ---------- ---------- -----------
$41,858,786 $496,378 ($398,164) $41,957,000
=========== ========== ========== ===========
The amortized cost and fair value of investment securities as of December 31,
1993 and 1992 are summarized as follows:
Gross Gross
Investment Securities Amortized unrealized unrealized Fair
December 31, 1993 cost gains losses value
_______________________________________________________________________________
U.S. treasury and agencies $74,929,337 $1,907,534 ($871) $76,836,000
Mortgage-backed securities 35,383,427 592,592 (63,019) 35,913,000
State and political
subdivisions 63,329,472 5,297,432 (17,904) 68,609,000
Other 8,637,090 311,910 (93,000) 8,856,000
----------- ---------- ---------- -----------
$182,279,326 $8,109,468 ($174,794)$190,214,000
=========== ========== ========== ===========
39
Gross Gross
Investment Securities Amortized unrealized unrealized Fair
December 31, 1992 cost gains losses value
_______________________________________________________________________________
U.S. treasury and agencies $114,695,982 $2,258,817 ($67,799)$116,887,000
Mortgage-backed securities 31,488,814 621,171 (58,985) 32,051,000
State and political
subdivisions 58,162,656 3,221,233 (30,889) 61,353,000
Other 7,276,150 180,340 (490) 7,456,000
----------- ---------- ---------- -----------
$211,623,602 $6,281,561 ($158,163)$217,747,000
=========== ========== ========== ===========
Proceeds from sales of debt securities during 1993, 1992 and 1991 were
$2,536,445, $14,129,438 and $3,174,840, respectively. Gross gains of $40,577,
$580,145 and 28,356 were realized on those sales during 1993, 1992 and 1991,
respectively, and gross losses of $3,158 were realized on those sales during
1991.
The amortized cost, estimated fair value and the weighted average yield of
securities held for sale and investment securities at December 31, 1993, by
contractual maturity, are shown below. Actual maturities will differ from the
depicted maturities because of the borrowers' right to call or prepay obliga-
tions with or without prepayment penalties. Contractual maturities are not
meaningful for mortgage-backed securities, which are particularly exposed to
prepayments in the current interest rate environment. Management evaluates, on
an on-going basis, the potential maturities for asset/liability purposes.
Yields on tax-exempt obligations have not been computed on a tax-equivalent
basis.
Securities Held for Sale Portfolio Weighted
Maturity Distribution Amortized Fair average
December 31, 1993 cost value yield
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies
1 year or less $9,020 $9,096 6.58%
Over 1 through 5 years 7,865 8,033 5.50
Over 5 through 10 years -- -- --
Over 10 years -- -- --
Mortgage-backed securities 25,795 25,805 5.40
------- -------
$42,680 $42,934 5.67%
======= =======
40
Investment Securities Portfolio Weighted
Maturity Distribution Amortized Fair average
December 31, 1993 cost value yield
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies
1 year or less $30,472 $30,858 5.95%
Over 1 through 5 years 44,457 45,977 6.20
Over 5 through 10 years -- -- --
Over 10 years -- -- --
Mortgage-backed securities 35,383 35,913 6.02
State and political sudivisions
1 year or less 5,529 5,592 5.43
Over 1 through 5 years 17,985 19,335 6.44
Over 5 through 10 years 19,825 22,158 6.63
Over 10 years 19,991 21,525 6.64
Other
1 year or less 1,000 1,030 8.87
Over 1 through 5 years 6,003 6,285 6.92
Over 5 through 10 years 38 35 7.50
Over 10 years 1,596 1,506 4.74
------- -------
$182,279 $190,214 6.32%
======= =======
At December 31, 1993 and 1992, securities with carrying values of approximately
$105,315,000 and $94,794,000, respectively, were pledged to secure repurchase
agreements, public and trust deposits and for other purposes as required by law.
5. LOANS
The Company's lending activities are concentrated primarily in the contiguous
interstate area of western Kentucky, southern Illinois, northwestern Tennessee
and southeastern Missouri. The loan portfolio is well diversified and consists
of business loans extending across many industry types, as well as loans to
individuals. As of December 31, 1993 and 1992, total loans to any group of
customers engaged in similar activities and having similar economic character-
istics, as defined by standard industrial classifications, did not exceed 10%
of total loans.
41
Major classification of loans are as follows:
December 31, 1993 1992
_______________________________________________________________________________
Commercial:
Manufacturing $8,294,696 $8,671,362
Retail 43,981,307 40,511,088
Wholesale 21,547,164 17,305,261
Health services 14,733,778 16,835,592
Financial institutions 1,220,000 2,079,297
Agricultural 21,169,484 20,723,583
Transportation, moving
and warehousing 12,939,037 8,106,645
Contractors 7,566,031 9,045,523
Hotels and motels 17,979,158 12,452,018
Shopping centers and apartments 31,667,926 26,015,439
Recreational 2,480,143 4,633,586
Real estate development 1,216,100 1,192,960
Other 41,994,568 37,041,494
----------- -----------
226,789,392 204,613,848
One-to-four family residential mortgage 183,665,699 154,803,505
Manufactured housing loans 34,963,466 28,249,158
Installment loans 110,417,163 96,174,010
Consumer revolving credit 3,921,514 3,321,765
Other 5,684,815 3,074,836
----------- -----------
565,442,049 490,237,122
Unearned income (8,210,552) (8,105,071)
----------- -----------
$557,231,497 $482,132,051
=========== ===========
The Company evaluates each customer's creditworthiness 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
counterparty. Collateral varies but may include accounts receivable, inventory,
property, plant and equipment, income producing commercial properties, real
estate mortgages and other property owned by the borrowers.
Nonaccrual and renegotiated loans totaled $3,615,512 and $4,650,673 at
December 31, 1993 and 1992, respectively.
42
<TABLE>
<CAPTION>
Allowance for Loan Losses
Year Ended December 31, 1993 1992 1991
_______________________________________________________________________________
<S> <C> <C> <C>
Balance at beginning of year $7,259,336 $5,438,285 $5,147,275
Balance of subsidiary bank
at acquisition -- 1,484,444 --
Provision charged to expense 2,107,000 2,772,800 2,074,150
Loans charged off (861,092) (2,788,164) (1,962,834)
Recoveries of loans
previously charged off 552,816 351,971 179,694
--------- --------- ---------
Net loans charged off (308,276) (2,436,193) (1,783,140)
--------- --------- ---------
Balance at end of year $9,058,060 $7,259,336 $5,438,285
========= ========= =========
</TABLE>
Certain officers and directors of Peoples First Corporation and its subsidiaries
and certain corporations and individuals related to them incurred indebtedness
in the form of loans as customers. These loans were made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other customers and did not involve more
than the normal risk of collectibility. The activity of these loans is
summarized below:
<TABLE>
<CAPTION>
Loans to Officers and Directors
Year Ended December 31, 1993 1992
_______________________________________________________________________________
<S> <C> <C>
Balance at beginning of year $14,955,127 $13,358,519
Additions 5,325,935 2,382,686
Repayments (1,214,285) (786,078)
---------- ----------
Balance at end of year $19,066,777 $14,955,127
========== ==========
</TABLE>
43
6. PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
Premises and Equipment
December 31, 1993 1992
_______________________________________________________________________________
Land $1,387,667 $1,387,667
Buildings 12,562,745 12,543,912
Equipment 7,663,100 6,907,432
Leasehold improvements 217,538 217,538
Construction in progress 181,675 --
---------- ----------
22,012,725 21,056,549
Accumulated depreciation (9,889,072) (9,004,669)
---------- ----------
$12,123,653 $12,051,880
========== ==========
The amount of depreciation and amortization related to premises and equipment
that was charged to operating expenses in 1993, 1992 and 1991 was $1,051,628,
$870,768 and $656,796 respectively.
The Company leases certain premises and equipment under agreements which expire
at various dates. Additionally, the Company leases certain properties it owns.
The following is a schedule of future minimum payments required under operating
leases and future minimum rental income from leased properties that have initial
or remaining noncancellable lease terms in excess of one year as of December 31,
1993.
Future Operating Leases
Year Ending December 31, Payments Income
_______________________________________________________________________________
1994 $51,500 $3,750
1995 36,900 --
1996 24,000 --
1997 24,000 --
1998 22,500 --
Later years 55,000 --
In addition to the amounts set forth above, certain of the operating leases
require payments by the Company for taxes, insurance, and maintenance. Rental
expenses for operating leases (including equipment rentals based upon usage)
amounted to $51,051 in 1993, $71,769 in 1992 and $79,534 in 1991. Rental income
for all operating leases amounted to $27,839 in 1993, $26,956 in 1992 and
$31,840 in 1991.
44
7. NOTES PAYABLE
The Company issued unsecured, subordinated, short-term notes on May 4, 1992 in
connection with an acquisition of a subsidiary bank. The balance outstanding
at December 31, 1993 and 1992 was $5,012,500 and $10,025,000, respectively.
Interest is payable quarterly at the annual rate of 7.25%. The remaining prin-
cipal amount is due and payable on May 4, 1994.
In May 1993, the Company obtained a $10,200,000 loan commitment from a regional
bank, which was used to retire short-term notes and other bank debt. The
balance outstanding of bank debt at December 31, 1993 and 1992 was $4,576,792
and $2,076,792, respectively, and is secured by the pledge of the outstanding
stock of a subsidiary bank (Bank of Murray). The note agreement contains
various financial covenants pertaining to levels of net worth and indebtedness.
The Company was in compliance with all such covenants at December 31, 1993.
Interest is payable quarterly at the lender's prime rate which can be adjusted
daily (6.00% at December 31, 1993 and December 31, 1992). The note provides for
quarterly principal payments of $261,604 and a final maturity in May 2004.
At December 31, 1993, the Company's lead bank had available up to $10.5 million
from the Federal Home Loan Bank (FHLB) of Cincinnati which could be used for
short-term funding and other requirements. Certain single-family mortgage loans
totaling approximately $86.4 million were pledged to secure the line of credit.
The arrangement is subject to periodic review and cancellation by either party.
There was no outstanding indebtedness to the FHLB at December 31, 1993 and 1992.
8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET 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.
These financial instruments include commitments to extend credit and standby
letters of credit. 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
amount of those 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. Standby
letters of credit are conditional commitments issued by the Company to guarantee
the performance of a customer to a third party. These off-balance-sheet
financial instruments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the financial
instruments may expire without being drawn upon, the total amounts do not
necessarily represent future cash requirements. Commitments to extend credit
and standby letters of credit are subject to the same underwriting and
collateralizing standards as on-balance-sheet items.
45
Contractual commitments to extend credit and standby letters of credit at
December 31, 1993 and 1992 are summarized as follows:
Financial Instruments with
Off-Balance-Sheet Risk
December 31, 1993 1992
_______________________________________________________________________________
(in thousands)
Contractual commitments to extend credit $76,326 $74,263
Standby letters of credit 3,231 2,847
9. EMPLOYEE BENEFITS
The Company maintains a noncontributory Employee Stock Ownership Plan (ESOP) and
an employer matching 401(k) Plan which was made available to employees in 1991.
Both plans cover substantially all of the Company's employees.
Employer contributions to the ESOP are determined annually by the Company's
board of directors and were $170,000, $145,000 and $117,800 for the years ended
1993, 1992 and 1991, respectively. The ESOP's investments include 210,470 and
205,238 shares of the Company's common stock at December 31, 1993 and 1992,
respectively.
During November 1993, the American Institute of Certified Public Accountants
issued Statement of Position 93-6, "Employers' Accounting for Employee Stock
Ownership Plans" (SOP 93-6), which is effective for for fiscal years beginning
after December 15, 1993. SOP 93-6 replaces existing accounting guidance and
will significantly change the accounting for companies that maintain a leveraged
employee stock ownership plan (ESOP). The current ESOP is not leveraged.
Management has not yet evaluated the potential impact of SOP 93-6 on the
Company's financial condition or results of operations should a leveraged ESOP
be implemented or otherwise acquired.
Under the 401(k) Plan, participants may voluntarily contribute a percentage of
their salary through payroll deductions. The Company is currently committed to
make contributions to the 401(k) Plan annually in an amount equal to 100% of the
first 3% contribution of each participant's base salary. For the years ended
December 31, 1993, 1992 and 1991, the Company's required matching contribution
amounted to $184,472, $148,665 and $113,249, respectively. Employees have four
investment options in which their contributions may be invested.
In accordance with the terms of the acquisition, as described in Note 2., Bank
of Murray's defined benefit plan was terminated and their employees became eli-
gible to participate in the Company's ESOP and 401(k) plans during 1992. The
fair value of Bank of Murray's defined benefit plan assets, which were distri-
buted to plan participants in 1993, exceeded the actuarial present value of all
accrued benefits. The plan termination had no financial effect on the Company.
Post retirement benefits other than pensions are not provided for the Company's
employees. Eligible retired employees may for a period of time maintain certain
health care benefits through policies of the Company at the employee's expense.
There was no cost for employee benefits for retired employees in 1993, 1992 and
1991.
46
10. CAPITAL STOCK
On December 15, 1993, the Company's Board of Directors announced a common stock
split to be effected on January 4, 1994 by the issuance of shares equal to 100%
of the previously outstanding shares. All shares outstanding and per share
amounts have been adjusted to reflect the two-for-one stock split.
The Company has ten million authorized shares of no par, $0.7812 stated value
common stock. At December 31, 1993 and 1992, 820,322 shares and 854,234 shares,
respectively, of an original authorization of of 1,040,000 shares were reserved
for issuance under the Peoples First Corporation Share Owner Dividend Reinvest-
vestment and Stock Purchase Plan. In addition, at December 31, 1993 and 1992,
31,820 shares and 114,420 shares, respectively, of an original authorization of
600,000 shares were reserved for issuance under the Peoples First Corporation
1986 Stock Option Plan.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
The Plan provides for sale from shares reserved of unissued authorized shares of
the Company's common stock, at market value, to existing shareholders. All
shareholders may purchase stock with optional payments up to $500 but not less
than $100 per dividend payment cycle. Participating shareholders owning a
minimum of 500 common shares may reinvest all or part of cash dividends. At
December 31, 1993, a total of 219,678 shares have been issued pursuant to the
plan, of which 33,912 shares were issued during 1993.
STOCK OPTION PLAN
The Plan authorizes the granting to key employees of the Company incentive stock
options and nonqualified stock options to purchase common stock of the Company
at market value at the time the options are granted. Shares sold under the Plan
may be either unissued authorized shares or shares reacquired by the Company.
Options granted under the plan are exercisable, subject to vesting and other
requirements, at varying times from the first through the tenth year after the
grant date. Optionees may exercise their options with cash or with shares of
the Company's common stock. Of the 446,960 shares under option outstanding at
December 31, 1993, a total of 202,600 shares were currently exercisable,
compared to a total of 156,152 shares exercisable at December 31, 1992.
47
<TABLE>
<CAPTION> Number Option price
Stock Option Plan Activity of shares range per share
____________________________________________________________________________________
<S> <C> <C>
Outstanding at December 31, 1990 321,400 $5.00 - $7.66
Granted 76,600 9.38
Exercised (15,920) 5.00 - 7.66
Expired (20,160) 7.62 - 9.38
-------
Outstanding at December 31, 1991 361,920 5.00 - 9.38
Granted 86,300 12.38
Exercised (69,240) 5.00 - 9.38
Expired 0
-------
Outstanding at December 31, 1992 378,980 5.00 - 12.38
Granted 89,000 16.25 - 16.88
Exercised (14,620) 7.41 - 12.38
Expired (6,400) 7.46 - 12.38
-------
Outstanding at December 31, 1993 446,960 $5.00 - $16.88
=======
</TABLE>
11. DIVIDEND LIMITATIONS
Subsidiary bank dividends are the principal source of funds for payment of
dividends by the Company to its shareholders. By regulation, national banks and
banks chartered by the State of Kentucky are prohibited from paying dividends in
excess of the current year's retained income plus retained income from the two
preceding years unless prior Federal or state regulatory approval is obtained.
At December 31, 1993, approximately $13.8 million in retained earnings of
Peoples First Corporation's subsidiary banks were available for the payment of
dividends to the Company without regulatory approval or without reducing the
capital of the respective subsidiary banks below present minimum regulatory
standards.
12. INCOME TAXES
The current and deferred portions of income tax expense were as follows:
Year Ended December 31, 1993 1992 1991
_______________________________________________________________________________
Current taxes $4,655,384 $3,456,017 $2,098,106
Deferred taxes (1,219,013) (932,153) (142,103)
--------- --------- ---------
Income tax expense $3,436,371 $2,523,864 $1,956,003
========= ========= =========
As discussed in Note 1, the Company adopted FAS 109 as of January 1, 1992,
changing the method of computing deferred taxes on a prospective basis. No
cumulative adjustment was required for the adoption of FAS 109.
48
The Company and its subsidiaries file a consolidated Federal income tax return.
Deferred taxes result from temporary differences in the recognition of income
and expense for tax and financial reporting purposes. The sources of these
differences and the tax effect of each were as follows:
Year Ended December 31, 1993 1992 1991
_______________________________________________________________________________
Provision for loan losses ($892,921) ($240,264) ($148,469)
Amortization of security premiums (398,985) (431,373) 0
Accretion of security discounts (8,144) (67,330) (3,415)
Interest income on nonaccrual loans 98,210 0 0
Deferred compensation (53,538) (31,493) (38,528)
Depreciation 3,082 (13,658) 4,288
Other real estate owned (3,282) (104,067) 0
Other, net 36,565 (43,968) 44,021
--------- ------- -------
Deferred income taxes ($1,219,013) ($932,153) ($142,103)
========= ======= =======
The following is a reconciliation between the amount of income tax expense and
the amount of tax computed by applying the statutory Federal income tax rates:
Year Ended December 31, 1993 1992 1991
_______________________________________________________________________________
Tax computed at statutory rates $4,439,515 $3,431,550 $2,829,724
Increase (decrease) in taxes
resulting from:
Tax-exempt income (1,369,680) (1,154,395) (898,693)
Goodwill amortization 290,463 192,046 11,811
Other, net 76,073 54,663 13,161
--------- --------- ---------
Income tax expense $3,436,371 $2,523,864 $1,956,003
========= ========= =========
49
Enacted in September, 1993, the Revenue Reconciliation Act of 1993 was a change
in the tax laws that raised the Company's top income tax rate. Adjustment to
the deferred tax asset required by this rate change was insignificant. Not all
temporary differences are accounted for through income tax expense on the state-
ments of income. The tax effects of temporary differences, that give rise to
significant elements of the deferred tax assets and deferred tax liabilities are
as follows:
December 31, 1993 1992
_______________________________________________________________________________
Deferred tax assets:
Allowance for loan losses ($2,773,512) ($1,880,591)
Deferred compensation (318,161) (264,623)
Other real estate owned (107,349) (104,067)
Other (139,082) (158,374)
--------- ---------
(3,338,103) (2,407,655)
Deferred tax liabilities:
Premiums on securities 195,669 594,654
Discounts on securities 24,963 32,210
Unrealized security appreciation 88,873 0
Accrued interest income 98,210 0
Premises and equipment 855,968 852,886
Other 25,420 5,905
--------- ---------
1,289,103 1,485,655
--------- ---------
Net deferred tax assets ($2,049,000) ($922,000)
========= =========
Deferred tax assets have not been reduced by a valuation allowance since based
on the weight of available evidence, management believes it is more likely than
not that all of the deferred tax assets will be realized.
50
13. SUPPLEMENTAL INCOME STATEMENT INFORMATION
Details of noninterest income and noninterest expense are as follows:
Year Ended December 31, 1993 1992 1991
_______________________________________________________________________________
Noninterest Income
Service charges on deposits $2,810,026 $2,439,575 $1,917,332
Net securities gains 40,577 580,145 25,198
Trust department fees 1,185,786 1,078,008 762,375
Insurance commissions 256,443 232,121 322,205
Other income 1,000,242 747,701 373,162
--------- --------- ---------
$5,293,074 $5,077,550 $3,400,272
========= ========= =========
Year Ended December 31, 1993 1992 1991
_______________________________________________________________________________
Noninterest Expense
Salaries $8,816,589 $7,409,170 $5,504,178
Employee benefits 1,681,959 1,573,758 1,058,866
Occupancy expense 1,181,915 1,094,674 852,631
Equipment expense 1,152,254 935,011 697,187
FDIC insurance expense 1,541,230 1,346,837 926,772
Data processing expense 1,436,490 1,225,537 967,515
Bankshare taxes 916,751 727,183 493,772
Goodwill amortization 829,894 564,842 34,738
Other expense 4,951,923 4,548,087 2,601,192
---------- ---------- ----------
$22,509,005 $19,425,099 $13,136,851
========== ========== ==========
51
14. PARENT COMPANY FINANCIAL INFORMATION
Following are condensed balance sheets of Peoples First Corporation (parent
company only) as of December 31, 1993 and 1992, and the related condensed
statements of income and cash flows for the years ended 1993, 1992 and 1991:
Condensed Balance Sheets
December 31, 1993 1992
__________________________________________________________________
Assets
Cash in subsidiary bank $956,366 $534,635
Investment in subsidiaries 85,991,518 80,954,475
Cost in excess of net
assets acquired 201,934 224,863
Other assets 558,068 495,147
---------- ----------
$87,707,886 $82,209,120
========== ==========
Liabilities and Stockholders' Equity
Liabilities
Notes payable $9,589,292 $12,101,792
Other liabilities 317,178 352,238
---------- ----------
Total liabilities 9,906,470 12,454,030
Stockholders' equity
Common stock 4,812,751 4,774,835
Surplus 27,903,418 27,144,300
Retained earnings 44,917,658 37,835,955
Unrealized appreciation of securities held
for sale, net of deferred income tax 167,589 --
---------- ----------
77,801,416 69,755,090
---------- ----------
$87,707,886 $82,209,120
========== ==========
Common shares issued and outstanding 6,160,322 6,111,790
52
Condensed Statements of Income
Year Ended December 31, 1993 1992 1991
_______________________________________________________________________________
Income
Dividends from subsidiaries $5,753,386 $3,520,000 $2,191,279
Other income 6,849 83,964 82,949
--------- --------- ---------
5,760,235 3,603,964 2,274,228
Expense
Salaries and employee benefits 0 127,442 134,148
Interest expense 745,359 577,600 4,659
Legal and accounting fees 334,949 139,623 159,185
Other expense 449,847 595,913 218,810
--------- --------- ---------
1,530,155 1,440,578 516,802
--------- --------- ---------
Income before income taxes
and equity in undistributed
income from subsidiaries 4,230,080 2,163,386 1,757,426
Income tax benefit 434,237 428,510 133,565
Income before equity in --------- --------- ---------
undistributed income
of subsidiaries 4,664,317 2,591,896 1,890,991
Equity in undistributed
income of subsidiaries 4,869,354 4,977,034 4,475,724
--------- --------- ---------
Net Income $9,533,671 $7,568,930 $6,366,715
========= ========= =========
53
Condensed Statement of Cash Flows
Year Ended December 31, 1993 1992 1991
_______________________________________________________________________________
Operating Activities
Net income $9,533,671 $7,568,930 $6,366,715
Adjustments to reconcile income to net
cash provided by operating activities
Equity in undistributed
income of subsidiaries (4,869,354) (4,977,034) (4,475,724)
Amortization and other, net (16,908) (149,777) 228,905
Net cash provided by --------- --------- ---------
operating activities 4,647,409 2,442,119 2,119,896
Investing Activities
Cash paid for acquisition of subsidiary,
net of dividend received -- (3,914,229) --
--------- --------- ---------
Net cash used by investing activities -- (3,914,229) --
Financing Activities
Proceeds from notes payable 6,200,000 2,700,000 --
Repayments of notes payable (8,712,500) (623,208) --
Issuance of common stock 299,352 386,116 142,419
Cash dividends paid (2,012,530) (1,632,551) (1,208,305)
Net cash provided (used) --------- --------- ---------
by financing activities (4,225,678) 830,357 (1,065,886)
Net Increase (Decrease) in Cash 421,731 (641,753) 1,054,010
and Cash Equivalents
Cash and Cash Equivalents at
Beginning of Year 534,635 1,176,388 122,378
--------- --------- ---------
Cash and Cash Equivalents at End of Year $956,366 $534,635 $1,176,388
========= ========= =========
Supplemental Disclosures
Cash paid for interest expense $716,428 $550,643 $0
Cash received for income taxes (364,611) (338,418) (351,007)
Noncash Investing and Financing Activities
Dividends reinvested 439,438 347,415 270,660
Notes payable issued in
acquisition of subsidiary -- 10,025,000 --
Common stock issued in
acquisition of subsidiary -- 18,257,866 --
54
15. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
In December, 1991, Financial Accounting Standard (FAS) No. 107, "Disclosures
about Fair Value of Financial Instruments" was issued. This standard requires
that the Company disclose the fair value of financial instruments for both on
and off-balance sheet assets and liabilities for which it is practicable to
estimate that value. Where readily available, quoted market prices were util-
ized by the Company. If quoted market prices were not available, fair values
were based on estimates using present value and other valuation techniques.
These techniques were significantly affected by the assumptions used, including
the discount rate and estimates of future cash flows. The calculated fair value
estimates, therefore, cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. FAS 107 excludes certain financial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts presented are not
intended to represent the underlying value of the Company.
The following methods and assumptions were used in estimating the fair value for
financial instruments.
CASH, DUE FROM BANKS, ACCRUED INTEREST RECEIVABLE, FEDERAL FUNDS SOLD, FEDERAL
FUNDS PURCHASED AND ACCRUED INTEREST PAYABLE
The carrying amount reported for cash, due from banks, accrued interest receiv-
able, Federal funds sold, Federal funds purchased and accrued interest payable
approximates the fair value for those assets and liabilities.
DEBT SECURITIES
For both securities held for sale and investment, fair values are based on
quoted market prices or dealer quotes, if available. If a quoted market price
is not avialable, fair value is estimated using quoted prices for similar
securities.
LOANS RECEIVABLE
Loan balances were assigned fair values based on a discounted cash flow
analysis. The discount rate was based on the treasury yield curve, with rate
adjustments for credit risk, liquidity, sevicing costs and the prepayment
uncertainty.
DEPOSIT LIABILITIES AND REPURCHASE AGREEMENTS
The fair value for demand deposits, any interest bearing deposit with no fixed
maturity date or short-term repurchase agreement liabilities was considered to
be equal to the amount payable on demand or maturity date at the reporting date.
Time deposits and repurchase agreement liabilities other than short-term, were
assigned fair values based on a discounted cash flow analysis using discount
rates which approximate interest rates currently being offered on liabilities
with comparable maturities.
NOTES PAYABLE
Long-term debt was fair valued using discounted cash flow analysis with a
discount rate based on current incremental borrowing rates for similar types of
arrangements.
55
UNRECOGNIZED FINANCIAL INSTRUMENTS
No fair value of loan commitments is presented since the Company does not
generally collect fees for loan commitments. The fair value of guarantees and
letters of credit is based on equivalent fees that would be charged for similar
agreements and is less than $10,000 for 1993 and 1992.
The book values and estimated fair values for financial instruments as of
December 31, 1993 and 1992 are reflected below.
Financial Instruments
December 31, 1993 Book value Fair value
_______________________________________________________________________________
(in thousands)
Financial Assets
Cash and due from banks $27,272 $27,272
Federal funds sold 2,100 2,100
Securities held for sale 42,934 42,934
Investment securities 182,279 190,214
Loans, net 548,173 558,309
Accrued interest receivable 6,526 6,526
Financial Liabilities
Deposits 712,158 716,846
Repurchase agreements 19,705 19,705
Federal funds purchased 12,600 12,600
Notes payable 9,589 9,613
Accrued interest payable 3,447 3,447
Financial Instruments
December 31, 1992 Book value Fair value
_______________________________________________________________________________
(in thousands)
Financial Assets
Cash and due from banks $24,713 $24,713
Federal funds sold 13,750 13,750
Securities held for sale 41,859 41,957
Investment securities 211,624 217,747
Loans, net 474,873 482,056
Accrued interest receivable 7,309 7,309
Financial Liabilities
Deposits 694,653 700,530
Repurchase agreements 19,534 19,534
Notes payable 12,117 12,170
Accrued interest payable 3,833 3,833
56
IMPACT OF INFLATION AND CHANGING PRICES
Inflation has a minor effect on banking concerns since most of the assets and
liabilities are monetary in nature. Monetary assets are those which can be
readily converted into a fixed number of dollars. Management believes that the
effect of inflation on nonmonetary assets such as bank premises and equipment is
not material to the Company as a whole.
QUARTERLY FINANCIAL INFORMATION (unaudited)
(in thousands, except per share data)
First Second Third Fourth
1993 quarter quarter quarter quarter
_______________________________________________________________________________
Net interest income $7,583 $8,109 $8,443 $8,158
Provision for loan losses 636 621 488 362
Net income 2,149 2,401 2,506 2,478
Net income per share $0.34 $0.38 $0.39 $0.38
Cash dividend per share 0.095 0.095 0.105 0.105
Return on average equity 12.37% 13.32% 13.37% 12.85%
Net interest margin 4.42 4.58 4.60 4.42
Net charge-offs / loans 0.05 0.00 0.11 0.10
Bookvalue per share $11.68 $11.98 $12.29 $12.63
Common stock trading range
End of period 16.000 16.625 20.000 25.500
High 16.500 16.875 20.000 25.500
Low 16.000 16.000 16.625 19.250
QUARTERLY FINANCIAL INFORMATION (unaudited)
(in thousands, except per share data)
First Second Third Fourth
1992 quarter quarter quarter quarter
_______________________________________________________________________________
Net interest income $5,460 $6,655 $7,406 $7,692
Provision for loan losses 579 820 624 750
Net income 1,577 1,725 2,345 1,922
Net income per share $0.32 $0.29 $0.38 $0.31
Cash dividend per share 0.085 0.085 0.095 0.095
Return on average equity 13.90% 12.33% 13.93% 11.11%
Net interest margin 4.68 4.34 4.28 4.41
Net charge-offs / loans 0.56 1.24 0.32 0.25
Bookvalue per share $9.58 $10.88 $11.17 $11.41
Common stock trading range
End of period 15.125 17.250 16.125 16.250
High 15.125 17.375 17.250 16.500
Low 11.875 15.375 15.750 15.625
57
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE - None
PART III
Item 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
Information with respect to all directors and all persons nominated to become
directors of the registrant appearing in the table and footnotes on pages 3
through 6 and the first narrative paragraph on page 8 of Peoples First
Corporation's definitive proxy statement, filed with the Securities and Exchange
Commission on March 10, 1994, is incorporated herein by reference.
The following table provides information as of December 31, 1993, with respect
to the executive officers of the registrant:
Shares of
common stock
Executive Officers Officer beneficially
Name and age Principal positions since owned
_______________________________________________________________________________
Aubrey W. Lippert, Chairman of the Board, 1983 159,642(1)
age 53 President and Chief
Executive of the registrant;
Chairman of the Board and
Chief Executive Officer,
Peoples Bank
Steve Kight, Vice President of the regis- 1983 88,894(2)
age 42 trant; Director of Peoples
Bank; formerly President and
Chief Operating Officer of
Peoples Bank
Allan B. Kleet, Chief Financial Officer and 1986 49,310(3)
age 45 Treasurer of the registrant
George Shaw, Director, President and Chief 1993 200(4)
age 48 Operating Officer of Peoples
Bank; formerly President and
Chief Executive Officer of
Bowling Green Bank & Trust
Company (1982-05/93)
Charles S. Foster, President and Chief Executive 1993 5,392(5)
age 42 Officer of Bank of Murray;
formerly Vice President and
Trust Officer, Bank of Murray
(1985-1992)
58
(1) Represents 2.5% of the class of stock. Includes 84,900 shares subject to
currently exercisable stock options and 19,120 shares held in Mr. Lippert's
ESOP account for which he has voting but no dispositive power.
(2) Represents 1.4% of the class of stock. Includes 15,248 shares held jointly
by Mr. Kight and his wife, 68,000 shares subject to currently exercisable
stock options and 5,646 shares held in Mr. Kight's ESOP account for which
he has voting but no dispositive power.
(3) Represents less than 1.0% of the class of stock. Includes 40,840 shares
subject to currently exercisable stock options and 2,480 shares held in Mr.
Kleet's ESOP account for which he has voting but no dispositive power.
(4) Represents less than 1.0% of the class of stock.
(5) Represents less than 1.0% of the class of stock. Includes 1,200 shares
subject to currently exercisable stock options and 68 shares held in Mr.
Foster's ESOP account for which he has voting but no dispositive power.
Item 11. EXECUTIVE COMPENSATION
The information concerning compensation appearing on pages 8 through 12 of
Peoples First Corporation's definitive proxy statement, filed with the
Securities and Exchange Commission on March XXX, 1994, is incorporated herein
by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to any person who is known to the registrant to be the
beneficial owner of more than five percent of any class of the registrant's
voting securities appearing in the tables and footnotes on page 2 and pages 3
through 6 of Peoples First Corporation's definitive proxy statement, filed with
the Securities and Exchange Commission on March XXX, 1994, is incorporated
herein by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the second narrative paragraph on page 8 of Peoples First
Corporation's definitive proxy statement, filed with the Securities and Exchange
Commission on March XXX, 1994, is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements - Incorporated herein by reference, and
listed in Item 8 hereof.
(2) Financial Statement Schedules - None
59
(3) List of Exhibits Filed with original:
(3.1) Amended and Restated Articles of Incorporation of Peoples
First Corporation are incorporated herein by reference
to Exhibit 3.1 to the registrant's Form 10-K for the year
ended December 31, 1992.
(3.2) Bylaws and Amendments of Peoples First Corporation are
incorporated herein by reference to Exhibit 3(b) to the
Registrant's Form 10-K for the year ended December 31, 1992.
(4) May, 1992 indenture, from Peoples First Corporation to The
Paducah Bank & Trust Company, relating to the 7.25% Subord-
inated Short-Term Notes due 1994, is incorporated herein
by reference to Exhibit 4.1 of Form S-4, registration No.
33-44235 as filed with the Securities and Exchange Commission
on January 8, 1992.
(10.1)Peoples First Corporation 1986 Stock Option Plan is
incorporated herein by reference to Exhibit 28 to
Registration No. 33-28304 filed with the Securities and
Exchange Commission on April 24, 1989.
(10.2)Employment agreement between Salem Bank, Inc. and Neal
H. Ramage is herein incorporated by reference to Exhibit
10.1 of Form S-4, registration #33-29061 as filed with
the Securities and Exchange Commission on June 1, 1989.
(10.3)Consulting agreement between Bank of Murray and Mr. Joe
Dick is herein incorporated by reference to Exhibit 10.1
of Form S-4, registration #33-44235 as filed with the
Securities and Exchange Commission on January 8, 1992.
(13) Registrant's Annual Report to Shareholders for the year
ended December 31, 1993.
(21) Subsidiaries of Registrant.
(22) Undertakings.
(23) Consent of KPMG Peat Marwick, independent public
accountants.
(b) Reports on Form 8-K
Registrant did not file any current reports on Form 8-K during the
last quarter of the period covered by this report.
60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PEOPLES FIRST CORPORATION
Date: 03/22/94 /s/ Aubrey W. Lippert
Aubrey W. Lippert
President and Chairman
of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant, in
the capacities and on the dated indicated.
Signature Title Date
_____________________ ______________________ ________
/s/ Aubrey W. Lippert President and Chairman 03/22/94
Aubrey W. Lippert of the Board
/s/ Allan B. Kleet Chief Financial Officer 03/22/94
Allan B. Kleet
/s/ William R. Dibert Director 03/22/94
William R. Dibert
/s/ Richard E. Fairhurst, Jr. Director 03/22/94
Richard E. Fairhurst, Jr.
/s/ Jerry L. Page Director 03/22/94
Jerry L. Page
61
Signature Title Date
_____________________ ______________________ ________
/s/ Rufus E. Pugh Director 03/22/94
Rufus E. Pugh
/s/ Mary Warren Sanders Director 03/22/94
Mary Warren Sanders
/s/ Victor F. Speck, Jr. Director 03/22/94
Victor F. Speck, Jr.
62
INDEX TO EXHIBITS Page
_______________________________________________________________________________
(21) Subsidiaries of Registrant 64
(22) Undertakings 65
(23) Consent of KPMG Peat Marwick, independent public accountants 67
63
EXHIBIT 21 - SUBSIDIARIES OF REGISTRANT
_______________________________________________________________________________
Peoples First National Bank & Trust Company
Fourth and Kentucky Avenue
Paducah, Kentucky 42002-2200 Wholly owned
First Liberty Bank
Rolling Hills Plaza
Route 6
Calvert City, Kentucky 42029 Wholly owned
First National Bank of LaCenter
301 Broadway
LaCenter, Kentucky 42056 Wholly owned
Salem Bank, Inc.
Main Street
P. O. Box 108
Salem, Kentucky 42078 Wholly owned
Bank of Murray
101 South Fourth Street
Murray, Kentucky 42071 Wholly owned
64
EXHIBIT 22 - UNDERTAKINGS
_______________________________________________________________________________
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represents a
fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, 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.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the Registrant's Annual Report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement
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.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, 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 indemni-
fication is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemni-
fication against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
65
EXHIBIT 22 - UNDERTAKINGS, CONTINUED
_______________________________________________________________________________
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 regis-
tered, 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.
66
EXHIBIT 23 - CONSENT OF KPMG PEAT MARWICK, INDEPENDENT AUDITORS
_______________________________________________________________________________
The Board of Directors
Peoples First Corporation:
We consent to incorporation by reference in the Registration Statements No.
33-28301 on Form S-3 and No. 33-28304 on Form S-8 of Peoples First Corporation
of our report dated January 26, 1994, relating to the consolidated balance
sheets of Peoples First Corporation and Subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of income, changes in stock-
holders' equity, and cash flows for each of the years in the three-year period
ended December 31, 1993, which reports appears in the December 31, 1993 annual
report on Form 10-K of Peoples First Corporation.
/s/ KPMG Peat Marwick
St. Louis, Missouri
March 18, 1994
67
