_______________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
Amendment No. 1
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, For the Quarter Ended March 31, 1994
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File 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
P. O. Box 2200
Paducah, Kentucky 42002-2200
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 441-1200
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing require-
ments for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the Registrant's only class of stock as of
March 31, 1994: Common stock, no par value - 7,103,546 shares outstanding.
______________________________________________________________________________1
INDEX Page
_______________________________________________________________________________
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1994,
March 31, 1993 and December 31, 1993 3
Consolidated Statements of Income - Three Months
Ended March 31, 1994 and 1993 4
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1994 and 1993 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 20
Signatures 21
2
March 31, March 31, December 31,
CONSOLIDATED BALANCE SHEETS 1994 1993 1993
_______________________________________________________________________________
(in thousands)
ASSETS
Cash and due from banks $28,804 $30,152 $34,655
Federal funds sold 2,100 12,100 2,100
Securities held for sale 78,013 42,617 67,431
Investment securities 225,233 290,970 246,096
Loans 656,773 565,553 636,225
Allowance for loan losses (10,290) (8,675) (9,818)
--------- --------- ---------
Loans, net 646,483 556,878 626,407
Excess of cost over net assets
of purchased subsidiaries 10,700 11,530 10,908
Premises and equipment 13,762 13,960 13,999
Other assets 13,476 12,591 13,300
--------- --------- ---------
$1,018,571 $970,798 $1,014,896
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand deposits $70,175 $62,170 $73,029
Interest-bearing transaction accounts 210,748 203,599 209,707
Savings deposits 96,356 94,467 93,133
Time deposits 497,342 486,707 497,664
--------- --------- ---------
874,621 846,943 873,533
Repurchase agreements 22,956 20,787 19,705
Federal funds purchased 11,800 0 12,600
Notes payable 8,680 11,754 9,747
Other liabilities 7,566 7,569 6,843
--------- --------- ---------
Total liabilities 925,623 887,053 922,428
Stockholders' Equity
Common stock 5,549 5,508 5,539
Surplus 31,107 29,840 30,851
Retained earnings 56,779 48,600 54,990
Unrealized appreciation of securities
held for sale, net of deferred tax (329) -- 1,246
Debt on ESOP shares (158) (203) (158)
--------- --------- ---------
92,948 83,745 92,468
--------- --------- ---------
$1,018,571 $970,798 $1,014,896
========= ========= =========
Fair value of securities held for sale $78,013 $43,191 $67,431
Fair value of investment securities 229,234 301,987 255,606
Common shares issued and outstanding 7,104 7,049 7,090
See accompanying notes to consolidated financial statements. 3
Three Months Ended
March 31,
CONSOLIDATED STATEMENTS OF INCOME 1994 1993
_______________________________________________________________________________
(in thousands, except per share)
INTEREST INCOME
Interest on Federal funds sold $85 $116
Taxable interest on securities 3,645 4,448
Nontaxable interest on securities 983 940
Interest and fees on loans 12,899 12,222
------ ------
17,612 17,726
INTEREST EXPENSE
Interest on deposits 7,380 8,289
Interest on repurchase agreements 170 158
Other interest expense 297 234
------ ------
7,847 8,681
------ ------
Net Interest Income 9,765 9,045
Provision for Loan Losses 489 714
------ ------
Net Interest Income after
Provision for Loan Losses 9,276 8,331
Noninterest Income 1,471 1,360
Noninterest Expense 7,029 6,115
------ ------
Income Before Income Tax Expense 3,718 3,576
Income Tax Expense 1,151 984
------ ------
NET INCOME $2,567 $2,592
====== ======
Net Income per Common Share
and Common Share Equivalent $0.35 $0.36
Cash Dividend per Common Share 0.105 0.095
See accompanying notes to consolidated financial statements. 4
Three Months Ended
March 31,
CONSOLIDATED STATEMENTS OF CASH FLOWS 1994 1993
_______________________________________________________________________________
(in thousands)
OPERATING ACTIVITIES
Net income $2,567 $2,592
Net income from change in fiscal year
of pooled company prior to merger 335 437
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 535 504
Net (discount accretion) premium
amortization 379 615
Provision for loan losses 489 714
Net (increase) decrease in loans
held for sale (520) 786
Provision for deferred income taxes (355) (322)
Other, net 1,693 2,370
------ ------
Net Cash Provided by Operating Activities 5,123 7,696
INVESTING ACTIVITIES
Net decrease in Federal funds sold 0 1,650
Proceeds from sales of securities
held for sale 0 2,536
Proceeds from maturities of securities
held for sale 5,400 1,000
Proceeds from maturities of investment
securities 8,448 20,655
Principal collected on mortgage-backed
securities held for sale 4,492 1,155
Principal collected on mortgage-backed
investment securities 8,830 8,541
Purchase of securities held for sale (18,015) (2,732)
Purchase of investment securities (1,597) (33,080)
Net increase in loans (20,045) (1,818)
Purchases of premises and equipment (73) (239)
------ ------
Net Cash (Used) Provided by Investing Activities (12,560) (2,332)
See accompanying notes to consolidated financial statements. 5
Three Months Ended
March 31,
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED 1994 1993
_______________________________________________________________________________
(in thousands)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 1,087 (13,134)
Net increase in repurchase agreements 3,251 1,253
Net decrease in Federal funds purchased (800) 0
Repayments of notes payable (1,067) (566)
Proceeds from issuance of common stock 118 40
Cash dividends paid (1,003) (757)
------ ------
Net Cash Provided (Used) by Financing Activities 1,586 (13,164)
------ ------
Cash and Cash Equivalents
Decrease (5,851) (7,800)
Beginning of Year 34,655 37,952
------ ------
End of Period $28,804 $30,152
====== ======
SUPPLEMENTAL DISCLOSURES
Cash paid for interest expense $7,882 $8,825
Cash paid for income tax 86 253
NONCASH INVESTING AND FINANCING TRANSACTIONS
Other real estate transferred to (from) loans, net 144 (52)
Dividends reinvested 114 103
See accompanying notes to consolidated financial statements. 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______________________________________________________________________________
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the period ended March 31, 1994 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1994. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended December 31, 1993.
NOTE B - 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.
Securities held for sale are stated at fair value for March 31, 1994 and
December 31, 1993, and are stated at the lower of amortized cost or market for
March 31, 1993. 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.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
_______________________________________________________________________________
NOTE C - LOAN REVENUES
Interest on commercial and real estate mortgage loans is accrued and credited
to income based upon the principal amount outstanding. Interest on certain
consumer installments loans is credited to income using a method which approxi-
mates the level-yield method.
When in the opinion of management the collection of interest on a loan is
unlikely or when either principal or interest is past due 90 days, the loan is
generally placed on nonaccrual status and interest income is not recognized
unless received in cash. When a loan is placed on nonaccrual status, accrued
interest for the current period is reversed and charged against current 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 nonacccrual
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.
NOTE D - ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level determined by management
to be adequate to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, past loan loss experience, current domestic economic conditions,
volume, growth and composition of the loan portfolio and other relevant factors.
The allowance is increased by provisions for loan losses charged to expense and
is reduced by loan chargeoffs, net of recoveries.
NOTE E - 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 the
three months ended March 31, 1994 and 1993, were 7,363,398 and 7,140,455, re-
spectively. Common stock equivalents have no material dilutive effect.
NOTE F - CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all cash and due from banks to be cash equivalents.
NOTE G - BUSINESS COMBINATIONS
On March 10, 1994, the Company consummated the acquisition of First Kentucky
Bancorp, Inc. (First Kentucky) and First Kentucky Federal Savings Bank, a
wholly-owned subsidiary of First Kentucky. First Kentucky's six locations are
immediately east of the market area served by the Company's other subsidiary
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
_______________________________________________________________________________
banks, and at March 31, 1994, had total assets of approximately $175.3 million.
The acquisition has been accounted for as a pooling of interest, and accord-
ingly, the accompanying consolidated financial statements have been restated.
A total of 929,794 shares of the Company's common stock was issued in this
business combination. The following table shows the results of operations of
the previously separate enterprises for the period from January 1, 1994 through
March 10, 1994 and for the three months ended March 31, 1993, the periods before
the combination:
Peoples Pooled
Results of Operations First affiliate Combined
_______________________________________________________________________________
(in thousands)
1994 Total revenue $12,357 $2,273 $14,630
Net income 1,758 210 1,968
1993 Total revenue 15,752 3,334 19,086
Net income 2,149 443 2,592
Merger expenses of approximately $235,000 related to pooling of interest acquis-
itions were charged to expense during 1994. The after-tax impact of these
expenses on earning per common share and common share equivalent was $0.03.
On February 24, 1994, the Company entered into an affiliation agreement with
Libsab Bancorp, Inc. (Libsab), the bank holding company for Liberty Bank &
Trust Company of Mayfield, Kentucky. The agreement was subsequently amended on
April 15, 1994. The agreement, as amended, is subject to the approval of
Libsab shareholders and regulators. The Company will issue 1,078,000 shares
of the Company's stock for all the outstanding stock of Libsab. Liberty Bank
& Trust Company is a commercial bank with total assets of approximately $140.9
million at December 31, 1993 that is well established in western Kentucky with
its principal office in Mayfield, Kentucky. The business combination will be
accounted for as a pooling of interest. Consummation of the transaction is
expected to occur in the third quarter of 1994.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
_______________________________________________________________________________
Headquartered in Paducah, Kentucky, Peoples First Corporation (Company) is a
bank holding company. Through 23 banking offices, the Company serves primarily
the western Kentucky and contiguous interstate area. The purpose of this dis-
cussion and analysis is to provide financial statement readers with information
relevant to understanding and assessing the financial condition and results of
operations of Peoples First Corporation (Company). The following table provides
certain information regarding the Company's six banking subsidiaries as of
March 31, 1994 (in thousands):
Year
Subsidiary acquired Assets Loans Deposits
_______________________________________________________________________________
Peoples First National Bank 1983 $484,019 $374,866 $398,235
Bank of Murray 1992 255,447 146,081 217,921
First Kentucky FSB 1994 175,318 77,758 160,175
Salem Bank, Inc. 1989 41,919 16,681 37,773
First Nat'l Bank of LaCenter 1987 36,621 20,948 31,870
First Liberty Bank 1985 35,081 20,437 31,770
The above amounts do not total to consolidated amounts due to eliminating
entries and parent company amounts.
EARNING ASSETS
Average earning assets of the Company for the first three months of 1994
increased 5.5%, or $49.8 million to $961.4 million from $911.6 million for the
first three months of 1993. This compares to internal average earning asset
growth of 2.6% for the first quarter of 1993 over the first quarter of 1992.
Aggressive pricing and other marketing efforts stimulated strong loan demand in
1994. A consistently favorable ratio of average earning assets to average total
assets has been achieved. The ratio was 94.4% and 94.0% for the first three
months of 1994 and 1993, respectively.
Loans are the Company's primary earning asset. Loan demand has been strong.
Loans, net of unearned income, increased $20.5 million during the three-month
period since December 31, 1993, compared to a $1.0 million increase for the same
period in the previous year. Internal average loan growth for the first quarter
of 1994 was 14.0% from the first quarter of 1993, up from a 4.5% increase in
average loans for the first quarter of 1993 from the first quarter of 1992.
Prior to 1993, loans had been a decreasing portion of earning assets. Average
loans for the first three months of 1994 were 66.9% of total average earning
assets, compared to 61.8% during the first three months of 1993. Management
attributes the current reversal of the declining loan composition trend to their
focus on improving the earning asset composition of all the banks, especially
Murray, strong loan demand and a slowed growth of total deposits.
10
The Company primarily directs lending activities to its regional market from
which deposits are drawn. Management has focused on retail lending and the
growth of residential real estate mortgage loans over the last two years.
March 31, March 31, December 31,
Types of Loans 1994 1993 1993
_______________________________________________________________________________
(in thousands)
Commercial, financial
and agricultural $112,299 $109,975 $111,187
Real estate
Construction 10,168 6,715 10,887
Residential mortgage 250,119 218,433 244,558
Commercial mortgage 112,930 96,447 112,400
Installment loans to
individuals 172,353 136,545 159,611
Consumer revolving credit 4,592 3,197 3,922
Loans held for sale 1,024 455 504
Other 2,004 2,582 2,161
------- ------- -------
665,489 574,349 645,230
Unearned income (8,716) (8,796) (9,005)
------- ------- -------
$656,773 $565,553 $636,225
======= ======= =======
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 $10.3 million during the first three months
of 1994 and increased $1.3 million during the first three months of 1993. 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 the first three months of
1994 increased 3.2%, or $28.0 million to $892.8 million from $864.8 million for
1993. Compared to respective previous year periods, internal funding from local
area deposits increased 1.0% during the first three months of 1994, and 1.1% for
the first three months of 1993.
Highly competitive markets for deposits exist and sustained lower interest
rates do not benefit internal funding growth rates. 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 and $0.0 million at March 31, 1994 and 1993, respectively.
Federal funds purchased, net of funds sold, were $21.8 million higher at
March 31, 1994 than at March 31, 1993.
11
NONPERFORMING ASSETS AND RISK ELEMENTS
The level of nonperforming assets at March 31, 1994 remains relatively low,
improving slightly since December 31, 1993. Diversification within the loan
portfolio is an important means of reducing inherent lending risks. At March
31, 1994, 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.
March 31, March 31, December 31,
Nonperforming Assets 1994 1993 1993
_______________________________________________________________________________
(in thousands)
Nonaccrual loans $696 $3,579 $661
Other real estate owned 2,134 1,887 2,258
Renegotiated loans 2,971 1,248 3,362
----- ----- -----
$5,801 $6,714 $6,281
===== ===== =====
Nonperforming assets as a percent of
total loans and other real estate 0.88% 1.18% 0.98%
Loans past due ninety days and still
accruing interest $379 $477 $672
Allowance for loan losses coverage
of nonperforming assets 177% 129% 156%
The Company discontinues the accrual of interest on loans which become ninety
days past due as to principal or interest, or when in the opinion of management
the collection of interest is unlikely, 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 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 March 31, 1994, loans with a
total principal balance of $19.8 million have been identified that may become
nonperforming in the future, compared to $16.5 million at December 31, 1993 and
$15.3 million that had been identified at March 31, 1993. Performance of
12
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 March 31, 1994 were 0.88% of total loans and other real
estate, down from 0.98% at December 31, 1993. A small number of loans and one
tract of undeveloped land in Nashville, Tennessee, represent most of the
nonperforming balance for the last two years.
CAPITAL RESOURCES AND DIVIDENDS
Stockholders' equity was 9.1% of assets at March 31, 1994, the same as at
December 31, 1993, and an increase of 0.5% from March 31, 1993. Stockholders'
equity increased $0.5 million, or 2.1% (annualized), during the first three
months of 1994 due to a 70.0% earnings retention rate, the sale of common stock
through shareholder and employee plans ($271,671) and offset by $1,575,021 of
unrealized depreciation of securities held for sale, net of deferred income tax.
This compares to an increase of $2.3 million during the same 1993 period when
the earnings retention rate was 73.6%, proceeds from the sale of common stock
through shareholder and employee plans was $143,008 and securities held for
sale were not accounted for at fair value through equity.
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 March 31, 1994, approximately
$11.7 million, compared to $12.7 million at March 31, 1993, 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. At March 31, 1994 and December 31, 1993, the Company and the
subsidiary banks' capital ratios were as follows:
<TABLE>
<CAPTION>
Total Tier I Leverage Ratio
Mar 31, Dec 31, Mar 31, Dec 31, Mar 31, Dec 31,
Risk-Based Capital 1994 1993 1994 1993 1994 1993
_________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Company 14.02% 13.93% 12.77% 12.69% 8.20% 8.07%
Peoples First National Bank 12.83 13.13 11.58 11.88 9.09 9.24
Bank of Murray 16.61 16.54 15.36 15.29 9.29 9.17
First Kentucky FSB 20.93 19.99 19.75 18.86 7.51 7.35
Salem Bank, Inc. 23.73 23.91 22.48 22.66 9.55 9.71
First Nat'l Bank of LaCenter 16.47 16.74 15.22 15.49 8.53 8.81
First Liberty Bank 14.67 15.13 13.42 13.88 7.59 7.62
</TABLE>
13
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.
RESULTS OF OPERATIONS
Although net interest income and the provision for loan losses improved, earn-
ings decreased for the first three months of 1994 over the same 1993 period.
The decrease is attributable to costs involved with two acquisitions in progress
and costs associated with expanding customer volumes during the first quarter of
1994. Net income per common share and common share equivalent for the first
quarter of 1994 was $0.35, down from $0.36 for the first quarter of 1993.
Return on average stockholders' equity for the three months ended March 31, 1994
and 1993 was 11.23% and 12.74%, respectively. Return on average assets for the
three months ended March 31, 1994 and 1993 was 1.02% and 1.08%, respectively.
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 three months ended March 31, 1994, net interest income (TE) increased 7.7%,
or $732,000 to $10,262,000 as compared to $9,530,000 for the three months ended
March 31, 1993. A small amount of the 1994 increase is attributable to
increased margin, mostly due to a better net interest spread on securities.
Most of 1994's increase is attributable to growth of average earning assets.
Compared to 1994, net interest spreads on loans in 1993 were more favorably
affected by falling interest rates which reduced liability costs to a greater
extent than earning assets due to rate-reduction limits on repricable loans.
Average earning asset growth accounted for all of the increased net interest
income for the three months ended March 31, 1993 over the three months ended
March 31, 1992.
Net interest income on a tax-equivalent basis as a percent of average earning
assets was 4.33% and 4.24% for the three months ended March 31, 1994 and 1993,
respectively. Aggressive pricing of loans during the past year has stimulated
demand and retarded margins. Margins in 1993, and in 1994 to a lesser extent,
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.
Generally, the subsidiary banks maintain a 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 good margins each period.
14
Net Interest Income Analysis Average Average
Three months ended March 31, 1994 volume Interest rate
_______________________________________________________________________________
(in thousands)
Loans $642,834 $12,919 8.15%
Securities 307,892 5,105 6.72
Other interest earning assets 10,670 85 3.23
------- ------
961,396 18,109 7.64
Time deposits 497,833 5,281 4.30
All other interest bearing deposits 301,272 2,099 2.83
Other interest bearing liabilities 47,412 467 3.99
------- ------
$846,517 7,847 3.76
======= ------ ----
Net interest income (TE) spread $10,262 3.88%
====== ====
Net interest income (TE) as a percent 4.33%
of average interest-earning assets ====
Net Interest Income Analysis Average Average
Three months ended March 31, 1993 volume Interest rate
_______________________________________________________________________________
(in thousands)
Loans $563,830 $12,248 8.81%
Securities 332,926 5,848 7.12
Other interest earning assets 14,864 116 3.16
------- ------
911,620 18,212 8.10
Time deposits 493,211 5,975 4.91
All other interest bearing deposits 289,039 2,314 3.25
Other interest bearing liabilities 34,289 392 4.64
------- ------
$816,539 8,681 4.31
======= ------ ----
Net interest income (TE) spread $9,531 3.79%
====== ====
Net interest income (TE) as a percent 4.24%
of average interest-earning assets ====
15
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 $488,882 for the three months ended March 31, 1994, a decrease of $224,711 or
31.5% when compared to $713,593 for the three months ended March 31, 1993. The
decline in the 1994 provision for loan losses was influenced by a significant
decline in net charge-offs from previous years and a modest decline in nonper-
forming assets. The annualized provision for loan losses as a percentage of
average loans was 0.31% for the three months ended March 31, 1994, down from
0.38% and 0.59% for the years ended December 31, 1993 and 1992, respectively.
Levels of providing for loan losses reflect, among other things, management's
evaluation of potential problem loans.
Net chargeoffs as a percentage of average loans were 0.01% and 0.04% for the
three months ended March 31, 1994 and 1993, respectively, periods of unusally
low net chargeoffs. Net chargeoffs as a percent of average loans were 0.34% for
the five-year period ended December 31, 1993. The allowance for loan losses was
1.57% of outstanding loans at March 31, 1994, which approximates the average
during the last five years. The March 31, 1994 allowance is 177% compared to
156% at December 31, 1993, 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.
Three Months Ended
March 31,
Allowance for Loan Losses 1994 1993
_______________________________________________________________________________
(in thousands)
Balance at beginning of period $9,818 $8,016
Provision charged to expense 489 714
Loans charged off (129) (199)
Recoveries of chargeoffs 112 144
----- -----
Net loans charged off (17) (55)
----- -----
Balance at end of period $10,290 $8,675
====== ======
Annualized provision for loan losses
as a percent of average loans 0.31% 0.51%
Annualized net chargeoffs as
a percent of average loans 0.01 0.04
Allowance for loan losses to
period end loans 1.57 1.53
16
NONINTEREST INCOME
Noninterest income amounted to $1,471,124 for the three months ended March 31,
1994, a 8.2% increase from $1,359,827 for the three months ended March 31, 1993.
Most areas reflected good increases. Service charges on deposit accounts, the
largest component of noninterest income, increased 13.1% during the first
quarter of 1994 over the first quarter of 1993. 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.
Trust fees for the three months ended March 31, 1994 increased 8.1% from the
same 1993 period. Total assets under management by the trust department have
increased, generating better levels of fee income. The increase in insurance
commissions for 1994 over 1993 is attributable to greater opportunities
resulting from the significant increase in consumer loans as well as better
penetration of this product to consumer loan customers. Fee income from
secondary-market mortgage loan services during 1994 is anticipated to be lower
than 1993 due to the unusually large amount of home refinancing in 1993. The
relative improvement in fee income is approximately the same as the growth in
net interest income. Noninterest income excluding securities gains was 13.1% of
total net interest income plus noninterest income for the three months ended
March 31, 1994, compared to 13.0% for the three months ended March 31, 1993.
Three Months Ended
March 31,
Noninterest Income 1994 1993
_______________________________________________________________________________
(in thousands)
Services charges on deposits $804 $711
Net securities gains 0 8
Trust fees 293 271
Insurance commissions 80 56
Other income 294 314
----- -----
$1,471 $1,360
===== =====
NONINTEREST EXPENSE
The ratio of noninterest expense as a percent of average assets was 2.80% for
the three months ended March 31, 1994, compared to 2.56% for the three months
ended March 31, 1993. During the first quarter of 1994, management changed its
plans regarding the approach to productivity gains. Management shifted its
focus from controlling the rate of increase of noninterest expense to gain more
employee productivity, to increasing revenue volumes to gain operational ratio
efficiencies.
Accordingly, the ratio of personnel expense has increased as a percentage of
average total assets and was 1.27% for the three months ended March 31, 1994,
compared to 1.19% for the three months ended March 31, 1993. Double-digit
percentage increases in occupancy expense and equipment expense were the result
of management's current focus on increasing revenue volumes. The Company has
17
made investments in facilities and equipment as technolgy has advanced and the
need to leverage personnel costs has intensified.
The Company's bank subsidiaries are required to pay deposit insurance assess-
ments to the FDIC, to maintain significant noninterest-bearing balances with the
Federal Reserve, and to pay fees to regulatory agencies for periodic examina-
tions by the agencies. The 2.1% increase in assessments for deposit insurance
for the three months ended March 31, 1994 from the same 1993 period, is attri-
butable to increased deposit levels. Beginning in 1993, the assessments were
based not only on deposits but also on the risk characteristics of the indivi-
dual financial institutions. All of the Company's subsidiaries received the
lowest deposit assessment rate from the FDIC.
Additional data processing expense was incurred in 1993 related to processing
changes. 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. During the first quarter of
1994, the Company was involved in two pooling-of-interests acquisitions.
Included in other noninterest expense for the three months ended March 31, 1994
was approximately $235,000 (equal to more than $0.03 per common share and common
share equivalent) of professional fees relating the merger completed in the
first quarter and one merger expected to be completed in the third quarter of
1994. Several components of other noninterest expense have increased primarily
as a result of costs associated with expanding customer volumes and marketing.
Three Months Ended
March 31,
Noninterest Expense 1994 1993
_______________________________________________________________________________
(in thousands)
Salaries $2,579 $2,362
Employee benefits 598 480
Occupancy expense 346 314
Equipment expense 337 296
FDIC insurance expense 487 477
Data processing expense 430 448
Bank share taxes 300 279
Goodwill amortization 207 207
Other expense 1,745 1,252
----- -----
$7,029 $6,115
===== =====
INCOME TAXES
The increase in income tax expense for the three months ended March 31, 1994, is
primarily attributable to nondeductible organizational costs associated with two
acquisitions, and to a lesser extent, to higher operating earnings. The
effective tax rate is increasing, and was 31.0% for the three months ended March
31, 1994, compared to 27.5% for the three months ended March 31, 1993. The
18
Company manages the effective tax rate to some degree, based upon changing tax
laws, particularly new alternative minimum tax provisions, the availability and
price of nontaxable investment securities and other portfolio considerations.
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 re-
tail deposit market through individual banks located in nine different counties
has been a stable 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 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 the past two years, due to strong loan
demand 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. 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. Management expects that a slightly greater amount
of assets will reprice than liabilities during the second and third quarter
period 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.
19
PART II
_______________________________________________________________________________
Item 6. Exhibits and Reports on Form 8-K
(a) Amended and Restated Articles of Incorporation of Peoples
First Corporation are furnished as exhibit 3.1.
Peoples First Corporation Amended and Restated 1986 Stock
Option Plan is furnished as exhibit 10.1.
(b) Peoples First Corporation filed a current report on Form 8-K on
March 24, 1994, reporting the March 10, 1994 consumation of the
acquisition of First Kentucky Bancorp, Inc., the parent company
of First Kentucky Federal Savings Bank and provided historical
and pro forma financial information.
20
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, therunto duly authorized.
PEOPLES FIRST CORPORATION
07/21/94 /s/ Aubrey W. Lippert
Aubrey W. Lippert
President and Chairman
of the Board
07/21/94 /s/ Allan B. Kleet
Allan B. Kleet
Principal Financial Officer
21
INDEX TO EXHIBITS
Page
_______________________________________________________________________________
(3.1) Amended and Restated Articles of Incorporation of
Peoples First Corporation 23
(10.1) Peoples First Corporation Amended and Restated 1986
Stock Option Plan is furnished as exhibit 10.1. 40
22
EXHIBIT 3.1 - ARTICLES OF INCORPORATION
_______________________________________________________________________________
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PEOPLES FIRST CORPORATION
1. Name. The Corporation's name shall be Peoples First
Corporation.
2. Duration. The Corporation's duration shall be perpetual.
3. Purposes. The Corporation's purposes shall be to become a bank
holding company and to transact any and all lawful business for which
corporations may be incorporated under the Kentucky Business Corporation
Act.
4. Authorized Capital Stock. The aggregate number of shares the
Corporation shall have authority to issue shall be 36,000,000 shares
divided into (a) 6,000,000 shares of preferred stock ("Pre- ferred
Stock") with such preferences, limitations and relative rights as may be
determined by the Board of Directors pursuant to Article 5 and which may
be divided into and issued in series; and (b) 30,000,000 shares of
common stock ("Common Stock").
5. Relative Rights and Preferences. The preferences,
limitations and relative rights in respect of the shares of Preferred
Stock and the shares of Common Stock shall be as follows:
(a) Preferred Stock. The Board of Directors may determine, in
whole or in part, the preferences, limitations, and relative rights of
the Preferred Stock, or one or more series of Preferred Stock, before
the issuance of any such shares, which preferences, limitations and
relative rights shall be specified in a subsequent amendment to these
Articles of Incorporation adopted by the Board of Directors and may
include, without limitation:
1. Special, conditional, or limited voting rights, or
no right to vote (except to the extentprohibited by
law);
2. That the shares be redeemable or convertible (i) at
the option of the Corporation, the shareholder or
another person or upon the occurrence of a
designated event; (ii) for cash, indebtedness,
securities, or other property; (iii) in a
designated amount or in an amount determined in
accordance with a designated formula or by
reference to extrinsic data or events;
23
3. Rights entitling the holders to distributions
calculated in any manner, including dividends
that may be cumulative, noncumulative, or
partially cumulative;
4. Preferences over any other class of shares
with respect to distributions, including dividends
and distributions upon the dissolution of the
corporation; and
5. Other preferences, limitations, or relative rights
not prohibited by law.
(b) Common Stock. Each outstanding share of Common Stock
shall be entitled to one vote on each matter submitted to a vote at
a meeting of shareholders. The Common Stock shall be subject to the
provisions of Article 4 and the provisions of any resolution or
resolutions validly adopted by the Board of Directors in exercise of
the authority expressly vested in the Board of Directors by this
Article 5.
6. No Pre-emptive Rights. No shareholder of the Corporation
shall have a pre-emptive right to acquire (a) unissued or treasury
shares of Common Stock or unissued or treasury shares of any other
class or series of the Corporation's securities, or (b) securities
convertible into shares of Common Stock or shares of any other class
or series of the Corporation's securities or carrying a right to
subscribe to or acquire shares of Common Stock or shares of any other
class or series of the Corporation's securities.
7. Purchases by the Corporation of its Own Shares. The
Corporation shall have the right to purchase its own shares, directly
or indirectly, to the extent of both its unreserved and unrestricted
earned surplus available therefor and its unreserved and unrestricted
capital therefor.
8. Certain Voting Requirements. (a) In addition to any other
requirements required by law or these Articles of Incorporation, except
as specified in (b) below, a vote of the holders of at least two-thirds
of the number of outstanding shares of each class of the Corporation's
capital stock shall be required to approve:
(i) The sale of all or substantially all of the
Corporation's assets;
(ii) The sale of all or substantially all of any
Subsidiary's assets;
(iii) The sale of all or part of the shares of any
Subsidiary owned by the Corporation;
24
(iv) The distribution, by way of spinoff, dividend or
other similar transaction of any shares of any
Subsidiary or any assets thereof;
(v) Any merger or consolidation to which the
Corporation or any Subsidiary is a party; or
(vi) Any split-off or split-up of the Corporation.
(b) The voting requirements specified in (a) shall not
apply where:
(i) Any other provision of these Articles specifies
a higher voting requirement, including, without
limitation, (a)(i) of Article 9; or
(ii) The proposed action has received the approval of
a majority of the Corporation's directors then holding office.
(c) For purposes of this Article, "Subsidiary" shall mean
any corporation more than 50% of whose outstanding stock having voting
power in the election of directors is owned, directly or indirectly by
the Corporation or by a Subsidiary or by the Corporation and one or more
Subsidiaries.
9. Certain Business Combinations. The vote of shareholders of
the Corporation required to approve any Business Combination shall be
as set forth in this Article. The term "Business Combination" shall
have the meaning ascribed to it in (a)(ii) of this Article; other
capitalized terms used in this Article shall have the meaning
ascribed to them in (c) of this Article.
(a)(i). Higher Vote for Certain Business Combinations. In
addition to any affirmative vote required by law or these Articles of
Incorporation and except as otherwise expressly provided in (b) of this
Article:
(1) any merger or consolidation of the Corporation or
any Subsidiary with (A) any Interested Shareholder or (B) any other
corporation or entity (whether or not itself an Interested Shareholder)
which is, or after such merger or consolidation would be, an Affiliate
of an Interested Shareholder; or
(2) any sale, lease, exhcange, mortgage, pledge,
transfer or other disposition (in one transaction or a series of
transactions) to or with any Interested Shareholder or any
Affiliate of any Interested Shareholder of assets of the Corporation
or any Subsidiary having an aggregate Fair Market Value of $250,000
or more; or
25
(3) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary to any Interested
Shareholder or any Affiliate of any Interested Shareholder in exchange
for cash, securities or other property (or a combination thereof) having
an aggregate Fair Market Value of $250,000 or more, other than the
issuance of securities upon the conversion of convertible securities of
the Corporation or any Subsidiary which were not acquired by such
Interested Shareholder (or such Affiliate) from the Corporation or a
Subsidiary; or
(4) the adoption of any plan or proposal for the
liquidation or dissolution of the Corporation proposed by or on behalf
of an Interested Shareholder or any Affiliate of any Interested
Shareholder; or
(5) any reclassification of securities (including any
reverse stock split), or recapitalization of the Corporation, or any
merger or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or into or
otherwise involving an Interested Shareholder) which in any such case
has the effect, directly or indirectly, of increasing the proportionate
share of the outstanding shares of any class or series of stock or
securities convertible into stock of the Corporation or any Subsidiary
which is directly or indirectly beneficially owned by any Interested
Shareholder or any Affiliate of any Interested Shareholder; shall
require the affirmative vote of the holders of at least 80% of the
Voting Stock, in each case voting together as a single class (it being
understood that for purposes of this Article, each share of the Voting
Stock shall have the number of votes granted to it pursuant to the
Kentucky Business Corporation Act and these Articles of Incorporation).
Such affirmative vote shall be required notwithstanding the fact that no
vote may be required, or that a lesser percentage may be specified, by
law or by these Articles of Incorporation or in any agreement with any
national securities exchange, national quotation system or otherwise.
(ii) Definition of "Business Combination". The
term "Business Combination" as used in this Article shall mean any
transaction that is referred to in any one or more of clauses (1)
through (5) of (a)(i) of this Article.
(b) When Higher Vote Is Not Required. The provisions
of (a) of this Article shall not be applicable to any Business
Combination in respect of which all of the conditions specified
in either of the following paragraphs (i) or (ii) are met, and such
Business Combination shall require only such affirmative vote as is
required by law and any other provision of these Articles of
Incorporation.
26
(i) The Business Combination shall have been
approved by a majority of the Disinterested Directors, or
(ii) All of the following conditions shall have been
met:
(1) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business Combination
(the 'Consummation Date") of any consideration other than cash to be
received per share by holders of Common Stock in such Business
Combination shall be at least equal to the higher of the following:
(A) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid in order to acquire any shares of Common Stock
beneficially owned by the Interested Shareholder which were acquired
beneficially by such Interested Shareholder (x) within the two-year
period immediately prior to the Announcement Date or (y) in the
transaction in which it became an Interested Shareholder, whichever is
higher; or
(B) the Fair Market Value per share of Common Stock
on the Announcement Date or on the date on which the Interested
Shareholder became an Interested Shareholder (the "Determination Date"),
whichever is higher.
(2) The aggregate amount of the cash and the Fair Market
Value as of the Consummation Date of any consideration other than cash
to be received per share by holders of shares of any other class or
series of outstanding Voting Stock shall be at least equal to the
highest of the following (it being intended that the requirements of
this clause (ii)(2) shall be required to be met with respect to every
class and series of such outstanding Voting Stock, whether or not the
Interested Shareholder beneficially owns any shares of a particular
class or series of Voting Stock):
(A) (if applicable) the highest per share price
(including any brokerage commissions, transfer taxes and soliciting
dealers' fees) paid in order to acquire any shares of such class or
series of Voting Stock beneficially owned by the Interested Shareholder
which were acquired beneficially by such interested Shareholder (x)
within the two-year period immediately prior to the Announcement Date or
(y) in the transaction in which it became an Interested Shareholder,
whichever is higher;
(B) (if applicable) the highest preferential amount
per share to which the holders of shares of such class or series of
Voting Stock are entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation; and
27
(C) the Fair Market Value per share of such class or
series of Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
(3) The consideration to be received by holders of a
particular class or series of outstanding Voting Stock (including
Common Stock) shall be in cash or in the same form as was previously
paid in order to acquire beneficially shares of such class or series
of Voting Stock that are beneficially owned by the Interested
Shareholder and, if the Interested Shareholder beneficially owns
shares of any class or series of Voting Stock that were acquired
with varying forms of consideration, the form of consideration to
be received by holders of such class or series of Voting Stock shall
be either cash or the form used to acquire beneficially the largest
number of shares of such class or series of Voting Stock beneficially
acquired by it prior to the Announcement Date.
(4) After such Interested Shareholder has become an
Interested Shareholder and prior to the consummation of such Business
Combination:
(A) except as approved by a majority of the
Disinterested Directors, there shall have been no failure to declare and
pay at the regular dates therefor the full amount of any dividends
(whether or not cumulative) payable on any class or series of stock
having a preference over the Common Stock as to dividends or upon
liquidation;
(B) there shall have been (x) no reduction in the
annual rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common Stock), except as
approved by a majority of the Disinterested Directors, and (y) an
increase in such annual rate of dividends (as necessary to prevent
any such reduction) in the event of any reclassification (including
any reverse stock split), recapitalization, reorganization or any
similar transaction which has the effect of reducing the number of
outstanding shares of the Common Stock, unless the failure so to
increase such annual rate was approved by a majority of the
Disinterested Directors; and
(C) such Interested Shareholder shall not have become
the beneficial owner of any additional shares of Voting Stock except as
part of the transaction in which it became an Interested Shareholder.
(5) After such Interested Shareholder has become an
Interested Shareholder, such Interested Shareholder shall not have
received the benefit, directly or indirectly (except proportionately as
a shareholder), of any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax advantages provided
by the Corporation, whether in anticipating of or in connection with
such Business Combination or otherwise.
28
(6) A proxy or information statement describing the
proposed Business Combination and complying with the requirements
of the Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act, rules
or regulations) shall be mailed to public shareholders of the
Corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or subsequent
provisions).
(c) Certain Definitions. For the proposes of this
Article:
(i) A "Person" shall mean any individual, firm,
trust, estate, corporation or business organization.
(ii) "Interested Shareholder" shall mean any
Person (other than the Corporation or any Subsidiary) who or which:
(1) is the beneficial owner, directly or indirectly, of
more than 20% of the combined voting power of the then outstanding
shares of Voting Stock; or
(2) is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the date in question
was the beneficial owner, directly or indirectly, of 20% or more of the
combined voting power of the then outstanding shares of Voting Stock; or
(3) is an assignee of or has otherwise succeeded to the
beneficial ownership of any shares of Voting Stock that were at any
time within the two-year period immediately prior to the date in
question beneficially owned by any Interested Shareholder, if such
assignment or succession shall have occurred in the course of a
transaction or series of transactions not involving a public offering
within the meaning of the Securities Act of 1933.
(iii) A Person shall be a "beneficial owner" of
any Voting Stock:
(1) which such Person or any of its Affiliates or
Associates beneficially owns, directly or indirectly; or
(2) which such Person or any of its Affiliates or
Associates has (A) the right to acquire (whether such right is
exercisable immediately or only after the passage of time), pursuant
to any agreement, arrangement or understanding or upon the exercise of
conversion rights, exchange rights, warrants or options, or otherwise,
or (B) the right to vote or direct the vote pursuant to any agreement,
arrangement or understanding; or
29
(3) which are beneficially owned, directly or indirectly,
by any other Person with which such Person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of any shares of
Voting Stock.
(iv) For the purposes of determining whether a person
is an Interested Shareholder pursuant to (c)(ii) of this Article, the
number of shares of Voting Stock deemed to be outstanding shall include
shares deemed owned through application of (c)(iii) of this Article but
shall not include any other shares of Voting Stock that may be issuable
pursuant to any agreement, arrangement or understanding, or upon
exercise of conversion rights, warrants or options, or otherwise.
(v) "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as in
effect on September 1, 1984.
(vi) "Subsidiary" shall mean any corporation more than
50% of whose outstanding stock having ordinary voting power in the
election of directors is owned, directly or indirectly, by the
Corporation or by a Subsidiary or by the Corporation and one or more
Subsidiaries; provided, however, that for the purposes of the definition
of Interested Shareholder set forth in (c)(ii) of this Article, the term
"Subsidiary" shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by the
Corporation.
(vii) "Disinterested Director" shall mean (1) any
member of the Board of Directors of the Corporation who is unaffiliated
with, and not a nominee of, the Interested Shareholder and was a member
of the Board prior to the time that the Interested Shareholder became an
Interested Shareholder, or (2) any successor of a Disinterested Director
who is unaffiliated with, and not a nominee of, the Interested
Shareholder and who is recommended to succeed a Disinterested Director
by a majority of Disinterested Directors then on the Board of Directors.
(viii) "Fair Market Value" shall mean: (1) in the
case of stock, the highest closing sale price during the 30-day period
immediately preceding the date in question of a share of such stock on
the Composite Tape for New York Stock Exchange-Listed Stocks, or, if
such stock is not quoted on the Composite Tape, on the New York Stock
Exchange, or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the
Securities Exchange Act of 1934 on which such stock is listed, or, if
such stock is not listed on any such exchange, the highest closing sales
price or bid quotation with respect to a share of such stock during the
30-day period preceding the date in question on the National Association
of Securities Dealers, Inc. Automated Quotations System or any system
30
then in sue, or if no such quotations are available, the fair
market value on the date in question of a share of such stock as
determined by a majority of the Disinterested Directors in good
faith; and (2) in the case of property other than cash or stock,
the fair market value of such property on the date in question as
determined by a majority of the Disinterested Directors in good
faith.
(ix) In the event of any Business Combination in
which the Corporation survives, the phrase "consideration other than
cash to be received" as used in (b)(ii)(1) and (2) of this Article
shall include the shares of Common Stock and/or the shares of any
other class of outstanding Voting Stock retained by the holders
of such shares.
(x) "Announcement Date" shall mean the date of
first public announcement of the proposed Business Combination.
(xi) "Determination Date" shall mean the date on
which the Interested Shareholder became an Interested Shareholder.
(xii) "Voting Stock" shall mean the voting power
of the then outstanding shares of all classes and series of the
Corporation entitled to vote generally in the election of directors.
(d) Powers of the Disinterested Directors. A
majority of the Disinterested Directors of the Corporation shall have
the power and duty to determine, on the basis of information known to
them after reasonable inquiry, all facts necessary to determine
compliance with this Article, including, without limitation, (i) whether
a Person is an Interested Shareholder, (ii) the number of shares of
Voting Stock beneficially owned by any Person, (iii) whether a Person is
an Affiliate or Associate of another Person and whether a director is
unaffiliated with an Interested Shareholder, (iv) whether the
requirements of (b) of this Article have been met with respect to any
Business Combination, and (v) whether the assets which are the subject
of any Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the Corporation or any
Subsidiary in any Business Combination has, an aggregate Fair Market
Value of $250,000 or more. The good faith determination of a majority
of the Disinterested Directors on such matters shall be conclusive and
binding for all purposes of this Article.
(e) No Effect on Fiduciary Obligations of
Interested Shareholders. Nothing contained in this Article shall be
construed to relieve any Interested Shareholder from any fiduciary
obligation imposed by law.
31
10. Consideration of Certain Factors. The Board of Directors
may base its response to any offer of another party to: (a) make
a tender or exchange offer for any equity security of the
Corporation, (b) merge or consolidate the Corporation with another
corporation, or (c) purchase or otherwise acquire all or substantially
all of the properties and assets of the Corporation (collectively,
"Acquisition Proposals") upon an evaluation of the best interests of the
Corporation and its shareholders. Relevant factors to be considered in
such evaluation include, without limitation, the following:
(w) The consideration being offered in the
Acquisition Proposal, not only in relation to the then current market
value of the Corporation's stock, but also in relation to (i) the Board
of Directors' then current estimate of the current or future value of
the Corporation in a freely negotiated transaction, and (ii) the Board
of Directors' then current estimate of the future value of the
Corporation as an independent entity;
(x) The social, legal and economic effects upon
employees, customers, suppliers and other constituents of the
Corporation and its subsidiaries;
(y) The social, legal and economic effects on
the communities in which the Corporation and its subsidiaries
operate or are located; and
(z) The competence, experience and integrity of
the acquiring party or parties and its or their management.
11. Directors.
(a) Number. The number of directors of the
Corporation shall be the number from time to time fixed by the Board of
Directors.
(b) Vacancies. Newly created directorships resulting
from an increase by not more than three in the authorized number of
directors fixed by the Board of Directors (in accordance with the
terms and conditions of the Bylaws) or by any vacancies in the Board
of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause shall be filled by
the affirmative vote of a majority of the directors then in office,
whether or not a quorum. A director elected to fill a vacancy shall be
elected by the Board of Directors for the unexpired term of his
predecessor in office. Any directorship to be filled by reason of an
increase in the number of directors shall be filled by the Board of
Directors for a term of office continuing only until the next election
of directors by the shareholders.
32
(c) Removal. Any director or the entire Board of
Directors may be removed from office, with or without cause, only by the
affirmative vote of the holders of 80% of the combined voting power of
the then outstanding shares of stock entitled to vote generally in the
election of directors, voting together as a single class.
Notwithstanding the immediately preceding sentence, if less than the
entire Board of Directors is to be removed, no one of the directors may
be removed if the votes cast against his removal would be sufficient to
elect him if then cumulatively voted at an election of the entire Board
of Directors, or, if there be classes of directors, at an election of
the class of directors of which he is a part.
12. Classification of Directors. When the Board of Directors
shall consist of nine or more members, the directors shall be divided
into three classes, each class to be as nearly equal in number as
possible. The term of office of directors of the first class shall
expire at the first annual meeting of shareholders after their election;
that of the second class shall expire at the second annual meeting after
their election; and that of the third class shall expire at the third
annual meeting after their election. At each annual meeting after such
classification the number of directors equal to the number of the class
whose term expires at the time of such meeting shall be elected to hold
office until the third succeeding annual meeting. In the case of any
increase in the number of directors, the additional directors shall be
distributed among the several classes as nearly equally as possible. In
the case of any decrease in the number of directors, the several classes
shall be reduced so that they will be as nearly equal in number as
possible, but no decrease shall have the effect of shortening the term
of any incumbent director.
13. Indemnification.
(a) As used in this Article:
(i) "Director" means any person who is or was a
director of the Corporation and any person who, while a director of the
Corporation, is or was serving at the request of the Corporation as a
director, officer, partner, trustee, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan.
(ii) "Corporation" includes any domestic or
foreign predecessor entity of the Corporation in a merger,
consolidation or other transaction in which the predecessor's
existence ceased upon consummation of such transaction.
(iii) "Expenses" include attorney's fees.
33
(iv) "Official capacity" means:
(1) When used with respect to a director,
the office of director in the Corporation, and
(2) When used with respect to a person other
than a director, as contemplated in section (i) of this Article, the
elective or appointive office in the Corporation held by the officer of
the employment or agency relationship undertaken by the employee or
agent on behalf of the Corporation, but in each case does not include
service for any other foreign or domestic corporation or any
partnership, joint venture trust, other enterprise, or employee benefit
plan.
(v) "Party" includes a person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding.
(vi) "Proceeding" means any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative.
(b) The corporation shall indemnify any person made a
party to any proceeding by reason of the fact that he is or was a
director if:
(i) He conducted himself in good faith; and
(ii) He reasonably believed:
(1) In the case of conduct in his official
capacity with the Corporation, that his conduct was in its best
interests; and
(2) In all other cases, that his conduct was
at least not opposed to its best interests; and
(3) In the case of any criminal proceeding,
he had no reasonable cause to believe his conduct was unlawful.
* * *
Indemnification may be made against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by the person in
connection with the proceeding, except that if the proceeding was by or
in the right of the Corporation, indemnification may be made only
against such reasonable expenses and shall not be made in respect of any
proceeding in which the person shall have been adjudged to be liable to
the Corporation. The termination of any proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, be determinative that the person did
not meet the requisite standard of conduct set forth in this section.
34
(c) A director shall not be indemnified under section (b) of
this Article in respect of any proceeding charging improper personal
benefit to him, whether or not involving action in his official
capacity, in which he shall have been adjudged to be liable on the basis
that personal benefit was improperly received by him.
(d) (i) A director who has been wholly successful, on the
meritsor otherwise, in the defense of any proceeding referred to in
section (b) of this Article, shall be indemnified against
reasonable expenses incurred by him in connection with the proceeding.
(ii) A court of appropriate jurisdiction, upon
application of a director and such notice as the court shall require,
shall have authority to order indemnification in the following
circumstances:
(1) If it determines a director is entitled to
reimbursement under subsection (d)(i) of this Article, the court shall
order indemnification, in which case the director shall also be entitled
to recover the expenses of securing such reimbursement; or
(2) If it determines that the director is fairly and
reasonably entitled to indemnification in view of all the relevant
circumstances, whether or not he has met the standard of conduct set
forth in section (b) of this Article or has been adjudged liable in the
circumstances described in section (c) of this Article, the court may
order such indemnification as the court shall deem proper, except that
indemnification with respect to any proceeding by or in the right of the
Corporation or in which liability shall have been adjudged in the
circumstances described in Section (c) of this Article shall be limited
to expenses. A court of appropriate jurisdiction may be the same court
in which the proceeding involving the director's liability took place.
(e) No indemnification under section (b) of this Article shall
be made by the Corporation unless authorized in the specific case
after a determination has been made that indemnification of the director
is permissible or required in the circumstances because he has met the
standard of conduct set forth in section (b) of this Article. Such
determination shall be made as expeditiously as possible following any
request that the Corporation make indemnification:
(i) By the board of directors by a majority vote of a quorum
consisting of directors not at the time parties to the proceeding; or
(ii) If such a quorum cannot be obtained, then by a
majority vote of a committee of the board, duly designated to act in
the matter by a majority vote of the full board (in which
designation directors who are parties may participate), consisting
solely of two or more directors not at the time parties to the
proceeding; or
35
(iii) By special legal counsel selected by the board of
directors or a committee thereof by vote as set forth in subsection
(e)(i) or (ii) of this Article, or, if the requisite quorum of the full
board cannot be obtained therefor and such committee cannot be
established, by a majority vote of the full board (in which selection
directors who are parties may participate); or
(iv) By the shareholders.
Authorization of indemnification and determination as to reasonableness
of expenses shall be made in the same manner as the determination that
indemnification is permissible or required, except that if the
determination that indemnification is permissible or required is made by
special legal counsel, authorization of indemnification and
determination as to reasonableness of expenses shall be made in a manner
specified in subsection (e)(iii) of this Article in the preceding
entence for the selection of such counsel. Shares held by directors
who are parties to the proceeding shall not be voted on the subject
matter under this section.
(f) Reasonable expenses incurred by a director who is a
party to a proceeding shall be paid or reimbursed by the Corporation in
advance of the final disposition of such proceeding upon receipt by the
Corporation of:
(i) A written affirmation by the director of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the Corporation as required or authorized in this
Article; and
(ii) A written undertaking by or on behalf of the director
to repay such amount if it shall ultimately be determined that he has
not met such standard of conduct, and after a determination that the
facts then known to those making the determination would not preclude
indemnification under this Article. The undertaking required by
subsection (f)(ii) of this Article shall be an unlimited general
obligation of the director but need not be secured and may be accepted
without reference to financial ability to make repayment.
Determinations and authorizations of payments under this section shall
be made in the manner specified in section (e) of this Article.
(g) The Corporation, in addition, shall indemnify and advance
expenses to a director to such further extent, consistent with law, as
may be provided by its bylaws, general or specific action of its board
of directors or contract. Nothing contained in this Article shall limit
the Corporation's power to pay or reimburse expenses incurred by a
director in connection with his appearance as a witnesses in a
proceeding at a time when he has not been made a named defendant or
respondent in the proceeding.
36
(h) For purposes of this Article, the Corporation shall be
deemed to have requested a director to serve an employee benefit plan,
whenever the performance by him of his duties to the Corporation also
imposes duties on, or otherwise involves services by, him to the plan or
participants or beneficiaries of the plan; excise taxes assessed on a
director with respect to an employee benefit plan pursuant to applicable
law shall be deemed "fines"; and action taken or omitted by a director
with respect to an employee benefit plan in the performance of his
duties for a purpose reasonably believed by him to be in the best
interest of the participants and beneficiaries of the plan shall be
deemed to be for a purpose which is not opposed to the best interests of
the Corporation.
(i) (i) An officer of the Corporation shall be indemnified as
and to the same extent provided in section (d) of this Article for a
director and shall be entitled to the same extent as a director to see
indemnification pursuant to the provisions of section (d) of this
Article; (ii) the Corporation shall indemnify and advance expenses to an
officer, employee or agent of the Corporation to the same extent that it
must or may indemnify and advance expenses to directors pursuant to this
Article; and (iii) the Corporation, in addition, shall indemnify and
advance expenses to an officer, employee or agent who is not a director
to such further extent, consistent with law, as may be provided by its
bylaws, general or specific action of its board of directors, or
contract.
(j) The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or who, while a director, officer, employee or
agent of the Corporation, is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee or agent
of another foreign or domestic corporation, partnership, joint venture,
trust, other enterprises or employee benefit plan, against any liability
asserted against him and incurred by him in any such capacity or arising
out of his status as such, whether or not the Corporation would have the
power to indemnify him against such liability under the provisions of
this Article.
(k) Any indemnification of, or advance of expenses to, a
director in accordance with this Article, if arising out of a proceeding
by or in the right of the Corporation, shall be reported in writing to
the shareholders with or before the notice of the next shareholders'
meeting.
(l) The indemnification provided by this Article shall not be
deemed exclusive of any other rights to which those indemnified may be
entitled under any bylaw, agreement, vote of shareholders or
disinterested directors or otherwise, both as to action in his official
capacity and as to action in another capacity while holding such office,
and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
37
(m) These Articles do not in any way limit either the
Corporation's power to indemnify its directors, officers, employees and
agents, or any rights, however created, of its directors, officers,
employees and agents to indemnification by the Corporation.
14. Amendment, Repeal, Etc.
(a) As used in this Article, "Voting Stock," "Interested
Shareholder," "Disinterested Director," "Person" "Affiliate" and
"Associate" shall have the meanings assigned to them in Article 8.
(b) Notwithstanding anything in these Articles of
Incorporation to the contrary and in addition to any affirmative vote
required by law, the affirmative vote of the Required Proportion (as
defined below) of Voting Stock shall be required to alter, amend, or
repeal Articles 7, 8, 9, 10, 11, 12, 13 or 14 of these Articles of
Incorporation or to adopt any provision inconsistent therewith.
(c) For purposes of paragraph (b) of this Article, the
Required Proportion shall be calculated by dividing (i) the sum of (1)
the number of shares of Voting Stock beneficially owned by any
Interested Shareholder, directly or indirectly plus (2) one-half of all
the remaining shares of Voting Stock not beneficially owned by any
Interested Shareholder, directly or indirectly by (ii) the total number
of shares of Voting Stock.
(d) A majority of the Disinterested Directors of the
Corporation shall have the power and duty to determine, on the basis of
information known to them after reasonable inquiry, all facts necessary
to determine compliance with this Article, including, without
limitation, (i) whether a Person is an Interested Shareholder, (ii) the
number of shares of Voting Stock beneficially owned by any Person, (iii)
whether a Person is an Affiliate or Associate of another Person and
whether a director is unaffiliated with an Interested Shareholder, and
(iv) whether the requirements of paragraph (b) of this Article have been
met with respect to any shareholder vote specified therein. The good
faith determination of a majority of the Disinterested Directors on such
matters shall be conclusive and binding for all purposes of this
Article.
15. Limitation on Director Liability. A director of the
Corporation shall not be personally liable to the Corporation or its
shareholders for monetary damages for breach of duty as a director,
except for liability (i) for any transaction in which the director's
personal financial interest is in conflict with the financial interest
of the Corporation or its shareholders; (ii) for acts or omissions not
in good faith or which involve intentional misconduct or are known to
the director to be a violation of law; (iii) under KRS 271B.8-330; (iv)
for any transaction from which the director derived an improper personal
benefit. Any repeal or modification of this Article by the shareholders
38
of the Corporation shall not adversely affect any limitation on the
liability of a director of the Corporation for matters arising
before the time of such repeal or modification.
16. Headings. The headings in these Articles of Incorporation
have been included solely for ease of reference and shall not be
considered in the interpretation or construction of these Articles of
Incorporation.
* * * * *
TW6.C9510
172:tw6:articles
4/22/94 39
EXHIBIT 10.1 - PEOPLES FIRST CORPORATION AMENDED AND RESTATED
1986 STOCK OPTION PLAN
________________________________________________________________________________
PEOPLES FIRST CORPORATION
1986 STOCK OPTION PLAN
As Amended and Restated as of February 16, 1994
Approved by Shareholders on April 26, 1994
I. PURPOSE
The purposes of this Peoples First Corporation 1986 Stock Option Plan (the
"Plan") are to promote the long term success of Peoples First Corporation (the
"Corporation") and to attract, retain, and motivate key employees while creating
a long-term mutuality of interest between such key employees and the
Corporation's shareholders. Pursuant to this Plan, the Corporation may grant
key employees options to purchase shares ("Options") of the Corporation's common
stock ("Common Stock"), Stock Appreciation Rights ("SARs"), and grants of Common
Stock ("Stock Grants").
II. ADMINISTRATION
The Executive Committee (the "Committee") of the Board of Directors of the
Corporation (the "Board") shall administer the Plan. All powers and functions
of the Committee may, however, at any time and from time to time be exercised by
the Board; provided, that decisions under the Plan relating to employees who are
members of the Board shall be made solely by the Committee. Members of the
Committee shall be chosen from members of the Board who are "disinterested
persons," as defined by Rule 16b-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Committee shall have full power to construe
or interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it and to make all other determinations necessary or advisable to
administer the Plan.
III. ELIGIBILITY FOR AWARD
The Committee shall designate key employees of the Corporation or any
direct or indirect subsidiary of the Corporation to receive awards under the
Plan.
IV. ALLOTMENT OF SHARES
Shares of Common Stock to be issued under the Plan shall be made available
from authorized but unissued shares. The aggregate number of shares of Common
Stock that may be issued under the Plan shall be increased automatically upon
increases in the number of shares outstanding to equal 10% of the number of
shares of Common Stock outstanding from time to time, provided that the number
40
of shares covered by "Incentive Stock Options," as contemplated by and defined
in Section 422A of the Internal Revenue Code of 1986 (the "Code"), granted under
the Plan shall not exceed 300,000 shares, subject to adjustment pursuant to
Section IX of the Plan. If any Option or SAR for any reason expires or
terminates before its exercise in full, or any Stock Grant is forfeited for any
reason, the shares covered by such awards shall again be available for the grant
of awards within the limits provided by the preceding sentence. Awards may be
granted to such eligible employees, and in such amounts as the Committee, in its
sole discretion, may from time to time determine; provided, however, in the case
of "Incentive Stock Options", (i) such eligible employee, at the time the Option
is granted, does not own Common Stock possessing more than 10% of the total
combined voting power of all classes of stock of the Corporation; (ii) for
Options granted after December 31, 1986, the aggregate Fair Market Value (as
defined in Section VIII hereof), determined at the time the Option is granted,
of the shares with respect to which Incentive Stock Options are exercisable for
the first time by any eligible employee during any calendar year (under this
Plan and any other stock option plan of the Corporation and its subsidiaries)
shall not exceed $100,000; and (iii) for Options granted before January 1, 1987,
the aggregate Fair Market Value of the Common Stock for which any eligible
employee may be granted Incentive Stock Options in any calendar year shall not
exceed $100,000 plus any Unused Limit Carryover to such year. "Unused Limit
Carryover" as to any calendar year shall have the meaning assigned to such term
by Section 422A(c)(4) of the Internal Revenue Code of 1954, as amended (the
"1954 Code").
V. GRANTING OF OPTIONS AND STOCK APPRECIATION RIGHTS
All Options granted under the Plan shall be in such form as the Committee
may from time to time approve. It is intended that some of the Options granted
under this Plan will be Incentive Stock Options and that other Options granted
under the Plan will be "Nonqualified Stock Options" governed by Section 83 of
the Code. All Options granted under the Plan shall be subject to the following
terms and conditions:
(a) Option Price. The option price per share with respect to each
Option shall be determined by the Committee. The option price shall not be less
than 100% of the Fair Market Value of the Common Stock on the date the Option is
granted. Notwithstanding the immediately preceding sentence, the Committee
shall have the discretion to authorize the grant of an Option that is not an
Incentive Stock Option (a "Nonqualified Stock Option") with, or the modification
of an outstanding Option to provide for, an option price not less than 75% of
the Fair Market Value of the Common Stock on the date the Option is granted or
modified in consideration of the Optionee's agreement to defer salary or bonus
pay in an amount equal to the difference between the aggregate option price of
the Option and the aggregate Fair Market Value of the shares of Common Stock
subject to the Option.
(b) Term of Option. The term of each Option shall be fixed by the
Committee, but shall in no case exceed ten years.
41
(c) Payment. The option price shall be payable (i) in cash; (ii) by
tender to the Corporation of shares of Common Stock (including "restricted
stock", as defined in Rule 144 under the Securities Act of 1933, which shall be
valued as if it were not subject to restrictions on transfer or possibilities of
forfeiture) owned by the Optionee; or (iii) by any combination thereof. If
permitted by the Committee, at its sole discretion, an Optionee may satisfy the
option price for an Option by electing to have the Corporation retain that
number of shares subject to such Option having an aggregate Fair Market Value
equal to the aggregate option price of the Option, subject to any limitations
imposed by Section 16 of the Exchange Act and any rule thereunder. If shares of
"restricted stock" are tendered as consideration for the exercise of an Option,
a number of shares issued upon the exercise of such Option, equal to the number
of shares of "restricted stock" tendered as consideration thereof, shall be
subject to the same restrictions as the "restricted stock" so tendered and any
additional restrictions that may be imposed by the Committee. No shares shall
be issued until full payment has been made, at which time the Optionee shall
acquire the rights of a shareholder.
(d) Exercise of Options. Except as otherwise provided in this Plan
or established by the Committee, each Optionee shall earn the right to purchase
25% of the total shares of Common Stock available to that Optionee under the
applicable Option Agreement ("Option Stock") during each of the first four
successive 12-month periods following the Option Grant. The Optionee's right to
purchase shares of Option Stock shall cumulate and carry over to subsequent
12-month periods with respect to unpurchased shares of Option Stock. After the
fourth year following an Option Grant, the Optionee may purchase any or all
Option Stock not previously acquired under the applicable Option Agreement.
The Committee may, in its sole discretion, prescribe shorter or longer time
periods and additional requirements with respect to exercise of an Option.
In no event shall any Option be exercisable after the expiration of ten
years from the date upon which the Option was granted. No Incentive Stock
Option granted before January 1, 1987, may be exercised by an optionee while
there are outstanding (within the meaning of Section 422(c)(7) of the 1954 Code)
any Incentive Stock Options previously granted to that optionee by the
Corporation; Incentive Stock Options granted after December 31, 1986, may be
exercised in any sequence.
Notwithstanding the foregoing, upon a Change of Control of the Corporation
as defined in Section VII, the Optionee may purchase all Option Stock not
previously acquired by the Optionee under the applicable Option Agreement.
(e) Termination of Employment. Upon the termination of an Optionee's
employment (for any reason other than retirement, disability, death or
termination for deliberate, willful or gross misconduct), option privileges
shall be limited to the shares which were immediately purchasable at the date of
such termination and such option privileges shall expire unless exercised within
three months after the date of such termination. If an Optionee's employment is
terminated for deliberate, willful or gross misconduct, as determined by the
Committee, all rights under the Option shall expire upon receipt of the notice
of such termination.
42
(f) Retirement, Preretirement Disability or Preretirement Death of an
Optionee. In the event of an optionee's retirement, preretirement disability
(within the meaning of Section 105(d)(4) of the Code) or preretirement death,
option privileges shall apply to all options granted prior to such event without
regard to whether such options were otherwise exercisable under Section V(d).
Option privileges shall expire unless exercised (by legal representatives or
beneficiaries in the event of death) within one year after an optionee's death
or termination of employment due to disability or within three months after
termination of employment due to retirement.
(g) Stock Appreciation Rights. The Committee, in its discretion, may
grant to any eligible employee an SAR in tandem with an Option, provided that
the SAR shall be in lieu of any simultaneous or subsequent exercise of such
Option. An SAR shall entitle the Optionee to receive from the Corporation a
cash payment equal to the difference between (i) the Fair Market Value of the
Common Stock with respect to which the Option and SAR are granted and
unexercised and (ii) the aggregate option price of such shares. Any election by
an Optionee who is subject to the short-swing profit rules of Section 16 of the
Exchange Act to exercise all or a portion of an SAR for cash shall be made
during the period beginning on the third business day and ending on the twelfth
business day following the date of public release of the Corporation's quarterly
summary of sales and earnings. The grant of SARs under the Plan shall otherwise
be subject to all of the terms and conditions applicable to the grant of Options
under the Plan.
VI. STOCK GRANTS
(a) Terms and Conditions. The Committee, in its discretion, may
award a Stock Grant to any eligible employee. Each Stock Grant confers upon the
recipient thereof either (i) the unconditional right to receive a specified
number of shares of Common Stock at one time or over a specified period
("Restricted Stock"); or, (ii) in the discretion of the Committee, the
contingent right, upon the achievement of specified performance objectives
within a specified period, to receive a specified number of shares of Common
Stock ("Performance Stock"). The period for a Restricted Stock Grant or the
performance objectives and the period of duration of any Performance Stock
Grant, and any other terms and conditions applicable to the Stock Grant, shall
be set forth in a Stock Grant Agreement at the time the Stock Grant is made.
(b) Restricted Stock. Shares of Common Stock awarded under a
Restricted Stock Grant, and the right to vote and to receive dividends on such
shares, may not be sold, assigned, transferred, exchanged, pledged, hypothecated
or otherwise incumbered except as herein provided during the restriction period
applicable to such shares. Notwithstanding the foregoing, and except as
otherwise provided in the Plan, the recipient of a Restricted Stock Grant shall
have all the other rights of a shareholder with respect to shares of Restricted
Stock, including but not limited to, the right to receive dividends and the
right to vote such shares. Each certificate issued in respect of shares issued
pursuant to a Restricted Stock Grant shall be deposited with the Corporation or
its designee, and shall bear the following legend:
43
This certificate and the shares of stock represented hereby are
subject to the terms and conditions (including forfeiture and
restrictions against transfer) contained in the Peoples First
Corporation 1986 Stock Option Plan and an agreement entered into
between the registered owner and Peoples First Corporation. Such
terms and conditions shall be released only in accordance with the
provisions of the Plan and the agreement, which are on file with the
Secretary of Peoples First Corporation.
Upon the lapse the restrictions set forth in Restricted Stock Agreement,
the Corporation shall promptly deliver to the recipient stock certificates
representing shares of Common Stock formerly subject to the Restricted Stock
Grant without the legend set forth above.
(c) Performance Stock.
(i) Performance Targets. The Committee shall establish maximum
and minimum performance targets to be achieved with respect to each Performance
Stock Grant during the performance period, which target shall be set forth in
the Performance Stock Agreement. The Recipient shall be entitled to delivery of
all Performance Stock if the maximum targets are achieved during the performance
cycle, but shall be entitled to delivery of a portion of the Performance Stock
according to the level of achievement of performance targets, as specified by
the Committee, for performance during the performance period that meets or
exceeds the minimum target but fails to meet the maximum target. The
performance targets established shall relate to performance of the Corporation,
or any subsidiary thereof, and may be established in terms of growth and gross
revenue, earnings per share, ratio of earnings to stockholders' equity or to
total assets, or such other performance targets as may be determined by the
Committee in its discretion. Multiple targets may be used and may have the same
or different weight, and they may relate to absolute performance, or relative
performance as measured against other time periods or corporations or banks. At
any time before delivery of Performance Stock, the Committee may adjust
previously established performance targets and other terms and conditions,
including the Corporation's or other corporations' financial performance for
Plan purposes, to reflect major unforeseen events such as changes in laws,
regulations or accounting practices, mergers, acquisitions or divestitures, or
extraordinary, unusual or nonrecurring items or events.
(ii) Delivery. Following the conclusion of each performance
period, the Committee shall determine the extent to which performance targets
have been attained for such period as well as the extent to which the other
terms and conditions established by the Committee have been met. The Committee
shall determine what, if any, shares are due on a Performance Stock Grant.
(d) Termination of Employment. If the recipient of a Restricted
Stock Grant ceases to be an employee of the Corporation or its subsidiaries for
any reason before the lapse of restrictions applicable to any Restricted Stock,
all Restricted Stock as to which there still remain unlapsed restrictions shall
be forfeited by the recipient without payment of any consideration by
Corporation, and the recipient shall not thereafter have any further rights or
44
interest in such shares. If a recipient of a Performance Stock Grant ceases to
be an employee of the Corporation or its subsidiaries before the end of the
applicable performance period by reason of death, disability, retirement
(including early retirement with the consent of the Corporation) or involuntary
separation without cause, the recipient's Performance Stock, to the extent
earned under applicable performance targets shall be deliverable or payable at
the end of the performance period in proportion to the active service of the
recipient during the performance period, as determined by the Committee. Upon
any other termination of employment, all outstanding Performance Stock Awards
held by the recipient shall be cancelled unless the Committee determines
otherwise.
VII. ACCELERATION OF EXERCISABILITY ON CHANGE OF CONTROL
Upon a Change of Control of the Corporation: (i) Options and SARs
theretofore granted and not previously exercisable shall become fully
exercisable to the same extent and in the same manner as if they had become
exercisable by passage of time in accordance with the provisions of the Plan
relating to periods of exercisability and to termination of employment; (ii)
each Stock Grant still subject to forfeiture in accordance with the provisions
of the Stock Grant Agreement under which it was originally issued shall no
longer be forfeitable; and (iii) each Performance Stock Grant subject to
satisfaction of performance criteria shall become issuable to the same extent
and in the same manner as if the performance criteria had satisfied the maximum
performance targets set forth in the Stock Grant Agreement.
For purposes of the Plan, a "Change of Control" of the Corporation shall
mean a change of control of a nature that would be required to be reported in
response to Item 6(e) of Schedule 14A under the Exchange Act; provided that,
without limitation, such a change of control shall be deemed to have occurred
if: (i) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 20% or more of the combined voting power of the
Corporation's then outstanding stock; (ii) during any period of two consecutive
years, individuals who at the beginning of such period constitute the Board
cease for any reason to constitute a majority thereof, unless the election, or
the nomination for election by the Corporation's shareholders, of each new
director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period; or (iii) the
business of the Corporation for which the optionee's services are principally
performed is disposed of by the Corporation pursuant to a partial or complete
liquidation of the Corporation, a sale of assets of the Corporation, or
otherwise.
A Change of Control shall also be deemed to occur if (iv) the Corporation
enters into an agreement, the consummation of which would result in the
occurrence of a Change of Control of the Corporation; (v) any person (including
the Corporation) publicly announces an intention to take or to consider taking
actions which if consummated would constitute a Change of Control of the
Corporation; or (vi) the Board adopts a resolution to the effect that a
potential Change in Control of the Corporation for purposes of this Plan has
occurred.
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VIII.FAIR MARKET VALUE
"Fair Market Value" shall mean the value of a share of Common Stock on a
particular date, deter- mined as follows: (i) if the Common Stock is not listed
on such date on any national securities exchange, the last sales price (or, if
none on that date, on the most recent date on which there was a last sales price
quotation), as reported by the National Association of Securities Dealers
Automated Quotation System, the National Quotation Bureau, Incorporated, or
other similar service selected by the Committee; (ii) if the common stock is
neither listed on such date on a national securities exchange nor traded in the
over-the-counter market, the fair market value of a share on such date as
determined in good faith by the Committee; or (iii) if the Common Stock is
listed on such date on one or more national securities exchanges, the last
reported sale price of a share on such date as recorded on the composite tape
system or, if such system does not cover the Common Stock, the last reported
sale price of a share on such date on the principal national securities exchange
on which the Common Stock is listed or, if no sale of Common Stock took place on
such date, the last reported sale price of a share on the most recent day on
which a sale of a share took place as recorded by such system or on such
exchange, as the case may be.
IX. ADJUSTMENT IN THE EVENT OF RECAPITALIZATION OF THE CORPORATION
In the event of a reorganization, recapitalization, stock split, stock
dividend, combination of shares, merger, consolidation, rights offering, or any
other change in the corporate structure of the Corporation, the Committee shall
make such adjustments, if any, subject to approval by the Board, as are
appropriate in the number and kind of shares authorized by the Plan, in the
number and kind of shares covered by Options, SARs or Stock Grants and in the
option price or any performance criteria related to Common Stock.
X. NONTRANSFERABILITY OF AWARDS
Awards granted under the Plan (other than Stock Grants no longer subject to
risk of forfeiture) may not be transferred except by will or the laws of descent
and distribution or pursuant to a "qualified domestic relations order" (as
defined by the Code or Title I of the Employee Retirement Income Security Act,
or the rules thereunder) and, during the lifetime of the employee to whom
granted, may be exercised only by such employee or the employee's guardian or
legal representative.
XI. TAX WITHHOLDING
Any Optionee of a Nonqualified Stock Option or recipient of a Stock Grant
shall make arrangements satisfactory to the Committee to pay to the Corporation,
either (i) at the time of exercise of the Option or receipt of the Stock Grant,
or (ii), if the Optionee or Stock Grant recipient does not make the Section 83
election although subject to a risk of forfeiture with respect to stock received
at exercise of an option or at receipt of a Stock Grant, no later than the date
as of which the difference between the Fair Market Value of the Common Stock
46
subject to an Option and the option price, or the Fair Market Value of the
Common Stock subject to a Stock Grant, first becomes includable in the gross
income of the Optionee for income tax purposes, any federal, state or local
taxes required to be withheld with respect to such shares.
XII. AMENDMENTS AND DISCONTINUANCE
The Board may discontinue the Plan at any time and may from time to time
amend or revise the terms of the Plan without shareholder approval to the extent
permitted or required by federal income tax or other applicable statutes or
regulations; provided, however, that the Board may not revoke or alter, in a
manner unfavorable to then existing optionees.
XIII.EFFECTIVE DATE AND TERM OF THE PLAN
The Plan became effective upon approval of the Plan by the Corporation's
shareholders on August 19, 1986 (the "Effective Date"), and it has been amended
and restated as of March 2, 1987 and February 16, 1994. No option shall be
granted pursuant to this Plan later than February 16, 2004, but Options
theretofore granted may extend beyond that date in accordance with their terms
and the provisions of the Plan.
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