<PAGE>
As filed with the Securities and Exchange Commission on January 24, 1994.
Registration No. 33-51741
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------------------
PEOPLES FIRST CORPORATION
(Exact name of registrant as specified in its charter)
KENTUCKY 6712 61-1023747
(State or other juris- (Primary Standard (I.R.S. Employer
diction of incorpora- Industrial Classi- Identification
tion or organization) fication Code Number) Number)
100 South Fourth Street,
P.O. Box 2200,
Paducah, Kentucky 42002-2200
(502) 441-1200
(Address, including Zip Code, and telephone number,
including area code, of registrant's principal executive offices)
----------------------------------------------
A. Howard Arant, Secretary
PEOPLES FIRST CORPORATION
100 South Fourth Street
P.O. Box 2200
Paducah, Kentucky 42002-2200
(502) 441-1200
(Name, address, including Zip Code, and telephone number,
including area code, of agent for service)
--------------------------------------------
Copies of Communications to:
R. James Straus Leonard S. Volin
Alan K. MacDonald James Stewart
Brown, Todd & Heyburn Housley Goldberg & Kantarian, P.C.
3200 Capital Holding Center Suite 700, 1220 19th St., N.W.
Louisville, Ky. 40202-3363 Washington, D.C. 20036
(502) 589-5400 (202) 822-9611
<PAGE>
Approximate date of commencement of proposed sale of the securities to the
public: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
--------------------------------------
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Proposed
Title of each maximum maximum
class of secur- Amount to offering aggregate Amount of
ities to be be regis- price per offering registration
registered tered unit (1) price (1) fee(1)
- --------------- ---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Common Stock, 465,000 $29.57 $13,751,373 $4,741.85
no par value shares
- --------------------------------------------------------------------------------
<FN>
(1) Estimated and calculated pursuant to Rule 457(f)(2), solely for the purpose
of computing the registration fee, based upon the book value of First
Kentucky Bancorp, Inc. Common Stock at September 30, 1993.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a)
MAY DETERMINE.
<PAGE>
PART I
Cross-Reference Sheet Pursuant to Item
501(b) of Regulation S-K
<TABLE>
<CAPTION>
HEADING IN PROSPECTUS-
Form S-4 Item and Caption PROXY STATEMENT
- --------------------------- ----------------------
<S> <C>
1. Forepart of Registration Facing Page; Cross-Reference Sheet;
Statement and Outside Front Front Cover Page of Prospectus-Proxy
Cover Page of Prospectus Statement
2. Inside Front and Outside Back AVAILABLE INFORMATION; INCORPORATION
Cover Pages of Prospectus OF CERTAIN DOCUMENTS BY REFERENCE;
TABLE OF CONTENTS
3. Risk Factors, Ratio of Earn- SUMMARY; SELECTED FINANCIAL INFORMA-
ings to Fixed Charges and TION; COMPARATIVE PER SHARE DATA
Other Information
4. Terms of the Transaction MERGER; COMPARISON OF PEOPLE FIRST
COMMON STOCK AND FIRST KENTUCKY COM-
MON STOCK
5. Pro Forma Financial Information PRO FORMA FINANCIAL STATEMENTS
6. Material Contacts With the MERGER--Background for the Merger,
Company Being Acquired Reasons for the Merger.
7. Additional Information *
Required for Reoffering by
Persons Parties Deemed to be
Underwriters
8. Interest of Named Experts and LEGAL MATTERS; EXPERTS
Counsel
9. Disclosure of Commission *
Position on Indemnification
for Securities Act
10. Information with Respect to COMPARISON OF PEOPLES FIRST COMMON
S-3 Registrants STOCK AND FIRST KENTUCKY COMMON
STOCK; PEOPLES FIRST COMMON STOCK--
MARKET AND DIVIDEND INFORMATION
11. Incorporation of Certain INCORPORATION OF CERTAIN DOCUMENTS BY
Information by Reference REFERENCE
</TABLE>
<PAGE>
<TABLE>
<S> <C>
12. Information with Respect to *
S-2 or S-3 Registrants
13. Incorporation of Certain *
Information by Reference
14. Information with Respect to *
Registrants Other Than S-3
or S-2 Registrants
15. Information with Respect to *
S-3 Companies
16. Information with Respect to *
S-2 or S-3 Companies
17. Information with Respect to FIRST KENTUCKY BANCORP, INC.; FIRST
Companies Other Than S-2 or KENTUCKY MANAGEMENT'S DISCUSSION AND
S-3 Companies ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS; PRINCIPAL
STOCKHOLDERS OF FIRST KENTUCKY; FIRST
KENTUCKY COMMON STOCK PRICE RANGE AND
DIVIDENDS; COMPARISON OF PEOPLES FIRST
COMMON STOCK AND FIRST KENTUCKY COMMON
STOCK
18. Information if Proxies, Con- SUMMARY; ELECTION OF DIRECTORS;
sents or Authorizations are INTRODUCTION--Voting, Revocation of
to be Solicited Proxies, Solicitation of Proxies;
MERGER--Appraisal Rights of Stock-
holders, Interests of Certain Persons
in the Merger; PRINCIPAL STOCKHOLDERS
OF FIRST KENTUCKY; INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE; EXPERTS
19. Information if Proxies, Con- *
sents or Authorizations are
not to be Solicited or in an
Exchange Offer
___________________________
* Not applicable
</TABLE>
<PAGE>
[First Kentucky Letterhead]
January 27, 1994
Dear Stockholder:
You are cordially invited to attend the 1994 Annual Meeting of the
Stockholders of First Kentucky Bancorp, Inc. ("First Kentucky") to be held at
the Convention Center Inn, 2011 West Everly Brothers Boulevard, Central City,
Kentucky on Monday, February 28, 1994 at 2:00 p.m., local time.
The Annual Meeting has been called for the following purposes: (i) to elect
two directors of First Kentucky for three-year terms; (ii) to consider and vote
upon a Merger Agreement and Plan of Reorganization (the "Merger Agreement") that
provides for the merger of First Kentucky with and into Peoples First
Acquisition Corporation ("Subsidiary"), a wholly owned subsidiary of Peoples
First Corporation ("Peoples First"), and the conversion of each outstanding
share of First Kentucky's common stock into 2.27194 shares of Peoples First
Common Stock (the "Merger"); (iii) to approve an adjournment of the Annual
Meeting to a later date, if necessary, to solicit additional proxies if
insufficient shares are present in person or by proxy at the Annual Meeting to
approve the Merger; and (iv) to transact such other business as may properly
come before the Annual Meeting.
Notice of the Annual Meeting, the Prospectus-Proxy Statement and the Proxy
Card are enclosed and describe in detail the formal business we will transact,
including the proposed Merger.
The Board of Directors of First Kentucky has unanimously approved the Merger
and recommends that you vote FOR the Merger and the other proposals to be
presented at the Annual Meeting.
Your vote is important, regardless of the number of shares you own. ON
BEHALF OF THE BOARD OF DIRECTORS, WE URGE YOU TO SIGN, DATE AND RETURN THE
ENCLOSED PROXY CARD AS SOON AS POSSIBLE EVEN IF YOU CURRENTLY PLAN TO ATTEND THE
ANNUAL MEETING. This will not prevent you from voting in person but will assure
that your vote is counted if you are unable to attend the meeting.
Sincerely,
Dennis W. Kirtley
PRESIDENT
<PAGE>
FIRST KENTUCKY BANCORP, INC.
214 NORTH FIRST STREET
CENTRAL CITY, KENTUCKY 42330
(502) 754-1331
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 28, 1994
---------------------
NOTICE IS HEREBY GIVEN that the 1994 Annual Meeting of Stockholders (the
"Annual Meeting") of First Kentucky Bancorp, Inc. ("First Kentucky"), will be
held at the Convention Center Inn, 2011 West Everly Brothers Boulevard, Central
City, Kentucky at 2:00 p.m., local time, on Monday, February 28, 1994.
A Proxy Card and a Prospectus-Proxy Statement for the Annual Meeting are
enclosed.
The Annual Meeting is for the purposes of considering and voting upon:
1. ELECTION OF DIRECTORS. The election of two directors of First Kentucky
for three-year terms;
2. MERGER. A Merger Agreement and Plan of Reorganization (the "Merger
Agreement"), dated as of October 15, 1993, among Peoples First
Corporation ("Peoples First"), Peoples First Acquisition Corporation
("Subsidiary"), First Kentucky and First Kentucky Federal Savings Bank,
and the related Plan and Agreement of Merger pursuant to which First
Kentucky will be merged with and into Subsidiary (the "Merger") and each
outstanding share of the common stock of First Kentucky will be converted
into 2.27194 shares of common stock of Peoples First;
3. ADJOURNMENT OF ANNUAL MEETING. An adjournment of the Annual Meeting to a
later date, if necessary, to solicit additional proxies if insufficient
shares are present or by proxy at the Annual Meeting to approve the
Merger Agreement and related Plan of Merger; and
4. OTHER MATTERS. The transaction of such other business as may properly
come before the Annual Meeting or any adjournments or postponements
thereof.
The Board of Directors is not aware of any other business to come before the
Annual Meeting.
Any action may be taken on any one of the foregoing proposals at the Annual
Meeting on the date specified above or on any date or dates to which, by
original or later adjournment, the Annual Meeting may be adjourned. Stockholders
of record at the close of business on January 10, 1994 (the "Record Date"), are
the stockholders entitled to notice of and to vote at the Annual Meeting and any
adjournments or postponements thereof.
Appraisal rights will be available to stockholders as of the Record Date who
do not vote in favor of the Merger and continuously hold their shares through
the Effective Date of the Merger and otherwise comply with Section262 of the
Delaware General Corporation Law, a copy of which is attached as Appendix D.
You are requested to fill in and sign the enclosed proxy card, which is
solicited by the Board of Directors, and to mail it promptly in the enclosed
envelope. The proxy will not be used if you attend and vote at the Annual
Meeting in person.
BY ORDER OF THE BOARD OF DIRECTORS
JOANN WHITAKER
SECRETARY
Central City, Kentucky
January 27, 1994
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE FIRST KENTUCKY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
<PAGE>
PROSPECTUS-PROXY STATEMENT
FIRST KENTUCKY BANCORP, INC.
1994 ANNUAL MEETING OF STOCKHOLDERS
PEOPLES FIRST CORPORATION
930,000 SHARES
COMMON STOCK
Peoples First Corporation ("Peoples First"), Peoples First Acquisition
Corporation (the "Subsidiary"), a wholly owned subsidiary of Peoples First,
First Kentucky Bancorp, Inc. ("First Kentucky") and First Kentucky Federal
Savings Bank ("First Kentucky Federal"), a wholly owned subsidiary of First
Kentucky, have entered into a Merger Agreement and Plan of Reorganization dated
as of October 15, 1993 (the "Merger Agreement") pursuant to which First Kentucky
will merge into Subsidiary (the "Merger"), and each outstanding share of First
Kentucky's Common Stock, $0.01 par value per share ("First Kentucky Common
Stock"), will be converted into 2.27194 shares of Peoples First Common Stock of
no par value ("Peoples First Common Stock").
This Prospectus-Proxy Statement serves as the proxy statement of First
Kentucky for the 1994 Annual Meeting of Stockholders of First Kentucky (the
"Annual Meeting") to be held February 28, 1994, at 2:00 p.m. local time, at the
Convention Center Inn, 2011 West Everly Brothers Boulevard, Central City,
Kentucky. This document also is the prospectus with regard to a maximum of
930,000 shares of Peoples First Common Stock to be issued to stockholders of
First Kentucky upon effectiveness of the Merger.
The Annual Meeting will be held for the purpose of voting upon the Merger
Agreement and the related Plan and Agreement of Merger (hereafter referred to
together as the "Merger Agreement") in addition to the election of two directors
to First Kentucky's Board of Directors for three-year terms. Consummation of the
Merger requires, among other things, the affirmative vote of the holders of at
least a majority of the outstanding shares of First Kentucky Common Stock.
Approval of an adjournment of the Annual Meeting will also be considered if
there are not enough shares present in person or by proxy at the meeting to
approve the Merger Agreement.
THE BOARD OF DIRECTORS OF FIRST KENTUCKY RECOMMENDS APPROVAL OF THE MERGER
AGREEMENT, APPROVAL OF AN ADJOURNMENT TO SOLICIT ADDITIONAL PROXIES IF
INSUFFICIENT SHARES ARE PRESENT TO APPROVE THE MERGER AGREEMENT, AND ELECTION OF
THE INDIVIDUALS NOMINATED BY THE BOARD OF DIRECTORS FOR THREE-YEAR TERMS ON THE
BOARD OF DIRECTORS.
No person is authorized to give any information or make any representations
in connection with this offering other than those contained in this
Prospectus-Proxy Statement and, if given or made, such information or
representations must not be relied upon.
This Prospectus-Proxy Statement does not cover any resales of the Peoples
First Common Stock to be received by First Kentucky stockholders upon
consummation of the Merger, and no person is authorized to make any use of this
Prospectus-Proxy Statement in connection with any such resale.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS-PROXY STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS-PROXY STATEMENT IS JANUARY 27, 1994.
<PAGE>
AVAILABLE INFORMATION
Peoples First is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities of the Commission, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's New York Regional Office, 7
World Trade Center, New York, New York 10048; and at the Commission's Chicago
Regional Office, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates.
Peoples First has filed with the Commission in Washington, D.C., a
registration statement (together with all amendments thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act")
with respect to the securities covered by this Prospectus-Proxy Statement. This
Prospectus-Proxy Statement does not contain all of the information set forth in
the Registration Statement, as permitted by the rules and regulations of the
Commission. For further information, please refer to the Registration Statement,
including the exhibits filed or incorporated as a part thereof. Copies of the
Registration Statement can be inspected and copied at the offices of the
Commission as set forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed with the Commission by Peoples
First are incorporated herein by reference:
(a) Annual Report of Peoples First on Form 10-K for the year ended
December 31, 1992;
(b) Quarterly Reports of Peoples First on Form 10-Q for the quarters
ended March 31, June 30, and September 30, 1993;
(c) The description of Peoples First Common Stock contained in the
Registration Statement of Peoples First on Form 8-A, filed with the
Commission on April 29, 1988, and any amendments or reports filed thereafter
for the purpose of updating such description;
(d) Current Report of Peoples First on Form 8-K dated October 18, 1993,
filed pursuant to Section 13 of the Exchange Act; and
(e) Form 10-C of Peoples First filed with the Commission on January 18,
1994.
All other reports filed pursuant to Sections 13(a) or 15(d) of the Exchange
Act since the end of the fiscal year covered by the Annual Report referred to in
(a) above and before the date of the Annual Meeting will be deemed to be
incorporated by reference in this Prospectus-Proxy Statement and to be a part
hereof.
THIS PROSPECTUS-PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS) ARE AVAILABLE UPON REQUEST AT NO CHARGE FROM A.
HOWARD ARANT, SECRETARY, PEOPLES FIRST CORPORATION, P.O. BOX 2200, PADUCAH,
KENTUCKY 42002-2200, 502/441-1200. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY FEBRUARY 18, 1994.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
AVAILABLE INFORMATION..................................................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................... 2
SUMMARY................................................................................................... 5
SELECTED FINANCIAL INFORMATION............................................................................ 9
COMPARATIVE PER SHARE DATA................................................................................ 12
THE ANNUAL MEETING........................................................................................ 13
Voting.................................................................................................. 13
Revocation of Proxies................................................................................... 13
Solicitation of Proxies................................................................................. 13
ELECTION OF DIRECTORS..................................................................................... 14
Meetings and Committees of the First Kentucky Board..................................................... 16
Directors' Compensation................................................................................. 16
Executive Compensation.................................................................................. 16
Transactions with Management............................................................................ 18
MERGER.................................................................................................... 19
General................................................................................................. 19
Background for the Merger............................................................................... 19
Reasons for the Merger.................................................................................. 21
Opinion of Financial Advisor............................................................................ 21
Description of the Merger............................................................................... 24
Conditions for Consummation............................................................................. 25
Termination............................................................................................. 25
Accounting Treatment.................................................................................... 26
Interests of Certain Persons in the Merger.............................................................. 26
Effect on Employee Benefit Plans, Programs and Arrangements............................................. 27
Option Agreement........................................................................................ 28
Federal Income Tax Consequences......................................................................... 29
Appraisal Rights of Stockholders........................................................................ 29
Regulatory Approvals.................................................................................... 32
Conduct of Business Before the Merger................................................................... 32
Distribution of Stock Certificates...................................................................... 33
Operations After the Merger............................................................................. 34
Resale of Peoples First Common Stock.................................................................... 34
PRO FORMA FINANCIAL STATEMENTS............................................................................ 34
PEOPLES FIRST COMMON STOCK -- MARKET AND DIVIDEND INFORMATION............................................. 41
COMPARISON OF PEOPLES FIRST COMMON STOCK AND FIRST KENTUCKY COMMON STOCK.................................. 41
Authorized Shares....................................................................................... 42
Voting.................................................................................................. 42
Board of Directors...................................................................................... 42
Indemnification......................................................................................... 43
Limitation on Director Liability........................................................................ 43
Dividends............................................................................................... 44
Special Meetings........................................................................................ 44
Assessment.............................................................................................. 45
No Preemptive Rights.................................................................................... 45
Transfer Agents......................................................................................... 45
Certain Provisions That May Have an Anti-Takeover Effect................................................ 45
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----------
FIRST KENTUCKY BANCORP, INC............................................................................... 48
<S> <C>
First Kentucky Federal.................................................................................. 48
Lending Activities...................................................................................... 49
Investment Activities................................................................................... 62
Deposit Activity and Other Sources of Funds............................................................. 64
Subsidiary Activities................................................................................... 68
Employees............................................................................................... 68
Competition............................................................................................. 69
Taxation................................................................................................ 69
Properties.............................................................................................. 71
Legal Proceedings....................................................................................... 71
FIRST KENTUCKY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...... 72
1993 Versus 1992........................................................................................ 72
1992 Versus 1991........................................................................................ 77
Impact of New Accounting Standards...................................................................... 83
Liquidity and Capital Resources......................................................................... 84
Impact of Inflation and Changing Prices................................................................. 84
Asset/Liability Management.............................................................................. 85
PRINCIPAL STOCKHOLDERS OF FIRST KENTUCKY.................................................................. 87
FIRST KENTUCKY COMMON STOCK PRICE RANGE AND DIVIDENDS..................................................... 88
ADJOURNMENT OF ANNUAL MEETING............................................................................. 88
SUPERVISION AND REGULATION OF FIRST KENTUCKY.............................................................. 89
Regulation of First Kentucky Federal.................................................................... 89
Regulation of First Kentucky............................................................................ 97
LEGAL MATTERS............................................................................................. 100
EXPERTS................................................................................................... 100
OTHER BUSINESS............................................................................................ 100
STOCKHOLDER PROPOSALS..................................................................................... 100
ANNUAL REPORT ON FORM 10-KSB.............................................................................. 100
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY................. 101
APPENDICES
A. Merger Agreement and Plan of Reorganization
B. Plan and Agreement of Merger
C. Fairness Opinion of Capital Resources, Inc.
D. Provisions of Delaware Law Concerning the
Rights of Dissenting Stockholders
</TABLE>
4
<PAGE>
SUMMARY
The following summary does not purport to be complete and should be read in
conjunction with, and is qualified in its entirety by reference to, the more
detailed information contained in this Prospectus-Proxy Statement, the
information incorporated by reference herein, the Appendices, and other
documents referred to in any of them.
THE ANNUAL MEETING AND STOCKHOLDER VOTE REQUIRED
The Annual Meeting will be held February 28, 1994, at 2:00 p.m., local time,
at the Convention Center Inn, 2011 West Everly Brothers Boulevard, Central City,
Kentucky. Only holders of record of First Kentucky Common Stock at the close of
business on January 10, 1994 (the "Record Date"), are entitled to vote at the
Annual Meeting. The purposes of the Annual Meeting are, among other things, (i)
to elect two directors for three-year terms; (ii) to approve a Merger Agreement
and Plan of Reorganization, dated as of October 15, 1993 among Peoples First,
Subsidiary, First Kentucky and First Kentucky Federal and the related Plan and
Agreement of Merger (hereafter referred to together as the "Merger Agreement")
whereby First Kentucky will be merged with and into the Subsidiary (the
"Merger") and each outstanding share of the common stock, $.01 par value per
share of First Kentucky ("First Kentucky Common Stock"), will be converted into
2.27194 shares of the common stock, no par value per share, of Peoples First
(the "Peoples First Common Stock"); (iii) to approve an adjournment of the
Annual Meeting to a later date, if necessary, to solicit additional proxies if
insufficient shares are present at the Annual Meeting to approve the Merger; and
(iv) to transact such other business as may properly come before the Annual
Meeting.
As of the Record Date, there were 409,342 shares of First Kentucky Common
Stock outstanding and entitled to vote, held by approximately 370 stockholders,
with each share entitled to one vote. The affirmative vote of the holders of a
majority of the shares of First Kentucky Common Stock outstanding and entitled
to vote is required to approve the Merger Agreement. The obligations of Peoples
First and First Kentucky to consummate the Merger are further conditioned on
there being no more than 9% of the shares dissenting from the Merger. See
"Comparison of Peoples First Common Stock and First Kentucky Common Stock," and
"Principal Stockholders and Management of First Kentucky."
However, if the Merger is not consummated for any reason, the Board of
Directors of First Kentucky expects to continue the business of First Kentucky
as described under "First Kentucky Bancorp, Inc." Accordingly, First Kentucky
stockholders are also being asked to elect directors of First Kentucky, each to
serve until the Merger is consummated or, if the Merger is not consummated for
any reason, for a term of three years and until their respective successors have
been elected and qualified. The directors are elected by a plurality of the
votes cast. See "Election of Directors."
PEOPLES FIRST CORPORATION
Peoples First is a bank holding company registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") pursuant
to Section 5(a) of the Bank Holding Company Act of 1956, as amended (the
"BHCA"), and has been in recent years one of the ten largest independent
financial institutions headquartered in Kentucky. Peoples First conducts a
complete range of commercial and personal banking activities in Western Kentucky
through its wholly owned subsidiary banks: The Peoples First National Bank &
Trust Company of Paducah ("Peoples First Bank") in McCracken County, Kentucky;
Bank of Murray in Calloway County, Kentucky; The Salem Bank, Inc. in Livingston
County, Kentucky; First National Bank of LaCenter in Ballard County, Kentucky;
and First Liberty Bank of Calvert City in Marshall County, Kentucky.
5
<PAGE>
The following table provides certain information about the operation of
Peoples First's five banking subsidiaries as of September 30, 1993 (in millions,
except office data):
<TABLE>
<CAPTION>
Year
Subsidiary Acquired Assets Loans Deposits Offices
- ----------------------------------------------------- ----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Peoples First National Bank.......................... 1983 $ 457.1 $ 341.1 $ 383.4 8
Bank of Murray....................................... 1992 257.3 139.5 214.4 3
The Salem Bank....................................... 1989 41.2 17.8 36.4 2
First National Bank of LaCenter...................... 1987 36.3 21.3 30.1 1
First Liberty Bank................................... 1987 35.2 18.1 31.2 2
</TABLE>
The amounts above do not equal the corresponding amounts for Peoples First
on a consolidated basis due to eliminating entries and parent company amounts.
For a summary of financial information about Peoples First's operations on a
consolidated basis, see "Selected Financial Information."
Assuming consummation of the Merger, and based upon the pro forma financial
statement data, accompanying assumptions and adjustments contained elsewhere
herein, as of September 30, 1993, First Kentucky would represent approximately
17.5% of the combined total assets of Peoples First and First Kentucky, 18.8% of
the combined total deposits of Peoples First and First Kentucky, 15.4% of the
combined stockholders' equity of Peoples First and First Kentucky, and 18.2% of
the combined net income of Peoples First and First Kentucky (based upon net
income for the full year ended December 31, 1992). See "Pro Forma Financial
Statements."
Peoples First's principal executive offices are located at 100 South Fourth
Street, Paducah, Kentucky 42001. Peoples First's telephone number is (502)
441-1200.
FIRST KENTUCKY
First Kentucky is a Delaware corporation incorporated in January 1991 to
become the holding company for First Kentucky Federal upon First Kentucky
Federal's conversion from mutual to stock form. In June 1991, First Kentucky
used the proceeds from its initial public offering to acquire all of the
outstanding capital stock of First Kentucky Federal. First Kentucky Federal is
primarily engaged in the business of attracting deposits from the general public
and originating permanent and construction loans secured by residential
properties in Kentucky. To a lesser extent, First Kentucky Federal originates
consumer loans and home equity loans. First Kentucky Federal conducts its
operations through its main office in Central City, Kentucky and five branch
offices in Muhlenberg, Ohio, McLean and Butler Counties in Kentucky. First
Kentucky is the largest financial institution headquartered in its market area
of Central Kentucky. See "First Kentucky Bancorp, Inc."
First Kentucky's principal executive offices are located at 214 North First
Street, Central City, Kentucky 42330-0110. First Kentucky's telephone number is
(502) 754-1331.
THE PROPOSED TRANSACTION
First Kentucky, First Kentucky Federal, Peoples First and Subsidiary entered
into the Merger Agreement dated as of October 15, 1993. The Merger Agreement
provides that, upon approval of stockholders of First Kentucky and the meeting
of all other conditions contained in it, including regulatory approvals, First
Kentucky would be merged into and with Subsidiary. Upon consummation of the
Merger, Subsidiary will be the surviving corporation and First Kentucky will
cease to exist. First Kentucky Federal will continue its existence but will
become a wholly owned, second-tier subsidiary of Peoples First.
If the Merger is consummated, First Kentucky stockholders who do not dissent
from the Merger will have the right to receive, for each share of First Kentucky
Common Stock, 2.27194 shares of Peoples First Common Stock (the "Merger
Consideration"). No fractional shares of Peoples First Common Stock will be
issued in the Merger, and cash will be paid in lieu of any fractional share. At
January 14, 1994, the last reported sale price per share of Peoples First Common
Stock was $27.00, and at that price the aggregate value of the Merger
Consideration was $61.34 per share of First Kentucky Common Stock. See "Merger
- -- Description of the Merger."
6
<PAGE>
RECOMMENDATION
The First Kentucky Board has unanimously approved the Merger Agreement,
believes that the proposed Merger is in the best interests of First Kentucky and
its stockholders, and unanimously recommends that First Kentucky's stockholders
vote FOR approval of the Merger Agreement. In making its recommendation, the
First Kentucky Board has considered, among other things, the opinion of Capital
Resources Group, Inc. ("Capital Resources") that the consideration to be
received by First Kentucky's stockholders in the Merger is fair to First
Kentucky's stockholders from a financial point of view. See "The Merger --
Opinion of Financial Advisor."
The individual members of the First Kentucky Board have also agreed (unless
inconsistent with their fiduciary duties) to vote for the Merger, subject to
each member's review of the Prospectus-Proxy Statement. As of December 31, 1993,
the members of the First Kentucky Board owned a total of 109,862 shares of First
Kentucky Common Stock entitled to vote at the Annual Meeting, which constitutes
26.8% of the shares of First Kentucky Common Stock entitled to vote at the
Annual Meeting. If the members of the First Kentucky Board vote their shares for
the Merger, the affirmative vote of 94,810 additional shares or 23.2% of the
First Kentucky Common Stock would be required to approve the Merger.
OPINION OF FINANCIAL ADVISOR
Capital Resources Group, Inc., a financial consulting firm, was engaged to
advise the First Kentucky Board as to the fairness of the Merger Consideration
to First Kentucky stockholders from a financial point of view. By letter dated
October 15, 1993, and updated as of January 27, 1994, Capital Resources rendered
its opinion that the Merger Consideration is fair to First Kentucky stockholders
from a financial point of view. Receipt of the opinion is a condition to
consummation of the Merger, as is that the opinion not be withdrawn prior to the
vote of First Kentucky stockholders on the Merger. See "Merger -- Opinion of
Financial Advisor." A copy of the updated opinion of Capital Resources is
attached as Appendix C to this Prospectus-Proxy Statement.
REGULATORY APPROVAL
The Merger must be approved by the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") and the Office of Thrift Supervision
("OTS"). Peoples First has filed applications for approval of the Merger with
both the Federal Reserve Board and the OTS. On January 4, 1994, the Federal
Reserve Board approved the Merger. See "Merger -- Regulatory Approvals."
CONDITIONS TO THE MERGER
Consummation of the Merger is subject to the satisfaction or waiver of
certain conditions in addition to the approval of First Kentucky stockholders,
regulatory approvals and the receipt of the opinion of the Financial Advisor.
See "The Merger -- Conditions for Consummation."
TERMINATION
The Merger Agreement is subject to termination by mutual consent of the
parties or, in the case of certain defaults, by notice of termination given by
the party not in default. In addition, the Merger Agreement may be terminated by
either party if, without the fault of the terminating party, the Merger has not
been consummated by August 31, 1994. See "The Merger -- Termination."
INTERESTS OF CERTAIN PERSONS IN THE MERGER AND EFFECT OF MERGER ON EMPLOYEES AND
BENEFIT PLANS
Upon consummation of the Merger, the existing employment agreements of
Dennis W. Kirtley and David R. Morrison will be amended and restated to provide
for their continued employment with First Kentucky Federal for a period of three
years from the effective date of the Merger. In addition, the Board of Directors
of Peoples First will be increased by two members and Dennis W. Kirtley and one
other member of the First Kentucky Federal Board mutually agreeable to First
Kentucky and Peoples First will be appointed to the new positions on the Peoples
First Board of Directors. See "The Merger -- Interest of Certain Persons in the
Merger." The Merger Agreement further provides that
7
<PAGE>
certain First Kentucky employee benefit plans be continued or that comparable
benefits be provided under Peoples First plans. See "The Merger -- Effect on
Employee Benefit Plans, Programs and Arrangements."
TAX CONSEQUENCES
First Kentucky and Peoples First have received an opinion of tax counsel,
Brown, Todd & Heyburn, concerning certain federal income tax effects of the
Merger. First Kentucky stockholders who receive cash in lieu of fractional
shares of Peoples First Common Stock or who dissent and receive cash in exchange
for their First Kentucky Common Stock may recognize capital gain or loss as a
result of the transaction, provided that certain conditions more fully described
hereafter are met. See "Merger -- Federal Income Tax Consequences."
RIGHTS OF DISSENTING STOCKHOLDERS
If the Merger Agreement and related Plan of Merger are approved and the
Merger is consummated, each stockholder of First Kentucky who dissents from the
Merger will have the right to be paid the "fair value" of his or her First
Kentucky shares in cash provided that the stockholder complies with Section 262
of the Delaware General Corporation Law ("DGCL"). See "Merger -- Appraisal
Rights of Stockholders" and Appendix D. The obligation of Peoples First to
effect the Merger is subject to the condition that the holders of no more than
9% of the total number of outstanding shares of First Kentucky Common Stock
shall have perfected dissenters' appraisal rights.
OPTION AGREEMENT
Peoples First and First Kentucky have also entered into a separate agreement
(the "Option Agreement") granting Peoples First an exclusive option to purchase
21,500 shares of First Kentucky Common Stock (or 4.99% of the outstanding shares
after issuance) for $42.03 per share upon the occurrence of certain "Purchase
Events," as defined in the Option Agreement. The Option Agreement characterizes
any filing by First Kentucky of any application or notice with any governmental
body proposing that First Kentucky engage in any sale of First Kentucky Federal
to any third party as a "Purchase Event." See "Merger -- Option Agreement."
CHANGES IN RIGHTS OF STOCKHOLDERS
The rights of holders of First Kentucky Common Stock differ in certain
respects from the rights of holders of Peoples First Common Stock. In addition,
both Peoples First's articles of incorporation and First Kentucky's certificate
of incorporation contain provisions intended to deter takeover initiatives that
the board of directors of Peoples First or First Kentucky, as the case may be,
determine not to be in the best interest of the institution or its shareholders.
See "Comparison of Peoples First Common Stock and First Kentucky Common Stock."
In accordance with the articles of incorporation of Peoples First and the
certificate of incorporation of First Kentucky, any action taken as a director
of Peoples First or First Kentucky, as the case may be, or any failure to take
any action as a director, will not be the basis for monetary damages or
injunctive relief except in certain circumstances.
DISTRIBUTION OF STOCK CERTIFICATES
As soon as reasonably practicable after the effective date of the Merger
(the "Effective Time"), but in any event not more than five business days after
the Effective Time, Peoples First Bank, as Exchange Agent, must mail a letter of
transmittal and instructions for exchanging certificates to each holder of
record of certificates of First Kentucky Common Stock. Each holder who properly
delivers his or her First Kentucky Common Stock certificates and a completed
transmittal letter to Peoples First Bank will be entitled to receive whole
shares of Peoples First Common Stock at a ratio of 2.27194 shares of Peoples
First Common Stock for every share of First Kentucky Common Stock and cash in
lieu of any fractional share interest. See "The Merger -- Distribution of Stock
Certificates." PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME.
8
<PAGE>
SELECTED FINANCIAL INFORMATION
PEOPLES FIRST CORPORATION AND SUBSIDIARIES
The following selected financial information is qualified in its entirety by
the detailed financial information contained herein or incorporated by
reference. The results for the nine months ended September 30, 1993 and 1992 are
unaudited, but, in the opinion of management of Peoples First, fairly represent
the financial condition and results of operations for such periods. The results
of operations for the nine months ended September 30, 1993 are not necessarily
indicative of the results which may be expected for the full year. Per share
amounts have been adjusted to reflect a two-for-one stock split effected in the
form of a 100% stock dividend on January 4, 1994.
SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
------------------------
1993 1992
----------- -----------
<S> <C> <C>
(Dollars in thousands,
except per share
amounts)
Net interest income..................................................................... $ 24,134 $ 19,521
Provision for loan losses............................................................... 1,745 2,023
----------- -----------
Net interest income after provision for loan losses..................................... 22,389 17,498
Noninterest income...................................................................... 3,857 3,695
Noninterest expense..................................................................... 16,692 13,814
----------- -----------
Income before income tax expense........................................................ 9,554 7,379
Income tax expense...................................................................... 2,497 1,732
----------- -----------
Net income.............................................................................. $ 7,057 $ 5,647
----------- -----------
----------- -----------
PER COMMON SHARE
Net income............................................................................ $ 1.11 $ 0.99
Cash dividends declared............................................................... 0.295 0.265
Book value, end of period............................................................. 12.29 11.17
SELECTED AVERAGE BALANCES
Total assets.......................................................................... $ 806,529 $ 670,879
Loans................................................................................. 503,673 407,036
Investment securities................................................................. 247,569 214,303
Deposits.............................................................................. 683,592 574,528
Shareholders' equity.................................................................. 72,352 58,101
SELECTED PERIOD END BALANCES
Total assets.......................................................................... $ 825,593 $ 787,702
Loans................................................................................. 537,922 474,009
Investment securities................................................................. 237,359 259,209
Deposits.............................................................................. 694,955 669,718
Shareholders' equity.................................................................. 75,534 68,156
RATIOS
Return on average assets.............................................................. 1.17% 1.12%
Return on average equity.............................................................. 13.04 12.98
Tax equivalent net interest margin.................................................... 4.54 4.40
Allowance for loan losses to loans.................................................... 1.64 1.44
Provision for loan losses to average loans............................................ 0.46 0.66
Net charge-offs to average loans...................................................... 0.05 0.70
Tier 1 risk-adjusted capital.......................................................... 11.81 11.50
Total risk-adjusted capital........................................................... 13.06 12.75
</TABLE>
9
<PAGE>
SELECTED FINANCIAL INFORMATION
PEOPLES FIRST CORPORATION AND SUBSIDIARIES
The following selected financial information is qualified in its entirety by
the detailed financial information contained herein or incorporated by
reference. Per share amounts have been adjusted to reflect a two-for-one stock
split effected in the form of a 100% stock dividend on January 4, 1994.
SUMMARY OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1992 1991 1990 1989 1988
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
Net interest income.................................. $ 27,213 $ 20,133 $ 17,627 $ 15,363 $ 12,517
Provision for loan losses............................ 2,773 2,074 1,777 1,873 1,591
----------- ----------- ----------- ----------- -----------
Net interest income after provision for loan
losses.............................................. 24,440 18,059 15,850 13,490 10,926
Noninterest income................................... 5,078 3,400 3,426 3,086 2,402
Noninterest expense.................................. 19,425 13,136 11,724 10,415 9,165
----------- ----------- ----------- ----------- -----------
Income before income tax expense..................... 10,093 8,323 7,552 6,161 4,163
Income tax expense................................... 2,524 1,956 1,765 1,443 859
----------- ----------- ----------- ----------- -----------
Net income........................................... $ 7,569 $ 6,367 $ 5,787 $ 4,718 $ 3,304
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
PER COMMON SHARE
Net income......................................... $ 1.30 $ 1.30 $ 1.20 $ 1.07 $ 0.78
Cash dividends declared............................ 0.36 0.31 0.25 0.19 0.15
Book value, end of period.......................... 11.41 9.38 8.36 7.38 6.44
SELECTED AVERAGE BALANCES
Total assets....................................... $ 701,933 $ 501,225 $ 460,662 $ 393,722 $ 354,980
Loans.............................................. 423,972 324,841 299,524 264,450 237,078
Investment securities.............................. 225,074 145,948 130,774 98,268 91,209
Deposits........................................... 600,299 448,597 418,151 357,932 323,640
Shareholders' equity............................... 60,211 42,155 37,254 30,361 25,676
SELECTED PERIOD END BALANCES
Total assets....................................... $ 802,150 $ 532,588 $ 491,221 $ 441,586 $ 369,786
Loans.............................................. 482,132 335,353 313,391 285,724 237,078
Investment securities.............................. 253,482 155,482 135,516 120,810 94,009
Deposits........................................... 694,653 459,038 446,497 401,632 337,002
Shareholders' equity............................... 69,755 45,075 39,774 34,829 27,157
RATIOS
Return on average assets........................... 1.08% 1.27% 1.26% 1.20% 0.93%
Return on average equity........................... 12.57 15.10 15.53 15.54 12.87
Tax equivalent net interest margin................. 4.40 4.53 4.33 4.42 4.02
Allowance for loan losses to loans................. 1.51 1.62 1.64 1.67 1.60
Provision for loan losses to average loans......... 0.65 0.64 0.59 0.71 0.67
Net charge-offs to average loans................... 0.57 0.55 0.47 0.51 0.28
Tier 1 risk-adjusted capital....................... 11.50 12.45 11.62 11.29 n/a
Total risk-adjusted capital........................ 12.75 13.70 12.84 12.54 n/a
</TABLE>
10
<PAGE>
SELECTED FINANCIAL INFORMATION
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
The following selected financial information is qualified in its entirety by
the more detailed financial information contained elsewhere herein.
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FINANCIAL CONDITION AT SEPTEMBER 30,
Total assets........................................... $ 175,681 $ 178,035 $ 175,756 $ 167,928 $ 163,041
Loans receivable, net.................................. 78,233 81,688 98,059 107,302 109,698
Cash and investment securities (1)..................... 24,316 33,885 45,618 51,243 42,602
Mortgage-backed securities............................. 69,748 58,114 27,406 4,589 5,785
Customer deposits...................................... 161,375 165,424 164,469 160,784 156,374
Stockholders' equity (2)............................... 13,751 11,842 10,205 6,581 5,966
OPERATIONS DATA FOR YEAR ENDED SEPTEMBER 30,
Interest income........................................ $ 12,271 $ 14,128 $ 14,941 $ 14,828 $ 14,787
Interest on customer deposits.......................... 6,684 9,092 11,009 11,303 11,448
---------- ---------- ---------- ---------- ----------
Net interest income before provisions for loan
losses................................................ 5,587 5,036 3,932 3,525 3,339
Provision for loan losses.............................. 122 253 264 87 167
---------- ---------- ---------- ---------- ----------
Net interest income after provision for loan losses.... 5,465 4,783 3,668 3,438 3,172
Other income (3)....................................... 449 641 492 491 918
Other expenses......................................... 3,322 3,228 3,000 2,980 2,689
---------- ---------- ---------- ---------- ----------
Income before income taxes............................. 2,592 2,196 1,160 949 1,401
Income taxes........................................... 836 745 433 334 414
---------- ---------- ---------- ---------- ----------
Net income............................................. $ 1,756 $ 1,451 $ 727 $ 615 $ 987
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Net income per share (4)............................... $ 4.56 $ 4.00 $ .58 $ n/a $ n/a
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
OTHER DATA AS OF AND FOR YEAR ENDED SEPTEMBER 30,
Average interest rate spread........................... 3.11% 2.81% 2.34% 2.25% 2.16%
Net yield on average interest-earning assets........... 3.28% 2.95% 2.41% 2.22% 2.09%
Return on assets....................................... 0.99% 0.81% 0.46% 0.37% 0.59%
Return on equity (5)................................... 13.80% 13.24% 9.59% 9.66% 17.54%
Equity to assets (5)................................... 7.18% 6.13% 4.84% 3.83% 3.35%
Dividend payout ratio.................................. 16.45% n/a n/a n/a n/a
Book value per share................................... $ 33.59 $ 31.74 $ 28.17 n/a n/a
Number of (at end of period)
Real estate loans outstanding (6).................... 2,252 2,386 2,660 2,836 2,912
Customer deposit accounts............................ 20,846 21,825 22,278 22,715 23,118
Full service offices................................. 6 6 6 6 6
<FN>
- --------------------------
(1) Includes cash on hand, cash in other depository institutions, and
investment in FHLB stock.
(2) Represents retained earnings only prior to fiscal year 1991.
(3) Other income for the year ended September 30, 1992 includes $13,036 gain
on sale of investments.
(4) For fiscal year 1991, net income per share was computed from the date of
conversion, June 18, 1991 through September 30, 1991.
(5) Average stockholders' equity reflects retained earnings only until the
date of conversion, June 18, 1991; the proceeds of which were $3.1
million.
(6) Does not include home improvement and home equity loans.
</TABLE>
11
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth, at the dates and for the periods indicated,
selected historical per share data of Peoples First and First Kentucky and
corresponding pro forma per share amounts for Peoples First after giving effect
to the Merger. The table also sets forth the pro forma equivalents for one share
of First Kentucky Common Stock, giving effect to the Merger. The data presented
is based upon the historical financial statements and related notes of Peoples
First and First Kentucky and the unaudited pro forma combined condensed
financial statements and related notes included elsewhere herein and should be
read in conjunction therewith. Per share amounts for Peoples First have been
adjusted to reflect a two-for-one stock split effected in the form of a 100%
stock dividend on January 4, 1994.
<TABLE>
<CAPTION>
PEOPLES FIRST FIRST KENTUCKY
------------------------- ------------------------
PRO FORMA PRO FORMA
HISTORICAL COMBINED (1) HISTORICAL EQUIVALENT
---------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
Book value per share at:
September 30, 1993.......................................... $ 12.29 $ 12.62 $ 33.59 $ 28.67
December 31, 1992........................................... 11.41 11.61 32.14 26.38
Cash dividends declared per share for:
Nine months ended September 30, 1993........................ 0.295 0.295 0.00 0.67
Yr. end Dec. 31, 1992....................................... 0.360 0.360 0.75 0.82
Yr. end Dec. 31, 1991....................................... 0.310 0.310 0.00 0.70
Yr. end Dec. 31, 1990....................................... 0.250 0.250 (2) 0.57
Net income per share for:
Nine months ended September 30, 1993........................ 1.11 1.15 3.43 2.61
Yr. end Dec. 31, 1992....................................... 1.30 1.31 4.60(3) 2.98
Yr. end Dec. 31, 1991....................................... 1.30 1.22 1.21(3) 2.77
Yr. end Dec. 31, 1990....................................... 1.20 1.11 (2) 2.52
Mkt. Value as of Oct. 15, 1993, the date preceding public
announcement of the Merger................................... $ 20.00 19.00(4) 45.44
Total Merger Consideration as of January 14, 1994............. $ 61.34
</TABLE>
<TABLE>
<S> <C>
<FN>
- ------------------------
(1) Data developed using an exchange ratio of 2.27194. See "Merger --
Description of the Merger."
(2) Not applicable because First Kentucky did not issue any shares until June
18, 1991.
(3) Net income per share for fiscal year 1992 is computed on the basis of the
weighted average number of shares outstanding. Common stock equivalents have
not been used in computing net income per share because their effect is not
material. Net income per share of common stock from the date of conversion,
June 18 to September 30, 1991, is computed by dividing net income for the
period by 362,250 shares, the number of shares of common stock issued and
outstanding for the period.
Pro forma net income per share of common stock is $2.40 per share for the
year ended September 30, 1991 and has been calculated as if the 362,250
common shares were issued on October 1, 1990. Pro forma net income has been
adjusted to reflect investment of the stock proceeds for the period October
1, 1990 through June 17, 1991 at 6.03% (First Kentucky Federal's weighted
average interest rate on interest-earning assets for 1991, net of tax).
(4) Trading in First Kentucky Common Stock is very limited. See "First Kentucky
Common Stock Price Range and Dividends."
</TABLE>
12
<PAGE>
THE ANNUAL MEETING
The proxy card accompanying this Prospectus-Proxy Statement is solicited by
and on behalf of the Board of Directors of First Kentucky (the "First Kentucky
Board") for use at the Annual Meeting of Stockholders to be held on February 28,
1994, at 2:00 p.m. local time, or at any postponement or adjournment thereof
(the "Annual Meeting"). The Annual Meeting has been called for the purpose of
considering and voting upon: (1) the election of two directors of First Kentucky
to serve for three-year terms; (2) approval of the Merger Agreement; (3)
approval of an adjournment of the Annual Meeting to a later date, if necessary,
to solicit additional proxies if insufficient shares are present in person or by
proxy at the Annual Meeting to approve the Merger; and (4) transacting such
other business as may properly come before the Annual Meeting. The accompanying
Notice of Annual Meeting and proxy card and this Prospectus-Proxy Statement are
first being mailed to stockholders of First Kentucky on or about January 27,
1994.
VOTING
The shares of First Kentucky Common Stock represented by properly executed
proxies received prior to the closing of the polls at the Annual Meeting will be
voted as directed by the stockholders, unless revoked as described below. Under
Delaware law, proxies marked as abstentions are not counted as votes cast. In
addition, shares held in street name that have been designated by brokers on
proxy cards as not voted will not be counted as votes cast. If no instructions
are given, shares represented by executed but unmarked proxies will be voted FOR
approval of the Merger Agreement, FOR approval of an adjournment to solicit
additional proxies if insufficient shares are present in person or by proxy at
the Annual Meeting to approve the Merger, and FOR election of the individuals
nominated by the First Kentucky Board for three-year terms as directors. If any
other matter is brought before the Annual Meeting, shares represented by proxies
will be voted by the persons named as proxies therein as directed by a majority
of the First Kentucky Board.
REVOCATION OF PROXIES
Stockholders who execute proxies in the form solicited hereby will retain
the right to revoke their proxies at any time before the closing of the polls at
the Annual Meeting. A stockholder may, however, revoke a proxy by filing a
written notice of revocation with, or by delivering a duly executed proxy
bearing a later date to, the Secretary of First Kentucky at First Kentucky's
main office address at any time before the Annual Meeting. Stockholders may also
revoke proxies by delivering a duly executed proxy bearing a later date to the
Inspector of Election at the Annual Meeting before the closing of the polls or
by attending the Annual Meeting and voting in person. The presence of a
stockholder at the Annual Meeting will not automatically revoke the
stockholder's proxy.
The shareholders of Peoples First are not required by law to approve the
Merger, and the Merger Agreement will not be submitted to a vote for approval by
them. Peoples First owns 100% of the outstanding shares of the common stock of
Subsidiary and has agreed to approve the Merger Agreement, subject to the terms
and conditions of the Merger Agreement.
SOLICITATION OF PROXIES
The cost of soliciting proxies for the Annual Meeting will be borne by First
Kentucky, except that First Kentucky and Peoples First will each bear equally
the costs of printing and mailing the Prospectus-Proxy Statement. In addition to
use of the mails, proxies may be solicited personally or by telephone or
telegraph by directors, officers and other employees of First Kentucky, who will
not be specially compensated for their solicitation activities. Arrangements
will also be made with brokerage houses and other custodians, nominees and
fiduciaries for the forwarding of solicitation materials to the beneficial
owners of shares held of record by such persons, and First Kentucky will
reimburse such persons for their reasonable expenses incurred in that condition.
No person is authorized to give any information or to make any
representation not contained or incorporated by reference in this
Prospectus-Proxy Statement and, if given or made, such information or
representation should not be relied upon as having been authorized by First
Kentucky, Peoples
13
<PAGE>
First, or any other person. The delivery of this Prospectus-Proxy Statement does
not, under any circumstances, imply that there has been no change in the affairs
of First Kentucky or Peoples First since the date of this Prospectus-Proxy
Statement.
PROPOSAL I
ELECTION OF DIRECTORS
The First Kentucky Board currently consists of eight members. First
Kentucky's Certificate of Incorporation requires that directors be divided into
three classes, as nearly equal in number as possible. Members of each class
serve for a term of three years and until their successors are elected and
qualified, with approximately one-third of the directors elected each year. The
First Kentucky Board has nominated for election as directors Gathiel D. Baker
and Dennis W. Kirtley, each of whom is currently a member of the Board, to serve
for three years and until their successors are elected and qualified. Directors
are elected by a plurality of the votes cast.
It is intended that the shares represented by proxies solicited by the First
Kentucky Board will be voted for the election of the named nominees. If any
nominee is unable to serve, the shares represented by all properly executed
proxies that have not been revoked will be voted for the election of any
substitute the First Kentucky Board may recommend, or the size of the Board may
be reduced to eliminate the vacancy. At this time, the Board knows of no reason
why any nominee might be unavailable to serve.
The following table sets forth for each nominee and each continuing
director, his name, age as of the Record Date, the year he first became a
director of First Kentucky's principal subsidiary, First Kentucky Federal, the
expiration of his current term as a director of First Kentucky, and the number
and percentage of shares of the First Kentucky Common Stock beneficially owned.
Each person listed below was initially appointed as a director in 1991 in
connection with the incorporation and organization of First Kentucky. Each
director of First Kentucky is also a member of the board of directors of First
Kentucky Federal.
<TABLE>
<CAPTION>
YEAR FIRST SHARES OF
ELECTED CURRENT COMMON STOCK
DIRECTOR OF TERM BENEFICIALLY PERCENT
FIRST KENTUCKY TO OWNED AT OF
NAME AGE FEDERAL EXPIRE RECORD DATE(1) CLASS
- ---------------------- --- --------------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C>
BOARD NOMINEES FOR TERMS TO EXPIRE IN 1997
Gathiel D. Baker 68 1963 1994 15,750(2) 3.85%
Dennis W. Kirtley 50 1983 1994 34,161(3) 8.35
<CAPTION>
DIRECTORS CONTINUING IN OFFICE
<S> <C> <C> <C> <C> <C>
Glen Berryman 56 1982 1995 3,242(4) 0.79
C.A. Williams 68 1982 1995 5,528(5) 1.35
Larry Young 51 1983 1995 11,000(6) 2.69
David R. Morrison 50 1986 1996 20,181(7) 4.93
Charles H. Shaver 77 1965 1996 10,000(8) 2.44
P.A. Shaver, Jr. 82 1980 1996 10,000(9) 2.44
<FN>
- ------------------------
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
person is deemed to be the beneficial owner, for purposes of this table,
of any shares of the Common Stock if he or she has or shares voting or
investment power with respect to such security, or has a right to acquire
beneficial ownership at any time within 60 days from the Record Date. As
used herein, "voting power" is the power to vote or direct the voting of
shares and "investment power" is the power to dispose or direct the
disposition of shares. Except as otherwise noted, ownership is direct and
the named individuals and group exercise sole voting and investment power
over the shares of the Common Stock.
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
(2) Includes 6,300 shares held in individual retirement account and 9,450
shares held by wife. Does not include 16,398 shares beneficially owned by
adult members of Mr. Baker's family over which shares he disclaims
beneficial ownership. Does not include 20,286 unallocated shares of First
Kentucky Common Stock held by the ESOP the voting of which is directed by
the ESOP Trustees who consist of Messrs. Baker, Berryman and Williams.
(3) Includes 3,000 shares held in individual retirement account and 500 shares
held in wife's individual retirement account. Includes 496 shares
allocated to Mr. Kirtley's accounts in the ESOP the voting of which shares
he has the power to direct. Does not include 200 shares held by adult
children over which shares Mr. Kirtley disclaims beneficial ownership.
(4) Includes 2,515 shares held in individual retirement account. Does not
include 20,286 unallocated shares of First Kentucky Common Stock held by
the ESOP the voting of which is directed by the ESOP Trustees who consist
of Messrs. Baker, Berryman and Williams.
(5) Includes 2,917 shares held in individual retirement account and 473 shares
held in wife's individual retirement account. Does not include 20,286
unallocated shares of First Kentucky Common Stock held by the ESOP the
voting of which is directed by the ESOP Trustees who consist of Messrs.
Baker, Berryman and Williams.
(6) Includes 3,140 shares held in individual retirement account and 3,141
shares held in wife's individual retirement account.
(7) Includes 2,170 shares held in individual retirement account. Includes 368
shares allocated to his account in the ESOP the voting of which shares he
has the power to direct. Does not include 2,000 shares held by
mother-in-law over which shares Mr. Morrison disclaims beneficial
ownership.
(8) Does not include 17,000 shares held by adult siblings of Mr. Shaver over
which shares he disclaims beneficial ownership.
(9) Does not include 5,000 shares held by an adult son of Mr. Shaver over
which shares he disclaims beneficial ownership.
</TABLE>
The principal occupation of each director of First Kentucky for the last
five years is set forth below.
Gathiel D. Baker is President of Tri-City Auto Parts with which he has been
associated for thirty-five years. He has served as a Director of First Kentucky
Federal since 1963.
Glen Berryman has been an insurance agent with Tichenor Insurance Agency,
Inc., Hartford, Kentucky, since 1969. He is a member of the Ohio County
Industrial Foundation and the Ohio County Lions Club.
Dennis W. Kirtley began his career in the thrift industry in 1969 as Chief
Executive Officer of First Federal Savings and Loan Association of Livermore. In
1977 he was appointed President -- Chief Executive Officer of Ohio County
Federal Savings and Loan Association and assumed his present position of
President -- Chief Executive Officer of First Kentucky Federal in 1983. Mr.
Kirtley is the past President of the Central City Lions Club and a past
President of the Central City-Muhlenberg County and Livermore-McLean County
Chambers of Commerce. He is a Director and the Treasurer of the Everly
Brothers-Central City, Kentucky Music Festival and a Director and past President
of the Muhlenberg County Industrial Development Corporation.
David R. Morrison joined First Kentucky Federal as Executive Vice President
- -- Chief Financial Officer in 1983, bringing with him eight years of savings and
loan experience. Mr. Morrison is a certified public accountant, a member of the
Central City Rotary Club, the Muhlenberg County Labor Management Council, and is
actively involved in numerous other civic affairs.
Charles H. Shaver is a retired insurance executive. He has served as
Director of First Kentucky Federal for the past 26 years.
15
<PAGE>
P. A. Shaver, Jr. is a retired banker. Mr. Shaver was elected as a Director
of First Kentucky
Federal in 1980. He is active in the Central City Rotary Club.
C. A. Williams is currently retired. He was formerly part-owner of Lester
Motors, Inc., an automobile dealership in Central City and Greenville, Kentucky.
Larry Young is operator of Beechmont Pharmacy, Beechmont, Kentucky and
Greenville Pharmacy in Greenville, Kentucky. He recently served as Chairman of
the City of Greenville Birthday Celebration Committee.
MEETINGS AND COMMITTEES OF THE FIRST KENTUCKY BOARD
The First Kentucky Board conducts its business through meetings of the Board
and of its committees. During the year ended September 30, 1993, the First
Kentucky Board held six meetings. No director attended fewer than 75% of the
total aggregate meetings of the First Kentucky Board and committees on which
such Board member served during this period.
The full First Kentucky Board acts as a nominating committee for the annual
selection of its nominees for election as directors. While the First Kentucky
Board will consider nominees recommended by stockholders, it has not actively
solicited recommendations from First Kentucky's stockholders for nominees nor,
subject to the procedural requirements set forth in First Kentucky's Certificate
of Incorporation and Bylaws, established any procedures for this purpose. The
First Kentucky Board met once in its capacity as the nominating committee during
the fiscal year ended September 30, 1993.
First Kentucky has a standing Stock Option and Management Recognition Plan
committee, but has not established a compensation committee. Presently the
functions of the compensation committee are carried out by similar committees of
First Kentucky Federal's Board of Directors.
First Kentucky Federal's Audit Committee consists of Directors Charles H.
Shaver and Gathiel D. Baker. This committee meets as needed with First Kentucky
Federal's internal and independent auditors to review First Kentucky Federal's
accounting and financial reporting policies and practices. The Audit Committee
met twelve times during the year ended September 30, 1993.
First Kentucky does not have a standing audit committee. First Kentucky
Federal's Finance Committee, consisting of Directors Gathiel D. Baker, Glen
Berryman, Dennis W. Kirtley and C. A. Williams, reviews personnel and
compensation policy and makes recommendations to the full First Kentucky Board.
The Finance Committee met once during the 1993 fiscal year.
DIRECTORS' COMPENSATION
Members of the Board of Directors and committees of the Board of Directors
of First Kentucky do not receive separate compensation in their capacities as
such. Each member of the Board of Directors of First Kentucky Federal receives
an annual retainer of $10,200. In addition, P. A. Shaver, Jr. receives an
additional fee of $3,600 for his service as a permanent member of the Loan
Committee.
First Kentucky Federal has entered into deferred compensation agreements
with two of its directors, and purchased whole life insurance contracts to
provide for the terms of the agreements. The agreements provide for (1) payments
for twenty years upon retirement, not to exceed the cash surrender value of
First Kentucky Federal's insurance contracts, or (2) a lump sum equal to the
death benefit payable to First Kentucky Federal under the whole life insurance
contracts upon the death of the director. First Kentucky Federal intends to make
accruals over the period of active service to provide for these agreements.
EXECUTIVE COMPENSATION
The following table sets forth the cash and noncash compensation for each of
the last three fiscal years awarded to or earned by the Chief Executive Officer
of First Kentucky for services rendered in all capacities to First Kentucky and
its subsidiaries.
16
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION COMPENSATION (1)
- ------------------------------------- --------- ----------- --------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Dennis W. Kirtley 1993 $ 100,598 $ 9,132 $ 57,748 $ 3,018
President and Chief Executive 1992 97,052 9,132 10,200
Officer 1991 94,558 9,000 9,600
<FN>
- ------------------------
(1) All other compensation includes contributions of $3,018 to First Kentucky
Federal's 401(k) plan on behalf of Mr. Kirtley to match one-half of six
percent of fiscal 1993 pre-tax elective deferred contributions included
under the "salary" column made by him to that plan.
</TABLE>
The following table sets forth information concerning the exercise of
options and stock appreciation rights ("SARs") by the Chief Executive Officer
during the last fiscal year, as well as the value of such options and SARs held
by him at the end of the fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR,
AND FISCAL YEAR-END OPTION/SAR VALUE
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS AT FISCAL IN-THE-MONEY OPTIONS/SARS
SHARES ACQUIRED VALUE REALIZED YEAR-END EXERCISABLE/ AT FISCAL YEAR-END
NAME ON EXERCISE (1) UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (1)
- --------------------- --------------- ---------------- ------------------------- -------------------------------
<S> <C> <C> <C> <C>
Dennis W. Kirtley 21,010 $ 157,575 -- --
<FN>
- ------------------------
(1) Difference between fair market value of underlying securities at exercise or
fiscal year-end and the exercise or base price.
</TABLE>
EMPLOYMENT AGREEMENTS. First Kentucky Federal has entered into employment
agreements with Dennis W. Kirtley, President and Chief Executive Officer, and
David R. Morrison, Executive Vice-President. The employment agreements commenced
on the date of completion of First Kentucky Federal's conversion to a federal
stock savings bank for a term of three years, with annual base salaries of
$95,000 and $70,000, respectively. The agreements provide for a salary review by
the First Kentucky Board not less often than annually, as well as inclusion in
any discretionary bonus plans, retirement and medical plans, customary fringe
benefits and vacation and sick leave. Each agreement will be terminated upon
death, and is terminable by First Kentucky Federal for "just cause" as defined
in the agreements. In the event of termination for just cause, no severance
benefits are available. If First Kentucky Federal terminates or demotes one of
these employees without just cause, the employee will be entitled to a
continuation of his salary from the date of termination through the remaining
term of the agreement plus an additional 12-month period, but in no event in
excess of three years salary and the cost of obtaining all health, life and
disability benefits which the employee would have been eligible to participate
in for a period of one year from the date of termination. Each employee is able
to voluntarily terminate his agreement by providing 60 days' written notice to
the First Kentucky Board, in which case the employee is entitled to receive only
his compensation, vested rights, and benefits up to the date of termination.
The employment agreements provide that in the event of the voluntary or
involuntary termination of employment in connection with, or within one year
after, any change in control of First Kentucky Federal or First Kentucky, the
employee will be paid within 30 days of such termination a sum equal to 2.99
times the average annual compensation he received during the five-year period
immediately prior to the date of change in control. "Control" generally refers
to the acquisition by any person or entity of the ownership or power to vote
more than 25% of First Kentucky Federal's or First
17
<PAGE>
Kentucky's voting stock, or the control of the election of a majority of First
Kentucky Federal's directors or the exercise of a controlling influence over the
management or policies of First Kentucky Federal or First Kentucky. The
employment agreements also provide for a similar lump sum payment to be made to
Mr. Kirtley or Mr. Morrison in the event of his voluntary termination of
employment upon the occurrence, or within 90 days thereafter, of certain
specified events following any change in control, whether approved by First
Kentucky Board or otherwise which have been consented to in writing by the
employee including (i) requiring the employee to move his personal residence or
perform his principal executive functions more than 35 miles from First Kentucky
Federal's current primary office, (ii) requiring the employee to report to a
person or persons other than the Board of Directors or President, respectively,
of First Kentucky Federal, (iii) the failure to maintain existing employee
benefit plans, including material vacation, fringe benefits, stock option and
retirement plans, (iv) assigning duties and responsibilities to the employee
other than those normally associated with his position with First Kentucky, (v)
a material diminution of his authority and responsibility, and (vi) in the case
of Mr. Kirtley, failure to be re-elected to the Board of Directors. The
aggregate payments that would be made to Messrs. Kirtley and Morrison assuming
the termination of employment under the foregoing circumstances at September 30,
1993 would have been approximately $284,683 and $210,584, respectively. In no
event, however, will payments be made after termination if First Kentucky
Federal is not (or as a result of such payments would not be) in fully phased-in
regulatory capital compliance. First Kentucky Federal currently complies with
all minimum capital requirements.
TRANSACTIONS WITH MANAGEMENT
Before enactment of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 ("FIRREA"), First Kentucky Federal had a policy of
offering mortgage and consumer loans to officers and employees on terms
substantially equivalent to those offered to the public, except that First
Kentucky Federal reduced the interest rate on mortgage loans by one percentage
point below the rates in comparable loans to members of the public.
Under FIRREA, First Kentucky Federal's loans to directors and executive
officers must be made on substantially the same terms, including interest rates,
as those prevailing for comparable transactions and must not involve more than
the normal risk of repayment or present other unfavorable features. Furthermore,
loans above the greater of $25,000 or 5% of First Kentucky Federal's capital and
surplus (up to $500,000) to such persons must be approved in advance by a
disinterested majority of the Board of Directors. As a result of FIRREA, First
Kentucky Federal does not offer favorable terms on mortgage loans to directors
or executive officers.
Set forth below is certain information at September 30, 1993 relating to
loans made to directors and executive officers of First Kentucky Federal whose
total aggregate loan balances exceeded $60,000 at any time since October 1,
1991.
<TABLE>
<CAPTION>
BALANCE AT HIGHEST
NAME AND RELATION TYPE OF DATE ORIGINAL INTEREST PREVAILING SEPTEMBER 30, BALANCE
TO FIRST KENTUCKY LOAN ORIGINATED AMOUNT RATE RATE 1993 FISCAL 1993
- ---------------------- ---------------- ------------ --------- ----------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
David R. Morrison Residential 9/90 $ 65,000 8.12% 8.12% $ 0(1) $ 63,492
Executive Vice Home Equity 8/91(2) 14,278 7.00 7.00 0(3) 14,278
President and Residential 10/92 64,800 7.00 7.00 63,979 64,800
Director
<FN>
- ------------------------
(1) Paid off 10/92.
(2) Six months renewable, last renewal date 10/92.
(3) Paid off 2/93.
</TABLE>
18
<PAGE>
PROPOSAL II
MERGER
GENERAL
First Kentucky and Peoples First entered into the Merger Agreement as of
October 15, 1993, which provides for the Merger of First Kentucky into and with
Subsidiary. Under the terms of the Merger Agreement, after approval by First
Kentucky's stockholders and the meeting of all other conditions contained in the
Merger Agreement, including regulatory approvals, the issued and outstanding
shares of First Kentucky Common Stock will be converted into shares of Peoples
First Common Stock. When the proposed Merger takes effect, First Kentucky
Federal will become a wholly owned, second-tier subsidiary of Peoples First.
In the Merger, stockholders of First Kentucky who do not dissent from the
Merger will have the right to receive, for each share of First Kentucky Common
Stock, 2.27194 shares of Peoples First Common Stock subject to adjustment under
certain circumstances. No fractional shares of Peoples First Common Stock will
be issued in the Merger, and cash will be paid in lieu of any fractional share.
On Saturday, October 16, 1993, the First Kentucky Board unanimously approved
the Merger Agreement and resolved that it would submit the Merger to First
Kentucky's stockholders for approval. Peoples First owns 100% of the outstanding
shares of the common stock of Subsidiary and has agreed to cause Subsidiary to
approve the Plan of Merger, subject to the terms and conditions of the Merger
Agreement.
The statements contained in this Prospectus-Proxy Statement with respect to
the terms and conditions of the Merger are subject to and qualified by the
provisions of (i) the Merger Agreement and (ii) the Plan of Merger, copies of
which are attached as Appendices A and B, respectively, to this Prospectus-Proxy
Statement and are incorporated herein by reference. Stockholders are urged to
read the Merger Agreement and Plan of Merger carefully.
References to numbers of shares of Peoples First Common Stock and amounts
per share of Peoples First Common Stock in this Prospectus-Proxy Statement (but
not in the Merger Agreement and the Plan of Merger) have been adjusted to
reflect a two-for-one stock split, effected in the form of a 100% stock dividend
on Peoples First Common Stock, on January 4, 1994.
BACKGROUND FOR THE MERGER
Beginning in June 1992, just over one year after the conversion of First
Kentucky Federal to stock form and when certain regulatory restrictions on
merger negotiations by First Kentucky expired, First Kentucky began receiving
unsolicited inquiries from various bank holding companies regarding First
Kentucky's receptivity to a business combination. First Kentucky responded to
each party that it was not soliciting proposals, but would be open to
discussions.
In the fall of 1992, First Kentucky entered into discussions regarding a
business combination with a regional bank holding company based on a valuation
of .75 shares of the bank holding company for each share of First Kentucky plus
an additional $18.00 in cash, for a value at that time of approximately $37.50
per share of First Kentucky Common Stock.
In addition, First Kentucky entered into discussions with a second regional
bank holding company at the beginning of 1993. These were informal discussions,
and an exchange rate of 2.3 shares of the bank holding company's stock for each
share of First Kentucky Common Stock was discussed. The value of this
transaction at the time equalled approximately $40.00 per share of First
Kentucky Common Stock.
On February 9, 1993 First Kentucky responded to the first proposal by
suggesting an increase in the value of the consideration to approximately $45.00
per share of First Kentucky Common Stock.
19
<PAGE>
On March 1, 1993, the bank holding company responded with a proposed total
consideration of $14.4 million, or approximately $35.00 per share, which was
less than their original valuation. There were no further discussions with the
first bank holding company after this time.
On February 12, 1993, a proposal for a business combination was received at
1.7111 shares of this bank holding company's stock for each share of First
Kentucky Common Stock, which at the time amounted to $38.50 per share of First
Kentucky. At a meeting held on February 12, 1993, the First Kentucky Board
considered this written proposal. Based on a Capital Resources valuation range
of $38.00 to $45.00 per share of First Kentucky Common Stock, and in view of the
continuing discussions with the second bank holding company with a potential
value of $40.00 per share, the First Kentucky Board resolved not to pursue this
proposal.
On March 22, 1993, Dennis Kirtley, President of First Kentucky, met with
Aubrey Lippert, Chairman and President of Peoples First, to discuss issues
relating to a possible business combination between First Kentucky and Peoples
First. By April 26, 1993, the companies had begun their initial discussion of
the consideration to be received by First Kentucky shareholders in such a
business combination.
By early July, the discussions with the second bank holding company had
ended and discussions focused on Peoples First. At a First Kentucky Board
meeting on July 9, 1993, Mr. Kirtley reviewed his conversations over the
preceding several weeks with Peoples First regarding its interest in a business
combination. After lengthy discussions the consensus of the Board was that no
proposal below $40.00 per share would be considered for a combination, and this
information was relayed to Mr. Lippert on July 16, 1993.
In mid-July 1993, Peoples First proposed that First Kentucky enter into a
letter of intent by July 23, 1993 to negotiate a business combination in which
the outstanding shares of First Kentucky would be converted into 930,000 shares
of Peoples First Common Stock. After reviewing the letter of intent with its
advisors, First Kentucky determined that it would be inadvisable to enter into
the letter of intent in its current form. On July 22, 1993, Mr. Kirtley met with
Mr. Lippert to discuss First Kentucky's reaction to the letter of intent. At
that meeting, they discussed numerous issues as well as an exchange ratio of
2.27194 shares of Peoples First Common Stock for each share of First Kentucky
Common Stock.
At a Board of Directors meeting on August 13, 1993, Mr. Kirtley reviewed the
progress made with Peoples First regarding the proposed business combination by
way of a 100% stock exchange. Based on Peoples First's then current market price
of $19.00 to $20.00 per share, Peoples First's proposal of 930,000 shares
equated to a range of $43.00 to $46.00 for each share of First Kentucky Common
Stock, or a total value of $17.6 million to $18.6 million for First Kentucky's
shareholders. The Board also recognized the potential for the growth of First
Kentucky if it were to combine with Peoples First because Peoples First could
provide investment opportunities and consumer and commercial lending expertise
to First Kentucky. At this meeting, Mr. Kirtley was authorized to execute a
confidentiality agreement with Peoples First, to contract for the performance of
a fairness opinion, and to proceed with the negotiation of a definitive
agreement for consideration by the First Kentucky Board.
On October 15, 1993, after extensive negotiations and investigation, the
First Kentucky Board met to carefully review and consider the proposed
affiliation with Peoples First. At such time the First Kentucky Board adopted
the Merger Agreement.
On January 4, 1994, Peoples First effected a two-for-one stock split in the
form of a 100% stock dividend. The exchange ratio under the Merger Agreement
automatically adjusted to 2.27194 shares of Peoples First Common Stock for each
share of First Kentucky Common Stock, and the total number of shares of Peoples
First Common Stock to be issued in the Merger automatically increased to 930,000
shares.
20
<PAGE>
REASONS FOR THE MERGER
FIRST KENTUCKY. In evaluating the Merger Agreement, the First Kentucky
Board, with the assistance of outside legal and financial advisors, considered a
variety of factors, primarily: (i) the consideration offered in relation to
historical trading prices of First Kentucky Common Stock; (ii) the results of
operations and financial condition of First Kentucky; and (iii) the advice of
Capital Resources Group, Inc., First Kentucky's financial advisor, as to the
fairness from a financial point of view of the terms of the Merger to holders of
First Kentucky Common Stock. In this regard, the Board of Directors has received
from Capital Resources a written opinion dated October 15, 1993, and updated as
of January 27, 1994, that the Merger Consideration to be received by holders of
First Kentucky Common Stock is fair to them from a financial point of view.
Other factors considered by the Board of Directors include: (i) the value being
offered to First Kentucky's stockholders in relation to the market value, book
value and earnings per share of First Kentucky's Common Stock; (ii) information
concerning the financial condition, results of operations and prospects of
Peoples First and First Kentucky; (iii) the competitive environment for
financial institutions generally; (iv) the compatibility of the respective
business management philosophies of First Kentucky and Peoples First; (v) the
ability of Peoples First and its subsidiary banks to provide comprehensive
financial services in relevant markets; (vi) the financial terms of other recent
business combinations in the local financial services industry; (vii) the fact
that the consideration to be received in the Merger by First Kentucky's
stockholders reflects a premium for First Kentucky's Common Stock over the value
at which it has traded in the market during last year; and (viii) the fact that
Peoples First, as a larger financial institution company, has the financial
resources to serve the lending and deposit needs of the local communities served
by First Kentucky. The First Kentucky Board concluded, in light of the above
factors and such other factors it considered appropriate, that the terms of the
Merger are fair to, and in the best interests of, First Kentucky and its
stockholders.
THE BOARD OF DIRECTORS OF FIRST KENTUCKY HAS APPROVED THE MERGER AGREEMENT
AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT.
Further, each member of the First Kentucky Board, in his individual capacity
as a stockholder, has agreed to vote the shares of First Kentucky Common Stock
owned by him in favor of the Merger Agreement.
PEOPLES FIRST. The Board of Directors of Peoples First (the "Peoples First
Board") believes that the Merger will expand Peoples First's market
capitalization and should also enable Peoples First to draw upon a larger, more
geographically diverse market base. As Peoples First enters the thrift industry
and a significant new banking market as a result of the Merger, Peoples First
should benefit from having the experience and knowledge of First Kentucky's
current management and employees as to both the thrift industry and the
communities served by First Kentucky Federal. The Peoples First Board believes
that after the Merger, Peoples First will be a stronger, more competitive
institution.
OPINION OF FINANCIAL ADVISOR
First Kentucky has received an opinion (the "Fairness Opinion") from Capital
Resources Group, Inc., Washington, D.C., a financial consulting firm expert in
the valuation of financial institutions, which states as of October 15, 1993 and
updated as of January 27, 1994, that the Merger Consideration proposed by
Peoples First for the shares of First Kentucky Common Stock is fair from a
financial point of view to the stockholders of First Kentucky. Capital Resources
has represented to First Kentucky that it is independent of First Kentucky and
Peoples First. A copy of that opinion is attached to this Prospectus as Appendix
C and should be read in its entirety for information concerning the scope of
Capital Resources's review and the limitations thereof.
First Kentucky's agreement with Capital Resources provides that for
rendering its Fairness Opinion, Capital Resources is to receive a fee equal to
$25,000, plus $3,500 for each update. Capital Resources was also paid a fee of
$7,500 in connection with its assistance in conducting a due diligence
21
<PAGE>
review of Peoples First. Capital Resources is also to be reimbursed for its
reasonable out-of-pocket expenses plus travel expenses in rendering its services
and is to be indemnified against certain liabilities, including liabilities
arising under federal securities laws, to which Capital Resources may become
subject in connection with rendering its services.
Capital Resources is an investment banking and financial consulting firm
which, as part of its specialization in financial institutions, is regularly
engaged in providing financial valuations and analyses of business enterprises
and securities in connection with mergers, acquisitions, mutual-to-stock
conversions, initial and secondary stock offerings and other corporate
transactions. First Kentucky has utilized the services of Capital Resources in
the past. The First Kentucky Board chose Capital Resources because of its
expertise, experience and familiarity with First Kentucky and the financial
institution industry. Capital Resources reviewed the terms of the Merger and the
related financial data and reviewed these issues with the Board of Directors and
executive management of First Kentucky. No limitations were imposed on Capital
Resources by the First Kentucky Board with respect to the investigation made or
procedures followed by it in rendering its opinion. Capital Resources did not
participate in the negotiations between First Kentucky and Peoples First in
which the amount of consideration for First Kentucky's shares was agreed upon.
In the course of rendering its Fairness Opinion, the following factors were
considered by Capital Resources:
(1) The proposed terms of the Merger;
(2) The audited financial statements of First Kentucky for the fiscal years
ended September 30, 1988 through 1993, the unaudited financial statements
of First Kentucky for the nine months ended June 30, 1993 as reported in
its Report on Form 10-Q, the quarterly reports to the OTS covering the
period through September 30, 1993, the latest available asset/liability
reports and other miscellaneous internally-generated management
information reports and latest summary budget report;
(3) Annual Reports to Stockholders through 1992, which provide a discussion
of First Kentucky's business and operations and review various financial
data and trends;
(4) Discussions with executive management of First Kentucky regarding the
business, operations, recent financial condition and operating results
and future prospects of First Kentucky;
(5) Comparisons of First Kentucky's financial condition and operating
results with those similarly sized thrift institutions operating in
Kentucky and the United States;
(6) Comparisons of First Kentucky's financial condition and operating
performance with the published financial statements and market price data
of publicly traded thrift institutions in general and publicly traded
thrift institutions in First Kentucky's region of the United States
specifically;
(7) The relevant market information regarding the First Kentucky Common
Stock including limited trading activity and volume;
(8) Other financial analyses and investigations as deemed necessary,
including a comparative financial analysis and review of the financial
terms of other pending and completed acquisitions of companies considered
to be generally similar to First Kentucky;
(9) Examination of First Kentucky's economic operating environment and the
competitive environment of First Kentucky's market area.
(10) Available financial reports and financial data for Peoples First,
including annual reports, Form 10-K reports, quarterly reports, Form 10-Q
reports, 1993 consolidated budget, other internal and regulatory
financial reports provided by management of Peoples First and other
published financial data; Peoples First's banking office network; and the
pricing trends of Peoples First Common Stock as reported on the NASDAQ
National Market System; and
22
<PAGE>
(11) Interviews with senior management of Peoples First including a
discussion of Peoples First's business and prospects.
The Fairness Opinion states that Capital Resources has relied on the
accuracy and completeness of the information provided by the parties to the
Merger Agreement and the representations and warranties in the Merger Agreement,
without independent verification. Capital Resources did not make an independent
evaluation or appraisal of the assets of First Kentucky and Peoples First.
The summary set forth below describes the approach utilized by Capital
Resources in support of its Fairness Opinion. It does not purport to be a
complete description of the analyses performed by Capital Resources in this
regard.
OVERVIEW OF VALUATION METHODOLOGY. In preparing its Fairness Opinion,
Capital Resources has evaluated whether the financial proposal for acquisition
is fair from a financial point of view to the stockholders of First Kentucky.
The fairness of the acquisition offer is determined by comparing the offer to
acquisition offers received by other comparable types of companies over a
time-frame that reflects a similar economic environment. The comparison included
an examination of key financial characteristics of the comparative acquisition
companies, including balance sheet, earnings and credit risk characteristics.
First Kentucky's key operating statistics and ratios were compared to a
select group of thrift institutions that have also been the subject of a
proposed or completed acquisition. It is important to note that the comparative
groups utilized in the Fairness Opinion were comprised only of thrift
institutions (rather than commercial banks), given the distinctive financial,
operating and regulatory characteristics of the thrift industry. These thrift
institutions were divided into two broad categories for purposes of the
analysis: (1) institutions that have recently completed an acquisition; and (2)
institutions subject to a pending acquisition. Capital Resources reviewed
relevant acquisition pricing ratios, notably offer price-to-book value (and
price-to-tangible book value), offer price-to-earnings, offer price-to-market
value (or trading price, before the announcement, where available) offer price-
to-deposits, and offer price-to-assets of the comparative group and compared
these ratios to those of First Kentucky. The analysis included a review and
comparison of the mean and median pricing ratios represented by a sample of 27
comparative group thrifts concentrated in the southeastern and midwestern United
States as well as other parts of the country.
FINANCIAL COMPARISON TO COMPARATIVE ACQUISITION GROUP. Capital Resources
performed a comparison of First Kentucky's financial condition and operating
performance characteristics to the select group of both pending and completed
acquisition thrifts ("Comparative Group"). The financial data for First Kentucky
was based on information as of or for the twelve months ended June 30, and
September 30, 1993. A summary of certain key financial comparisons between First
Kentucky and the Comparative Group as of September 30, 1993 is as follows:
-First Kentucky reported a modestly lower level of profitability compared to
that of the Comparative Group. First Kentucky's return on assets ("ROA") of
99 basis points compared to an average ROA of 105 basis points (median ROA
of 113 basis points) for the Comparative Group.
-First Kentucky's earnings stream reflected a moderately lower net interest
margin and less diversified non-interest income stream, which was partially
offset by First Kentucky's lower operating expense ratio.
-First Kentucky showed a moderately lower net worth (and tangible net worth)
ratio than the Comparative Group. However, given the fact that First
Kentucky's ROA was only modestly lower than the Comparative Group's ROA,
First Kentucky generated a modestly higher return on equity ("ROE") than
the Comparative Group. First Kentucky's ROE of 13.7 percent compared to an
average ROE of 13.6 percent for the Comparative Group.
-A review of other important financial ratios indicated that First
Kentucky's low non-performing asset level compared favorably to that of the
Comparative Group.
23
<PAGE>
PRICING COMPARISON. Based on an assumed offer price of $56.50 for each
outstanding share of First Kentucky Common Stock (which is based on Peoples
First's average closing trading price during a recent 30-day period as quoted on
NASDAQ of $24.87 per share), there resulted the following acquisition pricing
ratios for First Kentucky relative to those of the Comparative Group:
-First Kentucky's price/book value ratio of 168.2 percent compared favorably
to the mean and median price/book value ratios of 131.5 and 124.9 percent,
respectively, for the Comparative Group. First Kentucky's price/tangible
book value ratio of 168.2 percent compared favorably to the mean and median
ratios of 134.3 and 127.2 percent, respectively, for the Comparative Group.
-First Kentucky's price/earnings multiple of 12.39x exceeded the mean and
median price/earnings multiples of the Comparative Group. The mean and
median price/earnings multiples of the Comparative Group were 10.98 and
10.96x, respectively.
-First Kentucky's price/deposits ratio of 14.3 percent compared to a mean
and median price/ deposits ratio of 13.6 and 12.1 percent, respectively,
for the Comparative Group.
-First Kentucky's price/assets ratio of 13.2 percent compared to a mean and
median price/assets ratio of 11.6 and 10.1 percent, respectively, for the
Comparative Group.
-First Kentucky's offer price/market value ratio of 205 percent was well
above the mean and median offer price/market value (or trading price)
ratios of the Comparative Group of 124 and 127 percent, respectively.
Based on its comparative financial analysis and given the limited size of
First Kentucky's loan portfolio and minimal revenue diversification, which are
largely indicative of an institution that is located in a local market which
does not offer strong opportunities for lending and revenue growth and,
therefore, earning growth potential, Capital Resources concluded that the
financial terms of the Peoples First offer to First Kentucky's stockholders
resulted in pricing ratios that were reasonable when compared to the pricing
ratios of the acquisition proposals for the Comparative Group. This conclusion
was also supported by the significant premium being offered to First Kentucky's
stockholders relative to both the pre-announcement trading price of First
Kentucky Common Stock (which has experienced only limited trading activity) and
Capital Resources's estimate of the stock's fair market value (on a non-change
of control basis) just before announcement of the Merger.
DESCRIPTION OF THE MERGER
The Merger will become effective at 11:59:59 p.m. on the date when Articles
of Merger and a Certificate of Merger are filed with the offices of the
Secretary of State of Kentucky and Delaware, respectively (the "Effective
Time"). At the Effective Time, First Kentucky will merge into Subsidiary, and
Peoples First will acquire all of the issued and outstanding shares of First
Kentucky Common Stock on the terms and conditions of the Merger Agreement. In
addition, all assets and liabilities of First Kentucky will become assets and
liabilities of the Surviving Corporation. The name of the Surviving Corporation
will be "Peoples First Acquisition Corporation."
At the Effective Time, each share of First Kentucky Common Stock (other than
shares owned by First Kentucky stockholders who dissent from the Merger) will,
without any action on the part of the holder thereof, be converted into the
Merger Consideration, consisting of 2.27194 shares of Peoples First Common
Stock, and all outstanding certificates representing First Kentucky Common Stock
will represent, instead of shares of First Kentucky Common Stock, the right to
receive the Merger Consideration. See "Merger -- Appraisal Rights of
Stockholders" and Appendix D.
If, before the Effective Time, Peoples First declares a stock dividend on or
subdivides, splits-up, reclassifies or combines Peoples First Common Stock, or
declares a dividend, or makes a distribution, on Peoples First Common Stock of
any security convertible into Peoples First Common Stock, then an appropriate
adjustment will be made in the Merger Consideration to take into account the
dividend, subdivision, split-up, reclassification or combination.
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No certificate or scrip of any kind will be issued by Peoples First in
respect of any fractional interest in Peoples First Common Stock resulting from
the Merger. No holder of First Kentucky Common Stock will have any rights with
respect to any fractional interest in Peoples First Common Stock arising out of
the Merger, except to receive a cash payment equal to such fraction multiplied
by the average of the per share closing prices of Peoples First Common Stock as
reported on the NASDAQ National Market System for the 15 trading days before the
date of the Effective Time.
CONDITIONS FOR CONSUMMATION
In addition to the approval of the Merger by the requisite vote of
stockholders of First Kentucky and Subsidiary, consummation of the Merger is
subject to certain other conditions, including (without limitation): (i) the
procurement of all other consents and approvals (including approval of the
Federal Reserve Board and the OTS), completion of all filings, registrations and
certifications, and satisfaction of all other requirements prescribed by law
that are necessary for consummation of the Merger; (ii) the absence of any
action or proceeding instituted, made, or threatened relating to the Merger;
(iii) the effectiveness of the Registration Statement under the Securities Act,
the authorization of the shares of Peoples First Common Stock to be issued in
the Merger for listing on the NASDAQ National Market System, and the receipt of
all state or "Blue Sky" permits or other authorizations necessary for
consummation of the Merger; (iv) the receipt of opinions of counsel for Peoples
First and for First Kentucky as to certain matters, and the receipt of the
opinion of accountants for First Kentucky as to certain matters; (v) the truth
of certain representations and warranties; (vi) the taking of action required to
exercise appraisal rights by holders of no more than 9% of the outstanding
shares of First Kentucky Common Stock; (vii) the absence of any material adverse
change in the condition of First Kentucky and Peoples First; (viii) the
performance by First Kentucky, First Kentucky Federal, Peoples First, and
Subsidiary of all obligations and compliance with all covenants in the Merger
Agreement; (ix) Peoples First having received, at least two days prior to the
closing date, a letter, reasonably satisfactory to Peoples First from KPMG Peat
Marwick to the effect that the Merger will meet the criteria for the
pooling-of-interests method of accounting under generally accepted accounting
principles; and (x) that neither First Kentucky nor First Kentucky Federal shall
be subject to any liability under the environmental laws that would have a
material adverse effect on their financial condition. Conditions to the Merger
are described more fully in Section 7 of the Merger Agreement, attached hereto
as Appendix A.
TERMINATION
The Merger Agreement provides that it may be terminated at any time before
the Effective Time (i) by the First Kentucky Board and Peoples First Board if
consummation of the Merger would be inadvisable in the opinions of both Boards;
(ii) by the Peoples First Board, upon written notice to First Kentucky, if any
of the conditions to Peoples First's obligation to consummate the Merger have
not been satisfied or cannot be satisfied by the earlier of 20 days of receipt
of such notice or 5 days before the Effective Time or is not waived; (iii) by
the First Kentucky Board, upon written notice to Peoples First, if any of the
conditions to First Kentucky's obligation to consummate the Merger have not been
satisfied or cannot be satisfied by the earlier of 20 days of receipt of such
notice or 5 days before the Effective Time or is not waived; and, (iv) by
Peoples First or First Kentucky if the Merger has not occurred on or before
August 31, 1994.
To the extent First Kentucky or First Kentucky Federal, or any of their
respective directors and officers, is approached by any third party with respect
to any of the transactions referenced in Section 6.12 of the Merger Agreement,
or to the extent that the fiduciary duty of a Director of First Kentucky or
First Kentucky Federal clearly requires him to enter into discussions with a
third party regarding those transactions ("Required Discussions"), First
Kentucky and First Kentucky Federal must disclose to Peoples First immediately
that it, its officers, or its directors were contacted or have entered into
discussions and the continuing details related thereto.
Except to the extent the fulfillment of their fiduciary duties clearly
requires such action, First Kentucky, its officers, and its directors have
agreed not to solicit, authorize the solicitation of, or enter
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into any discussions with any third party (i) to purchase any shares of the
capital common stock or any option or warrant to purchase shares of the capital
common stock of First Kentucky or First Kentucky Federal or any securities
convertible into the capital common stock of First Kentucky or First Kentucky
Federal or any other equity security of either of them; (ii) to make a tender or
exchange offer for any shares of the capital common stock of First Kentucky or
First Kentucky Federal or any other equity security of First Kentucky or First
Kentucky Federal; (iii) to purchase, lease or otherwise acquire all or a
substantial portion of the assets of First Kentucky or First Kentucky Federal;
or (iv) to merge, consolidate or otherwise combine with First Kentucky or First
Kentucky Federal.
First Kentucky must disclose to Peoples First if (i) First Kentucky or First
Kentucky Federal is approached by any third party ("Third Party") with respect
to the purchase of First Kentucky Federal or other such similar transaction (a
"Third Party Transaction"), or (ii) if the fiduciary duties of First Kentucky or
First Kentucky Federal require First Kentucky Federal to enter into discussions
with a Third Party regarding a Third Party Transaction. If First Kentucky
Federal enters into any Third Party Transaction or into any agreement regarding
participation in a Third Party Transaction, at any time before June 1, 1994, and
such agreement is not required by the fiduciary duties described in the
immediately preceding sentence, First Kentucky Federal must pay to Peoples First
a termination fee of $250,000.
ACCOUNTING TREATMENT
The Merger is expected to be accounted for by Peoples First using the
"pooling of interests" method of accounting.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
PEOPLES FIRST DIRECTORSHIPS. At the first meeting of the Peoples First
Board following the Merger, the Peoples First Board will be increased by two and
Dennis Kirtley and one other member of the First Kentucky Board mutually
agreeable to First Kentucky and Peoples First will be appointed to the two new
positions on the Peoples First Board.
EMPLOYMENT AGREEMENTS. Upon consummation of the Merger, the employment
agreements that Messrs. Kirtley and Morrison (each an "Employee") entered into
with First Kentucky on June 18, 1991 will be amended and restated. As amended
and restated, the employment agreements will provide for their continued
employment with First Kentucky Federal for three years from the Effective Time
in the positions and for the base salaries set forth below:
<TABLE>
<CAPTION>
Position Base Salary
-------------------------------------------- -----------
<S> <C> <C>
Dennis W. Kirtley President and Chief Executive Officer $ 105,000
David R. Morrison Executive Vice President and Chief 77,000
Financial Officer
</TABLE>
Under the employment agreements, the Board of Directors of First Kentucky
Federal may terminate the employment of the Employees at any time, but any
termination by the Board of Directors other than for just cause will not
prejudice either Employee's right to compensation or other benefits under the
agreements. There is no right to receive compensation or other benefits after
termination for just cause. Termination for just cause includes termination
because of the Employee's personal dishonesty, incompetence, willful misconduct,
breach of fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule or regulation or final
cease and desist order, or material breach of any provision of the employment
agreement.
If employment is terminated without just cause, First Kentucky Federal must
continue to pay the Employee's salary up to the date of termination of the
agreement plus an additional twelve-month period, but in no event more than
three years' salary, and the cost of the Employee obtaining all health, life and
disability benefits in which the Employee would have been eligible to
participate for in for a period of one year from the date of termination, unless
the Employee obtains comparable benefits elsewhere through other employment
prior to the end of the one-year period.
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All obligations under the employment agreements will be terminated by the
Director of the OTS if the FDIC or the RTC enters into an agreement to provide
assistance to or on behalf of First Kentucky Federal under the authority
contained in Section 13(c) of FDIA, and by the Director of OTS if the Director
approves a supervisory merger to resolve problems related to the operation of
First Kentucky Federal or when First Kentucky Federal is determined by the
Director to be in an unsafe or unsound condition.
An Employee is permitted to voluntarily terminate the agreement, upon 60
days written notice to the Board of Directors, in which case the Employee is
entitled to receive only his compensation, vested rights, and all employee
benefits up to the date of termination.
DIRECTOR LIABILITY AND INDEMNIFICATION. Peoples First has agreed, from and
after the Effective Time, to provide director and officer liability insurance
coverage to directors and officers of First Kentucky equal to the coverage
currently provided to directors and officers of Peoples First's other
subsidiaries. In addition, Peoples First has agreed to indemnify the directors
and officers of First Kentucky (and to cause First Kentucky to indemnify the
directors and officers of First Kentucky Federal) against any losses, claims,
damages, liabilities, expenses, judgments, fines and amounts paid in settlement
in connection with any threatened or actual claim, action, suit, proceeding or
investigation (whether asserted or arising before or after the Effective Time)
arising out of or based in part upon (i) any act or failure to act of a director
or officer (other than acts involving fraud, intentional or willful misconduct
or bad faith) before the Effective Time, (ii) the fact that the person is or was
a director, officer or employee of First Kentucky or First Kentucky Federal, or
(iii) the Merger Agreement, the Plan of Merger, or the Option Agreement, or any
of the transactions contemplated thereby. For six years with respect to taxes
and three years with respect to other matters, the current directors and
officers of First Kentucky will be indemnified to the extent that such
indemnification is permissible under applicable law.
A person entitled to indemnification under the Merger Agreement wishing to
claim indemnification must notify Peoples First or First Kentucky Federal within
a reasonable time of learning of any matter to which indemnification applies.
Nothing in the Merger Agreement limits Peoples First's or First Kentucky
Federal's authority to indemnify directors, officers or employees of First
Kentucky or First Kentucky Federal under applicable law and after the Effective
Time the directors, officers and employees of First Kentucky Federal will have
the same indemnification rights as are provided to the other directors, officers
or employees of Peoples First's subsidiaries. Peoples First has agreed not to
assert any claim, action or suit against any director, officer or employee of
First Kentucky and First Kentucky Federal for acts or failures to act of such
director, officer or employee before the Effective Time, except for acts
involving fraud, intentional or willful misconduct or bad faith.
EFFECT ON EMPLOYEE BENEFIT PLANS, PROGRAMS AND ARRANGEMENTS
Within a reasonable time after the Effective Time, First Kentucky Federal
will withdraw from the Financial Institutions Retirement Fund. If the assets of
that Plan attributable to First Kentucky Federal's participation exceed the
amount necessary to provide current accrued benefits under that Plan, any such
excess will be used to increase benefits under the Plan for First Kentucky
Federal's employees, as determined by First Kentucky Federal with the consent of
Peoples First and, to the extent permitted by the Plan and applicable law, to
satisfy plan administrative expenses.
Peoples First will permit First Kentucky Federal employees to participate in
the Peoples First 401(k) Plan from the time their participation in the Financial
Institutions Thrift Plan ceases and to participate in the Peoples First Employee
Stock Ownership Plan from the time their participation in First Kentucky
Federal's Employee Stock Ownership Plan (the "ESOP") ceases. For purposes of
eligibility and vesting in Peoples First's 401(k) and Employee Stock Ownership
Plans, First Kentucky Federal employees active at the time participation begins
will be given credit for past service with First Kentucky Federal.
The Merger Agreement provides that the First Kentucky Federal ESOP will be
continued for the benefit of current and future employees of First Kentucky
Federal eligible to participate in the ESOP
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in accordance with its terms until such time that all unallocated shares
currently held by the ESOP are released from the collateral pledge securing the
ESOP loan, and those shares are allocated to participating employees. However,
if before the shares are fully allocated it becomes legally impermissible under
the Internal Revenue Code of 1986, as amended (the "IRC"), and the rules
thereunder to maintain the ESOP as a separate plan, the ESOP will be merged with
the Peoples First ESOP and thereafter, to the extent legally permissible under
the IRC qualification requirements, the assets now held by the ESOP will
continue to be allocated only to current and future employees of First Kentucky
Federal until those assets are fully allocated.
With respect to employee benefits other than those under Peoples First's
401(k) Plan and Employee Stock Ownership Plan, at or as soon as administratively
feasible after the Effective Time, First Kentucky employees will be provided
with such other benefits as Peoples First generally provides to employees of
Peoples First affiliates from time to time, including life, medical and
hospitalization and disability insurance and sick pay, personal leave and
severance benefits, on a non-discriminatory and substantially similar basis.
With respect to these benefits, First Kentucky employees generally will be
credited for years of service at First Kentucky before the Effective Time for
purposes of eligibility and benefit amounts or privileges paid or provided by
Peoples First.
OPTION AGREEMENT
In connection with the Merger Agreement, First Kentucky has granted Peoples
First an irrevocable option to purchase 21,500 shares of First Kentucky Common
Stock. The Option Agreement, if exercised, would allow Peoples First to acquire
21,500 shares or 4.99% of First Kentucky Common Stock outstanding after
exercise. The purchase price on the exercise of the options is $42.03 per share.
The Option Agreement may be exercised by Peoples First in whole (but not in
part) to the extent permitted by law at any time before the termination of the
Merger Agreement only upon and after the occurrence of a "Purchase Event."
The Option Agreement defines a "Purchase Event" to mean:
(i) The filing by First Kentucky or any other person, other than in
connection with a transaction to which Peoples First has given its prior
consent, of an application or notice with the Federal Reserve System, the
OTS, the FDIC or any other federal or state agency in which it is proposed
that a person (a) purchase any shares of capital common stock or any option
or warrant to purchase the shares of the capital common stock of First
Kentucky or First Kentucky Federal, (b) make a tender or exchange offer for
any shares of the capital common stock of First Kentucky or First Kentucky
Federal or any other equity security of First Kentucky or First Kentucky
Federal, (c) purchase, lease or otherwise acquire all or substantially all
of the assets of First Kentucky, or (d) merge, consolidate or otherwise
combine with First Kentucky or First Kentucky Federal;
(ii) The engagement by a person in any of the transactions described
immediately above in (i); or
(iii) The making by any person, other than Peoples First or its
subsidiaries of a bona fide proposal to (a) purchase any shares of capital
common stock or any option or warrant to purchase the shares of the capital
common stock of First Kentucky or First Kentucky Federal, (b) make a tender
or exchange offer for any shares of the capital common stock of First
Kentucky or First Kentucky Federal or any other equity security of First
Kentucky or First Kentucky Federal, (c) purchase, lease or otherwise acquire
all or substantially all of the assets of First Kentucky, or (d) merge,
consolidate or otherwise combine with First Kentucky or First Kentucky
Federal.
The Option Agreement terminates upon the earlier of (a) the consummation of
the Merger, (b) the termination of the Merger Agreement in accordance with its
terms unless First Kentucky or First Kentucky Federal has materially breached
any of its covenants, representations, or warranties in the Merger Agreement,
(c) thirty days after the date of any meeting of First Kentucky's stockholders
at which they vote not to approve the Merger Agreement and the related Plan of
Merger, or (d) August 31, 1994.
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FEDERAL INCOME TAX CONSEQUENCES
First Kentucky, its stockholders, and Peoples First have received an opinion
from Brown, Todd & Heyburn of Louisville, Kentucky, as to the federal income tax
consequences of the Merger. Based on representations set forth in the opinion
letter, Brown, Todd & Heyburn has expressed its opinion that, among other
things:
1. The acquisition by the Subsidiary of substantially all of the assets
of First Kentucky in exchange for Peoples First Common Stock and the
assumption by Peoples First of the liabilities of First Kentucky, as
described in "Description of the Transaction", above, will constitute a
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the IRC.
2. No gain or loss will be recognized by Peoples First or First
Kentucky by reason of the Merger.
3. No gain or loss will be recognized by stockholders of First Kentucky
as a result of the exchange of their First Kentucky Common Stock solely for
shares of Peoples First Common Stock.
4. The basis of the shares of Peoples First Common Stock received by
stockholders of First Kentucky (including any fractional share interests to
which they may be entitled and for which they will receive cash) will be the
same as their basis for their First Kentucky Common Stock surrendered in
exchange for Peoples First Common Stock.
5. The holding period of the shares of Peoples First Common Stock
received by each stockholder of First Kentucky will include the holding
period during which he held First Kentucky Common Stock surrendered in
exchange for Peoples First Common Stock, provided the First Kentucky Common
Stock was held by the stockholder as a capital asset at the Effective Time.
6. A stockholder of First Kentucky who receives cash in lieu of
fractional share interests of Peoples First Common Stock will be treated for
federal income tax purposes as if the fractional shares were distributed as
part of the exchange and then were redeemed by Peoples First. These cash
payments will be treated as having been received as distributions in full
payment in exchange for the stock redeemed as provided in Section 302(a) of
the IRC. As provided in Section 1001 of the IRC, gain or loss will be
realized and recognized to such stockholder measured by the difference
between the redemption price and the adjusted basis of Peoples First Common
Stock surrendered therefor.
7. A dissenting stockholder of First Kentucky who receives cash in
exchange for his First Kentucky Common Stock will be treated as having
received a distribution in redemption of his First Kentucky Common Stock, if
the requirements of Section 302(b) of the IRC are met, applying the
attribution rules of Section 318 of the IRC pursuant to Section 302(c) of
the IRC. Under Section 1001 of the IRC, gain or (subject to the limitations
of Section 267 of the IRC) loss will be realized and recognized by such
stockholder receiving such cash payment measured by the difference between
the cash payment and the adjusted basis of the First Kentucky Common Stock
surrendered, as determined under Section 1011 of the IRC.
The foregoing summary is not a complete description of all the federal
income tax consequences of the Merger. Each stockholder's individual
circumstances may affect the tax consequences of the Merger to such stockholder.
In addition, no information is provided herein with respect to the tax
consequences of the Merger under applicable foreign, state or local laws.
Consequently, each First Kentucky stockholder is advised consult his or her own
tax advisor as to the specific tax consequences to him or her of the Merger.
APPRAISAL RIGHTS OF STOCKHOLDERS
Record holders of First Kentucky Common Stock are entitled to appraisal
rights under Section 262 of the DGCL. A person having a beneficial interest in
shares of First Kentucky Common Stock held of record in the name of another
person, such as a broker or nominee, must act promptly to cause the record
holder to follow the steps summarized below properly and in a timely manner to
perfect
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<PAGE>
whatever appraisal rights the beneficial owner may have. Except as set forth in
Section 262 and described below, stockholders of First Kentucky will not be
entitled to appraisal rights in connection with the Merger.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the DGCL and is qualified in its entirety by the full
text of Section 262, which is reprinted in its entirety as Appendix D to this
Proxy Statement.
Under the DGCL, record holders of shares of First Kentucky Common Stock who
follow the procedures set forth in Section 262 will be entitled to have their
shares appraised by the Delaware Court of Chancery ("Chancery Court") and to
receive payment of the "fair value" of those shares, exclusive of any element of
value arising from the accomplishment or expectation of the Merger, together
with a fair rate of interest, if any, as determined by the Chancery Court.
Under Section 262, when a Merger is to be submitted for approval at a
meeting of stockholders, as in the case of the Annual Meeting, First Kentucky
must notify each of the holders of its stock, not less than 20 days before the
Annual Meeting, that appraisal rights are available and must include a copy of
Section 262 in each such notice. This Prospectus-Proxy Statement constitutes the
notice required by Section 262. Any stockholder who wishes to exercise appraisal
rights should review the following discussion and Appendix D carefully because
failure to comply with the specified procedures in a timely manner will cause
the stockholder to forfeit the appraisal rights available under the DGCL.
A holder of First Kentucky Common Stock wishing to exercise appraisal rights
must deliver to the Secretary of First Kentucky a written demand for appraisal
of those shares before the vote on the Merger Agreement at the Annual Meeting.
In addition, the stockholder must be the record holder of those shares on the
date the written demand for appraisal is made and must hold the shares
continuously through the Effective Time and must not vote in favor of the Merger
Agreement. Failure to vote against the Merger Agreement will not constitute a
waiver of the stockholder's dissenters' rights if all other statutory
requirements are satisfied; a vote against the Merger Agreement will not itself
satisfy the notice requirements of Section 262.
Only a holder of record of shares of First Kentucky Common Stock is entitled
to assert appraisal rights for the shares of First Kentucky Common Stock
registered in that holder's name. A demand for appraisal should be executed by
or on behalf of the holder of record fully and correctly, as the holder's name
appears on the holder's stock certificates. If the shares of First Kentucky
Common Stock are owned of record in a fiduciary capacity, such as by a trustee,
guardian, or custodian, execution of the demand should be made in that capacity,
and if the shares of First Kentucky Common Stock are owned of record by more
than one person, as in a joint tenancy or tenancy in common, the demand should
be executed by or on behalf of all joint owners. An authorized agent, including
one or more joint owners, may execute a demand for appraisal on behalf of a
holder of record; however, the agent must identify the record owner or owners
and, in executing the demand, must expressly disclose that the agent is agent
for such owner or owners. A record holder, such as a broker, who holds shares of
First Kentucky Common Stock as nominee for several beneficial owners may
exercise appraisal rights with respect to the shares of First Kentucky Common
Stock held for one or more beneficial owners while not exercising such rights
with respect to the shares of First Kentucky Common Stock held for other
beneficial owners; in such a case, the written demand should set forth the
number of shares of First Kentucky Common Stock for which appraisal is sought
and, when no number is expressly mentioned, the demand will be presumed to cover
all shares of First Kentucky Common Stock held in the name of the record owner.
Stockholders who hold their shares in brokerage accounts or other nominee forms
and who wish to exercise appraisal rights must take all necessary steps in order
that a demand for appraisal is made by the record holder of such shares. Such
stockholders are urged to consult with their brokers to determine the
appropriate procedures for making a demand for appraisal by the record holder.
All written demands for appraisal should be sent or delivered to First
Kentucky Bancorp, Inc., 214 North First Street, P.O. Box 110, Central City,
Kentucky 42330-0110, Attention: JoAnn Whitaker, Secretary, so as to be received
before the vote on the Plan of Merger at the Annual Meeting.
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Within ten days after the Effective Time of the Merger, Subsidiary, as the
surviving corporation in the Merger, must send a notice as to the effectiveness
of the Merger to each person who has satisfied the appropriate provisions of
Section 262 and is entitled to appraisal rights under Section 262. Within 120
days after the Effective Time, but not thereafter, the Subsidiary, or any holder
of First Kentucky Common Stock who has complied with the foregoing procedures
and is entitled to appraisal rights under Section 262, may file a petition in
the Chancery Court demanding a determination of the fair value of the shares.
Subsidiary is under no obligation and has no present intention to file a
petition with respect to the appraisal of the fair value of the shares of First
Kentucky Common Stock. Accordingly, it is the obligation of the stockholders to
initiate all necessary action to perfect their appraisal rights within the time
prescribed in Section 262. A holder of First Kentucky Common Stock will fail to
perfect, or effectively lose, the right to appraisal if no petition for
appraisal of shares of First Kentucky Common Stock is filed within 120 days
after the Effective Time.
Within 120 days after the Effective Time, any holder of First Kentucky
Common Stock who has complied with the requirements for exercise of appraisal
rights will be entitled, upon written request, to receive from Subsidiary a
statement setting forth the aggregate number of shares of First Kentucky Common
Stock with respect to which demands for appraisal have been received and the
aggregate number of holders of such shares. These statements must be mailed
within ten days after a written request therefor has been received by the
Subsidiary, as the case may be.
If a petition for an appraisal is timely filed, after a hearing on the
petition, the Chancery Court will determine the holders of First Kentucky Common
Stock entitled to appraisal rights and will appraise the "fair value" of the
shares of First Kentucky Common Stock, exclusive of any element of value arising
from the accomplishment or expectation of the Merger, together with a fair rate
of interest, if any, to be paid upon the amount determined to be the fair value.
Stockholders considering seeking appraisal should be aware that the fair value
of their shares of First Kentucky Common Stock, as determined under Section 262,
could be more than, the same as, or less than the value of the consideration
they would receive pursuant to the Merger Agreement if they did not seek
appraisal of their shares. Delaware courts have decided that the statutory
appraisal remedy, depending on factual circumstances, may or may not be a
dissenter's exclusive remedy. The Chancery Court will also determine the amount
of interest, if any, to be paid upon the amounts to be received by persons whose
shares have been appraised. The costs of the action may be determined by the
Chancery Court and taxed upon the parties as the Chancery Court deems equitable.
The Chancery Court may also order that all or a portion of the expenses incurred
by any holder of First Kentucky Common Stock in connection with an appraisal,
including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts used in the appraisal proceeding, be charged pro rata
against the value of all of the shares of First Kentucky Common Stock entitled
to appraisal.
Any holder of First Kentucky Common Stock who has duly demanded an appraisal
in compliance with Section 262 will not, after the Effective Time, be entitled
to vote those shares for any purpose or be entitled to the payment of dividends
or other distributions on those shares (except dividends or other distributions
payable to holders of record of shares of First Kentucky Common Stock as of a
date before the Effective Time).
If any holder of First Kentucky Common Stock who demands appraisal of shares
under Section 262 fails to perfect, or effectively withdraws or loses the right
to appraisal, as provided in the DGCL, the stockholder's shares will be
converted into the Merger Consideration in accordance with the Plan of Merger. A
holder may withdraw a demand for appraisal by delivering to First Kentucky a
written withdrawal of the demand for appraisal and acceptance of the Merger,
except that any attempt to withdraw made more than 60 days after the Effective
Time will require the written approval of Subsidiary.
Failure to follow the steps required by Section 262 of the DGCL for
perfecting appraisal rights may result in the loss of those rights.
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REGULATORY APPROVALS
The Merger is subject to the regulatory approvals described below. To the
extent that the following information describes statutes and regulations, it is
qualified in its entirety by reference to the particular statutes and
regulations and the regulations promulgated under such statutes.
The Merger is subject to approval by the Federal Reserve under the BHCA,
which permits a bank holding company, such as Peoples First, to acquire direct
or indirect ownership or control of more than 5% of the voting shares of any
non-banking entity, if the Federal Reserve determines that such entity is
engaged in activities that are so closely related to banking, or managing and
controlling banks, as to be a proper incident thereto. In making this
determination, the Federal Reserve must consider whether the Merger reasonably
can be expected to produce benefits to the public (such as greater convenience,
increased competition or gains in efficiency) that outweigh any possible adverse
effects (such as undue concentration of resources, decreased or unfair
competition, conflicts of interest or unsound banking practices). This
consideration includes an evaluation by the Federal Reserve as to whether the
Merger would result in a monopoly or otherwise would substantially lessen
competition, impair the financial and managerial resources and future prospects
of Peoples First or First Kentucky, or harm the institutions' abilities to serve
the convenience and needs of the communities to be served.
The Merger also is subject to approval of the OTS pursuant to the Home
Owners' Loan Act ("HOLA"). The HOLA requires the OTS to take into consideration
the financial and managerial resources and future prospects of Peoples First and
First Kentucky, the effect of the acquisition of First Kentucky, the insurance
risk to the SAIF, and the convenience and needs of the communities to be served.
Further, the OTS may not approve the Merger if it determines, among other
things, that the Merger would (i) result in a monopoly or would be in
furtherance of any combination or conspiracy to monopolize or to attempt to
monopolize the savings and loan business in any part of the United States; or
(ii) substantially lessen competition, or tend to create a monopoly, in any
section of the country, or in any other manner be in restraint of trade, unless
the OTS finds that the anti-competitive effects of the Merger are clearly
outweighed in the public interest by the probable effect of the Merger in
meeting the convenience and needs of the communities to be served. The
regulations promulgated under the BHCA and HOLA require the publication of
notice of any application filed thereunder and the opportunity for the public to
comment.
Peoples First has filed the applications required to consummate the Merger
with the OTS and the Federal Reserve. The Federal Reserve approved Peoples
First's application to consummate the Merger on January 4, 1994. Although
Peoples First expects to receive OTS approval before the Annual Meeting, there
can be no assurance when, or if, the application filed with the OTS will be
approved.
Peoples First and First Kentucky are not aware of any other governmental
approvals or actions that are required for consummation of the Merger except as
described above. Should any such approval or action be required, it is presently
contemplated that such approval or action would be sought or taken. There can be
no assurance that any such approval or action, if needed, could be obtained, or
otherwise would not delay consummation of the Merger.
CONDUCT OF BUSINESS BEFORE THE MERGER
The Merger Agreement requires First Kentucky and First Kentucky Federal to
conduct their business only in the ordinary course before the Effective Time and
imposes certain limitations on the operations of First Kentucky and Peoples
First before the Effective Time. See Sections 6.04, 6.06 and 6.19 of the Merger
Agreement, which is attached as Appendix A to this Prospectus-Proxy Statement.
For the fiscal year ended September 30, 1993, First Kentucky may declare in
the aggregate no more than $373,000 in dividends, which amount excludes the
dividend for the fiscal year ended September 30, 1992 paid in January 1993.
Beginning on October 1, 1993 and until the Closing Date, First Kentucky may
declare a dividend for each cash dividend declared by Peoples First equal to the
amount of the Peoples First dividend that would be payable on the number of
shares of Peoples First Common Stock into which each share of First Kentucky
Common Stock is to be converted in the Merger.
32
<PAGE>
Under the Merger Agreement, neither First Kentucky nor any of its
subsidiaries can, among other things, carry on its business other than in the
ordinary course, issue any shares of capital stock of First Kentucky Federal
other than in accordance with its Stock Option Plan or MRP, pay or declare any
dividend except as provided in the Merger Agreement, increase the compensation
of any of its employees except in the ordinary course consistent with past
practice, or enter into any material agreements. First Kentucky must use its
best efforts to preserve its business and consult with Peoples First before
making any significant investment decision. First Kentucky has undertaken to
promptly notify Peoples First of any material adverse change in condition or
threatened litigation.
Under the Merger Agreement, neither Peoples First nor any Peoples First
subsidiary can, among other things, authorize or create any class of stock that
ranks prior to the Peoples First Common Stock in respect of dividend payments,
distributions, liquidation or voting rights, amend its articles of incorporation
or bylaws, enter into any agreement that is inconsistent in any material respect
with the undertakings, commitments and obligations of Peoples First arising
under the Merger Agreement, or enter into any business combination or merger
transaction with any person or corporation in which Peoples First or any of its
subsidiaries would not be the surviving or continuing entity. However, under the
Merger Agreement, Peoples First may amend its articles of incorporation to
authorize a class of preferred stock, issuable in one or more series, with such
preferences, limitations, and relative rights as may be determined by its Board
of Directors. Peoples First's Board of Directors intends to submit such an
amendment for shareholder approval at the 1994 annual meeting of shareholders in
April 1994. People's First's Board of Directors believes that the ability to
issue a second class of stock in one or more series with a range of potential
economic and voting rights will provide Peoples First with valuable flexibility
in connection with future acquisitions, combinations, equity financings, stock
distributions, stock splits, stock dividends, employee benefit plans, and other
corporate purposes. The power to issue shares of a new class of stock could
enable the Peoples First Board of Directors to make it more difficult to replace
incumbent directors or accomplish certain business combinations opposed by the
incumbent Board of Directors. First Kentucky's Certificate of Incorporation
currently authorizes a class of stock with preferences, limitations and relative
rights determined by the First Kentucky Board. See "Comparison of Peoples First
Common Stock and First Kentucky Common Stock."
DISTRIBUTION OF STOCK CERTIFICATES
At the Effective Time, except for shares with respect to which the holder
has properly exercised dissenters' rights, each share of First Kentucky Common
Stock will immediately, without any action on the part of the holder, be
converted into the right to receive 2.27194 shares of Peoples First Common Stock
and the right to receive a cash payment for any fractional share. Thereafter,
all outstanding certificates representing shares of First Kentucky Common Stock
will represent shares of Peoples First Common Stock equal to the Merger
Consideration. At the Effective Time, the stock transfer books of First Kentucky
will be closed, and no transfers of First Kentucky Common Stock can thereafter
be made.
Whenever Peoples First declares a dividend or other distribution, in cash,
stock or other property, on Peoples First Common Stock after the Effective Time,
the declaration must provide for the dividend or distribution to be made on all
shares of Peoples First Common Stock issued and outstanding, including those
with respect to which no certificate has been delivered. However, disbursement
of the dividend or distribution will be withheld until the stockholder entitled
to the dividend or distribution has properly delivered First Kentucky
certificates for exchange in accordance with Section 10 of the Plan of Merger.
All stockholders are urged to exchange their First Kentucky stock
certificates at the earliest possible date after consummation of the Merger.
As soon as practicable (but not more than five business days) after
consummation of the Merger, Peoples First will send transmittal forms to all
former stockholders of First Kentucky for their use in forwarding their First
Kentucky stock certificates to Peoples First for surrender and exchange for
certificates representing Peoples First Common Stock. Until so surrendered,
First Kentucky stock certificates will be deemed for all corporate purposes
(except for the payment of dividends withheld
33
<PAGE>
pending exchange of certificates) to evidence the number of whole shares of
Peoples First Common Stock, plus a cash payment for any fractional share
interest, that the holder would be entitled to receive upon surrender.
OPERATIONS AFTER THE MERGER
After the Merger, the Surviving Corporation will operate under the name
"Peoples First Acquisition Corporation" and the officers of First Kentucky and
First Kentucky Federal immediately before the Effective Time will continue as
the officers of the Surviving Corporation and First Kentucky Federal immediately
after the Merger. Peoples First has no immediate plans to substantially alter
the business of First Kentucky Federal.
RESALE OF PEOPLES FIRST COMMON STOCK
The Peoples First Common Stock to be issued in connection with the Merger
has been registered under the Securities Act and will be freely transferable,
except for shares received by persons deemed to be "affiliates" of First
Kentucky and First Kentucky Federal at the time of the Annual Meeting.
Affiliates of First Kentucky and First Kentucky Federal may not offer to sell or
otherwise dispose of their shares of Peoples First Common Stock acquired in
connection with the Merger except pursuant to an effective registration
statement under the Securities Act covering such shares, or in compliance with
Rule 145 promulgated under the Securities Act or another applicable exemption
from the registration requirements of the Securities Act (the availability of
such other exemption to be satisfactory to Peoples First's legal counsel). First
Kentucky and First Kentucky Federal are required by the Merger Agreement to
identify to Peoples First all persons who at the time of the Annual Meeting may
be considered affiliates of First Kentucky and First Kentucky Federal for
purposes of Rule 145 under the Securities Act and each is required to use its
best efforts to cause each person who is identified as an affiliate of First
Kentucky and First Kentucky Federal to deliver to First Kentucky and First
Kentucky Federal on or prior to the Effective Time of the Merger a written
agreement satisfactory to both Peoples First and First Kentucky, that such
persons (a) will not offer to sell, or otherwise dispose of, any shares of
Peoples First Common Stock received in the Merger in violation of the Securities
Act and (b) have no present intention to sell or otherwise dispose of (and do
not have any short position in or agreement to sell) any such shares.
PEOPLES FIRST CORPORATION / FIRST KENTUCKY
PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed balance sheet as of
September 30, 1993 gives effect to the Merger as if it had been consummated as
of September 30, 1993. The following unaudited pro forma combined condensed
statements of income for the periods ended September 30, 1993 and the years
ended December 31, 1992, 1991, and 1990 give effect to the Merger as if it had
been consummated as of the beginning of the respective periods presented. The
pro forma information is based upon the historical consolidated financial
statements of Peoples First and First Kentucky giving effect to the proposed
transaction under the assumptions and adjustments set forth in the accompanying
notes to the pro forma combined condensed financial statements.
The pro forma combined condensed financial statements have been prepared
based upon the financial statements of Peoples First incorporated by reference
into, and of First Kentucky included elsewhere in, this Prospectus-Proxy
Statement. These pro forma combined condensed financial statements may not be
indicative of the results that actually would have occurred if the Merger had
been in effect on the dates indicated or which may be obtained in the future.
The pro forma combined condensed financial statements should be read in
conjunction with the audited and unaudited financial statements and notes of
Peoples First incorporated by reference herein, and the audited and unaudited
financial statements and notes of First Kentucky contained elsewhere in this
Prospectus-Proxy Statement. See "Incorporation of Certain Documents by
Reference."
Numbers of shares of Peoples First Common Stock and amounts per share of
Peoples First Common Stock have been adjusted to reflect a two-for-one stock
split effected in the form of a 100% stock dividend on January 4, 1994.
34
<PAGE>
PEOPLES FIRST CORPORATION AND SUBSIDIARIES / FIRST KENTUCKY BANCORP, INC. AND
SUBSIDIARY
PRO FORMA COMBINED CONDENSED BALANCE SHEET
SEPTEMBER 30, 1993
(IN THOUSANDS) (UNAUDITED)
ASSETS
<TABLE>
<CAPTION>
PEOPLES FIRST HISTORICAL PRO FORMA
FIRST KENTUCKY COMBINED ADJUSTMENTS COMBINED
-------- -------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Cash and due from banks.......................................... $ 22,860 $ 7,383 $ 30,243 $ 30,243
Federal funds sold............................................... 1,000 0 1,000 1,000
Investment securities
Available-for-sale............................................. 44,342 0 44,342 44,342
Held-to-maturity............................................... 193,017 86,681 279,698 279,698
Loans............................................................ 537,922 78,993 616,915 616,915
Allowance for loan losses........................................ (8,821) (760) (9,581) (9,581)
-------- -------- ---------- ----------
Loans, net....................................................... 529,101 78,233 607,334 607,334
Premises and equipment........................................... 12,104 1,875 13,979 13,979
Excess of cost over net assets of purchased subsidiaries......... 11,115 0 11,115 11,115
Other assets..................................................... 12,054 1,509 13,563 13,563
-------- -------- ---------- ------ ----------
$825,593 $175,681 $1,001,274 $ 0 $1,001,274
-------- -------- ---------- ------ ----------
-------- -------- ---------- ------ ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand deposits................................................ $ 62,632 $ 2,308 $ 64,940 $ 64,940
Interest-bearing transaction................................... 177,551 27,482 205,033 205,033
Saving deposits................................................ 64,895 28,137 93,032 93,032
Time deposits.................................................. 389,877 103,448 493,325 493,325
-------- -------- ---------- ----------
694,955 161,375 856,330 856,330
Repurchase agreements............................................ 19,449 0 19,449 19,449
Federal funds purchased.......................................... 17,500 0 17,500 17,500
Notes payable.................................................... 11,354 158 11,512 11,512
Other liabilities................................................ 6,801 397 7,198 124(3) 7,322
-------- -------- ---------- ------ ----------
Total liabilities............................................ 750,059 161,930 911,989 124 912,113
Stockholders' Equity
Common stock................................................... 4,800 4 4,804 723(1) 5,527
Surplus........................................................ 27,648 3,670 31,318 (723)(1) 30,595
Retained earnings.............................................. 43,086 10,235 53,321 (124)(3) 53,197
ESOP shares debt............................................... 0 (158) (158) (158)
-------- -------- ---------- ------ ----------
75,534 13,751 89,285 (124) 89,161
-------- -------- ---------- ------ ----------
$825,593 $175,681 $1,001,274 $ 0 $1,001,274
-------- -------- ---------- ------ ----------
-------- -------- ---------- ------ ----------
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
35
<PAGE>
PEOPLES FIRST CORPORATION AND SUBSIDIARIES / FIRST KENTUCKY BANCORP, INC. AND
SUBSIDIARY
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1993
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<TABLE>
<CAPTION>
FIRST HISTORICAL PRO FORMA
PEOPLES FIRST KENTUCKY COMBINED ADJUSTMENTS COMBINED
------------- ----------- --------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Interest Income
Interest on Federal funds sold................. $ 99 $ 0 $ 99 $ 99
Interest on debt securities
U.S. Treasury and agencies................... 5,182 1,091 6,273 6,273
Mortgage-backed securities................... 3,068 3,018 6,086 6,086
State and political subdivision.............. 2,940 38 2,978 2,978
Other........................................ 391 0 391 391
------------- ----------- --------- -------------
11,581 4,147 15,728 15,728
Interest and fees on loans..................... 32,749 4,871 37,620 37,620
------------- ----------- --------- -------------
44,429 9,018 53,447 53,447
Interest Expense
Interest on deposits........................... 18,911 4,856 23,767 23,767
Interest on repurchase agreements.............. 520 0 520 520
Interest on Federal funds...................... 228 0 228 228
Interest on notes payable...................... 589 0 589 589
Other interest expense......................... 47 0 47 47
------------- ----------- --------- -------------
20,295 4,856 25,151 25,151
------------- ----------- --------- -------------
Net Interest Income............................ 24,134 4,162 28,296 28,296
Provision for Loan Losses...................... 1,745 104 1,849 1,849
------------- ----------- --------- -------------
Net interest income after provision............ 22,389 4,058 26,447 26,447
Noninterest income............................. 3,857 340 4,197 4,197
Noninterest expense............................ 16,692 2,486 19,178 19,178
------------- ----------- --------- -------------
Income before taxes............................ 9,554 1,913 11,467 11,467
Income tax expense............................. 2,497 588 3,085 3,085
------------- ----------- --------- -------------
Net Income..................................... $ 7,057 $ 1,325 $ 8,382 $ 0 $ 8,382
--
--
------------- ----------- --------- -------------
------------- ----------- --------- -------------
Weighted average common shares outstanding..... 6,348,104 7,278,104
Net income per common share.................... $ 1.11 $ 1.15
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
36
<PAGE>
PEOPLES FIRST CORPORATION AND SUBSIDIARIES / FIRST KENTUCKY BANCORP, INC. AND
SUBSIDIARY
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1992
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<TABLE>
<CAPTION>
FIRST HISTORICAL PRO FORMA
PEOPLES FIRST KENTUCKY COMBINED ADJUSTMENTS COMBINED
------------- --------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Interest Income
Interest on Federal funds sold................ $ 255 $ 0 $ 255 $ 255
Interest on debt securities
U.S. Treasury and agencies.................. 7,968 2,299 10,267 10,267
Mortgage-backed securities.................. 3,257 3,686 6,943 6,943
State and political subdivision............. 3,507 36 3,543 3,543
Other....................................... 456 0 456 456
------------- --------- --------- -------------
15,188 6,021 21,209 21,209
Interest and fees on loans.................... 40,230 8,107 48,337 48,337
------------- --------- --------- -------------
55,673 14,128 69,801 69,801
Interest Expense.............................. 28,460 9,093 37,553 37,553
------------- --------- --------- -------------
Net Interest Income........................... 27,213 5,035 32,248 32,248
Provision for Loan Losses..................... 2,773 253 3,026 3,026
------------- --------- --------- -------------
Net interest income after provision........... 24,440 4,782 29,222 29,222
Noninterest income............................ 5,078 642 5,720 5,720
Noninterest expense........................... 19,425 3,228 22,653 22,653
------------- --------- --------- -------------
Income before taxes........................... 10,093 2,196 12,289 12,289
Income tax expense............................ 2,524 745 3,269 124(3) 3,393
------------- --------- --------- ----- -------------
Net Income.................................... $ 7,569 $ 1,451 $ 9,020 $ 124 $ 8,896
------------- --------- --------- ----- -------------
------------- --------- --------- ----- -------------
Weighted average common shares outstanding.... 5,842,484 6,772,484
Net income per common share................... $ 1.30 $ 1.31
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
37
<PAGE>
PEOPLES FIRST CORPORATION AND SUBSIDIARIES / FIRST KENTUCKY BANCORP, INC. AND
SUBSIDIARY
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1991
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<TABLE>
<CAPTION>
FIRST HISTORICAL PRO FORMA
PEOPLES FIRST KENTUCKY COMBINED ADJUSTMENTS COMBINED
------------- --------- --------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Interest Income
Interest on Federal funds sold................ $ 202 $ 0 $ 202 $ 202
Interest on debt securities
U.S. Treasury and agencies.................. 5,238 3,372 8,610 8,610
Mortgage-backed securities.................. 2,700 1,259 3,959 3,959
State and political subdivisions............ 3,042 22 3,064 3,064
Other....................................... 612 0 612 612
------------- --------- --------- -------------
11,592 4,653 16,245 16,245
Interest and fees on loans.................... 35,970 10,288 46,258 46,258
------------- --------- --------- -------------
47,764 14,941 62,705 62,705
Interest Expense.............................. 27,631 11,009 38,640 38,640
------------- --------- --------- -------------
Net Interest Income........................... 20,133 3,932 24,065 24,065
Provision for Loan Losses..................... 2,074 264 2,338 2,338
------------- --------- --------- -------------
Net interest income after provision........... 18,059 3,668 21,727 21,727
Noninterest income............................ 3,400 492 3,892 3,892
Noninterest expense........................... 13,136 3,000 16,136 16,136
------------- --------- --------- -------------
Income before taxes........................... 8,323 1,160 9,483 9,483
Income tax expense............................ 1,956 433 2,389 2,389
------------- --------- --------- -------------
Net Income.................................... $ 6,367 $ 727 $ 7,094 $ 0 $ 7,094
--
--
------------- --------- --------- -------------
------------- --------- --------- -------------
Weighted average common shares outstanding.... 4,888,060 5,818,060
Net income per common share................... $ 1.30 $ 1.22
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
38
<PAGE>
PEOPLES FIRST CORPORATION AND SUBSIDIARIES / FIRST KENTUCKY BANCORP, INC. AND
SUBSIDIARY
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1990
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
<TABLE>
<CAPTION>
FIRST HISTORICAL PRO FORMA
PEOPLES FIRST KENTUCKY COMBINED ADJUSTMENTS COMBINED
------------- --------- --------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Interest Income
Interest on Federal funds sold................ $ 510 $ 0 $ 510 $ 510
Interest on debt securities
U.S. Treasury and agencies.................. 5,636 3,585 9,221 9,221
Mortgage-backed securities.................. 1,338 543 1,881 1,881
State and political subdivisions............ 2,746 22 2,768 2,768
Other....................................... 800 0 800 800
------------- --------- --------- -------------
10,520 4,150 14,670 14,670
Interest and fees on loans.................... 34,746 10,678 45,424 45,424
------------- --------- --------- -------------
45,776 14,828 60,604 60,604
Interest Expense.............................. 28,149 11,303 39,452 39,452
------------- --------- --------- -------------
Net Interest Income........................... 17,627 3,525 21,152 21,152
Provision for Loan Losses..................... 1,777 87 1,864 1,864
------------- --------- --------- -------------
Net interest income after provision........... 15,850 3,438 19,288 19,288
Noninterest income............................ 3,426 491 3,917 3,917
Noninterest expense........................... 11,724 2,980 14,704 14,704
------------- --------- --------- -------------
Income before taxes........................... 7,552 949 8,501 8,501
Income tax expense............................ 1,765 334 2,099 2,099
------------- --------- --------- -------------
Net Income.................................... $ 5,787 $ 615 $ 6,402 $ 0 $ 6,402
--
--
------------- --------- --------- -------------
------------- --------- --------- -------------
Weighted average common shares outstanding.... 4,819,776 5,749,776
Net income per common share................... $ 1.20 $ 1.11
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
39
<PAGE>
PEOPLES FIRST CORPORATION AND SUBSIDIARIES / FIRST KENTUCKY BANCORP, INC. AND
SUBSIDIARY
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
TRANSACTION
Peoples First proposes to acquire First Kentucky as outlined in the Merger
Agreement. The Merger Agreement provides that Peoples First will obtain 100%
ownership of the outstanding stock of First Kentucky for 930,000 shares of
Peoples First Common Stock.
ASSUMPTIONS
1. The pro forma combined condensed balance sheet of Peoples First and
First Kentucky as of September 30, 1993 has been prepared with the following
assumptions:
a. The Merger occurs on September 30, 1993.
b. The pooling-of-interest method of accounting is used to account for
the business combination and, accordingly, the recorded assets and
liabilities of First Kentucky are carried forward to the combined entity at
their recorded amounts.
c. Pro forma adjustment to record Peoples First's issuance of 930,000
shares of Peoples First Common Stock at a stated value of $0.7812 per share.
d. Pro forma adjustment to record the excess of First Kentucky's total
stockholders' equity over the total of the stated value of the Peoples First
stock issued and First Kentucky's retained earnings.
2. The pro forma combined condensed statements of income presented herein
have been prepared in accordance with the following financial assumptions:
a. The Merger was consummated at the beginning of the respective fiscal
years presented.
b. The pooling-of-interest method of accounting is used for the
business combination.
3. One pro forma adjustment to the historical combined statements of income
is necessary to reflect the proposed Merger. The reported income of Peoples
First and First Kentucky for prior periods is combined and stated as income of
the combined entity. Peoples First adopted the provisions of Financial
Accounting Standard No. 109 effectively on January 1, 1992, changing the method
of accounting for income taxes on a prospective basis. The pro forma adjustments
required for First Kentucky to conform with the accounting principles used for
income taxes by Peoples First are as follows (dollars in thousands):
<TABLE>
<S> <C>
For the Year Ended December 31, 1990......................... $ 0
For the Year Ended December 31, 1991......................... $ 0
For the Year Ended December 31, 1992......................... $ 124
For the Nine Months Ended September 30, 1993................. $ 0
</TABLE>
40
<PAGE>
PEOPLES FIRST COMMON STOCK -- MARKET AND DIVIDEND INFORMATION
Peoples First Common Stock is traded on the NASDAQ National Market System
under the NASDAQ symbol "PFKY." The current market makers for the Peoples First
Common Stock are Stifel, Nicolaus & Co. and J.J.B. Hilliard, W.L. Lyons, Inc.
The following table sets forth the range of the high and low sales prices of
Peoples First Common Stock and the dividends declared per share for the periods
indicated. Numbers of shares and prices per share of Peoples First Common Stock
have been adjusted to reflect a two-for-one stock split effected in the form of
a 100% stock dividend on January 4, 1994. The quarterly trading volume has
ranged from 24,688 shares to 76,562 shares during the 11 calendar quarters ended
September 30, 1993. As of October 15, 1993, the trading day preceding public
announcement of the Merger, the last reported sales price for Peoples First
Common Stock was $20.00 per share.
<TABLE>
<CAPTION>
CASH DIVIDENDS
YEAR QUARTER HIGH LOW DECLARED
- --------- ------------------------------------------ --------- --------- ---------------
<S> <C> <C> <C> <C>
1992 First Quarter............................. $ 15.125 $ 11.875 $ 0.085
Second Quarter............................ 17.250 15.375 0.085
Third Quarter............................. 16.125 15.750 0.095
Fourth Quarter............................ 16.250 15.625 0.095
1993 First Quarter............................. 16.500 16.000 0.095
Second Quarter............................ 16.875 16.000 0.095
Third Quarter............................. 20.000 16.375 0.105
Fourth Quarter............................ 25.500 19.250 0.105
1994 First Quarter............................. 27.500 25.500 0.105
(through January 14, 1994)
</TABLE>
As of January 14, 1994, the last reported sales price of Peoples First
Common Stock was $27.00 per share and Peoples First had 1,298 stockholders.
The Peoples First Board currently intends to continue the payment of cash
dividends on Peoples First Common Stock on a quarterly basis, dependent on
future earnings, the financial condition of Peoples First, the assessment of
Peoples First's future capital needs, and such other factors as the Board may
deem relevant. As a bank holding company, Peoples First's ability to pay
dividends is largely dependent upon dividend payments it receives from its
subsidiaries, which dividend payments are subject to the limitations described
under "Comparison of First Kentucky Common Stock and Peoples First Common Stock
- -- Dividends."
COMPARISON OF PEOPLES FIRST COMMON STOCK
AND FIRST KENTUCKY COMMON STOCK
The rights of First Kentucky stockholders are currently governed by the DGCL
and First Kentucky's Certificate of Incorporation and Bylaws. First Kentucky
stockholders will become stockholders of Peoples First upon consummation of the
Merger, and their rights as such will be governed by the Kentucky Business
Corporation Act and Peoples First's Articles of Incorporation and Bylaws. The
following is a summary of the material differences between the rights of
stockholders of First Kentucky Common Stock and the rights of shareholders of
Peoples First Common Stock. This summary does not purport to be a complete
statement of the comparative rights and differences between the common stock of
First Kentucky and Peoples First and is qualified in its entirety by reference
to: (i) the Articles of Incorporation of Peoples First (the "Peoples First
Articles"); (ii) the Bylaws of Peoples First (the "Peoples First Bylaws"); (iii)
the Kentucky Business Corporation Act; (iv) the Certificate of Incorporation of
First Kentucky (the "First Kentucky Certificate"); (v) the Bylaws of First
Kentucky (the "First Kentucky Bylaws"); and (vi) the DGCL, to which First
Kentucky stockholders are referred.
41
<PAGE>
AUTHORIZED SHARES
PEOPLES FIRST. The authorized capital stock of Peoples First consists of
10,000,000 shares of Peoples First Common Stock, without par value, of which
6,160,322 shares were issued and outstanding as of January 14, 1994. In addition
to the shares of Peoples First Common Stock already issued and outstanding, the
Peoples First Board has reserved 482,780 additional shares of Peoples First
Common Stock for issuance upon the exercise of stock options granted under the
Peoples First 1986 Stock Option Plan.
FIRST KENTUCKY. The authorized capital stock of First Kentucky consists of
2,500,000 shares of First Kentucky Common Stock, par value of $0.01 per share,
of which 409,342 shares are issued and outstanding, and 500,000 shares of serial
preferred stock, of which no shares are issued and outstanding. First Kentucky's
Certificate also permits First Kentucky's Board of Directors to issue shares of
serial preferred stock and to fix and state the powers, designations,
preferences, and relative, participating, optional or other special rights of
such shares and the qualifications, limitations, and restrictions thereof. Each
share of each series of serial preferred stock has the same relative powers,
preferences, and rights as, and is identical in all respects with, all the other
shares of First Kentucky of the same series.
VOTING
PEOPLES FIRST. Holders of Peoples First Common Stock are entitled to one
vote for each share held of record on all matters submitted to a vote of
stockholders except for the election of directors, when cumulative voting
applies.
Except with respect to the election of directors and certain matters
required by statute to be submitted to shareholders, any act of the shareholders
of a Kentucky corporation requires that more shares be cast in favor than
against the proposed act at a meeting at which a quorum is present. The
affirmative vote of a majority of all the outstanding shares of a Kentucky
corporation entitled to vote is required to approve certain actions specified in
the corporate statutes such as mergers, certain sales of assets, amendment of
the articles of incorporation, etc.
FIRST KENTUCKY. Each share of First Kentucky Common Stock is entitled to
one vote, other than shares of First Kentucky Common Stock beneficially owned by
any person without the approval of the Continuing Directors (as defined) in
excess of 10% of the shares of First Kentucky Common Stock outstanding, which
shares are not counted as shares entitled to vote, may not be voted by any
person or counted as voting shares in connection with any matter submitted to
the stockholders for a vote, and may not be counted as outstanding for purposes
of determining a quorum or the affirmative vote necessary to approve any matter
submitted to the stockholders for a vote.
Except with respect to the election of directors and certain matters
required by statute to be submitted to stockholders, any act of the stockholders
of a Delaware corporation requires the affirmative vote of holders of a majority
of the shares represented at a meeting at which a quorum is present. The
affirmative vote of a majority of all the outstanding shares of a Delaware
corporation entitled to vote is required to approve certain actions specified in
the corporate statutes such as mergers, certain sales of assets, amendment of
the articles of incorporation, and similar actions.
Both the Peoples First Articles and the First Kentucky Certificate contain
provisions that require the affirmative vote by a supermajority of the
outstanding shares in certain circumstances. See "Certain Provisions That May
Have an Anti-Takeover Effect," below.
BOARD OF DIRECTORS
PEOPLES FIRST. Kentucky law requires cumulative voting in the election of
directors. Under cumulative voting, each shareholder is entitled to vote the
number of shares owned by him on the record date multiplied by the number of
directors to be elected. Each shareholder may cast all of the votes for a single
nominee or may distribute the votes in any manner among as many candidates as
the shareholder chooses. In accordance with Kentucky law, the Peoples First
Board is divided into three
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classes of directors, each class to be as nearly equal in number as possible.
One class of directors is elected annually to serve a three-year term. A Peoples
First director may be removed, with or without cause, only by the affirmative
vote of the holders of at least 80% of the outstanding shares entitled to vote.
However, no single director may be removed from office if the votes cast against
removal would be sufficient to elect the director under cumulative voting.
FIRST KENTUCKY. First Kentucky's Certificate provides that there shall be
no cumulative voting in the election of directors.
Article XII of the First Kentucky Certificate provides that the First
Kentucky Board is also divided into three classes that are as nearly equal in
number as possible. The directors in each class serve for terms of three years
and until their successors are elected and qualified. Article XIII provides that
a director may be removed only by the affirmative vote of the holders of at
least 80% of the outstanding shares entitled to vote and only for cause.
Both Peoples First and First Kentucky have a "classified" board of
directors, which can make it more difficult for stockholders, including those
holding a majority of the outstanding shares, to force an immediate change in
the composition of a majority of the board of directors. Since the terms of only
one-third of the incumbent directors expire each year, it requires at least two
annual elections for the stockholders to change a majority, whereas a majority
of a non-classified board may be changed in one year. In the absence of the
provisions classifying the board of directors, with regard to both Peoples First
and First Kentucky, all of the directors would be elected each year.
INDEMNIFICATION
PEOPLES FIRST. Under Kentucky law, a corporation has broad powers of
indemnification. A person may be indemnified for judgments, penalties, fines,
settlements, and reasonable expenses incurred by that person in proceedings in
connection with the person's official capacity in that corporation.
Indemnification against reasonable legal expenses incurred by a person in such a
proceeding is mandatory when the person is wholly successful in the defense of
the proceeding. Under no circumstances may a person be indemnified for any
actions taken in bad faith. Peoples First's Articles require Peoples First to
indemnify its directors and officers, employees, and agents, to the maximum
extent permitted by Kentucky law.
FIRST KENTUCKY. The First Kentucky Certificate requires indemnification of
directors, officers, employees and agents of First Kentucky, as well as any
individual serving at such person's request or direction. Indemnification for
these persons is available with regard to threatened, pending or completed
actions or suits, only if the person indemnified is successful on the merits or
otherwise, or has acted in good faith in the transaction that is the subject of
the suit, or in such a manner that the person believed it to be not opposed to
the best interests of First Kentucky. This indemnification provision applies to
the taking of any and all actions in connection with First Kentucky's response
to any tender offer or any offer or proposal of another party to engage in an
Business Combination not approved by the board of directors. The indemnification
also applies in nonderivative suits to amounts actually and reasonably incurred
by the indemnified party in connection with the defense or a settlement of such
suits including expenses, amounts paid in settlement, judgments and fines. Such
indemnification is available only if the indemnified person is successful on the
merits or otherwise, has acted in good faith or has acted in good faith in the
transaction that is the subject of the suit and in a manner reasonably believed
not be opposed to the best interest of First Kentucky.
LIMITATION ON DIRECTOR LIABILITY
PEOPLES FIRST. Article 14 of the Peoples First Articles provides that a
director of Peoples First will not be personally liable to Peoples First or its
shareholders for monetary damages arising out of a breach of the director's
fiduciary duty except for (i) any transaction in which the director has a
personal financial interest in conflict with the financial interest of Peoples
First or its shareholders, (ii) 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) any vote for or assent to an unlawful dividend or distribution to
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shareholders prohibited by KRS 271B.8-330; or (iv) any transaction from which
the director derived an improper personal benefit. The limitations on the
personal liability of a director under Article 14 extend only to the elimination
of a recovery of a monetary remedy. Shareholders may still seek equitable
relief, such as an injunction, against any action by a director that is
inappropriate. Article 14 does not preclude or limit recovery of damages by
third parties, nor does it limit or affect a director's liability for acts or
omissions occurring before the effectiveness of Article 14.
FIRST KENTUCKY. The DGCL permits a Delaware corporation to include in its
certificate of incorporation a provision eliminating or limiting a directors'
personal liability for monetary damages for a breach of a director's fiduciary
duty to the corporation or its stockholders, subject to certain significant
exceptions. Directors in a Delaware corporation adopting such a provision remain
fully liable for (i) breaches of their duty of loyalty, (ii) acts and omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) payment of unlawful dividends or unlawful stock repurchase or
redemptions, or (iv) deriving an improper personal benefit. In addition, the
DGCL does not absolve directors from their duty of care, but only provide
directors with relief from monetary damages. First Kentucky's Certificate
contains a provision consistent with the DGCL limiting a director's personal
liability.
DIVIDENDS
Holders of both First Kentucky Common Stock and Peoples First Common Stock
are entitled to such dividends and other distributions as may be declared from
time to time by their respective boards of directors out of funds legally
available therefor. The principal source of revenues from which Peoples First
and First Kentucky may pay dividends are dividends received by them from their
respective subsidiary banks.
PEOPLES FIRST. The prior approval of the appropriate regulatory authorities
is required if the total of all dividends declared by any one of Peoples First's
subsidiary banks in any calendar year would exceed that bank's net income (as
defined) for that year combined with retained net earnings (as defined) for the
preceding two calendar years. Under the formula, Peoples First's subsidiary
banks could declare aggregate dividends as of September 30, 1993, without the
further approval of the appropriate regulatory authorities, of approximately
$12.7 million.
FIRST KENTUCKY. As of September 30, 1993, First Kentucky Federal could
declare dividends of $1.3 million without the approval of regulatory
authorities. See "Supervision and Regulation of First Kentucky -- Regulation of
First Kentucky Federal -- Dividend Limitations."
SPECIAL MEETINGS
PEOPLES FIRST. The Peoples First Bylaws provide that special meetings of
its stockholders may be called by the Chairman of the Board or by the Peoples
First Board and will be called by the President at the request of the holders of
not less than one-fifth of all the shares of Peoples First Common Stock entitled
to vote at the meeting.
FIRST KENTUCKY. Article X of the First Kentucky Certificate provides that
special meetings of stockholders may only be called by the First Kentucky Board
or an appropriate committee appointed by the First Kentucky Board. Although
management of First Kentucky believes that this provision will discourage
stockholder attempts to disrupt the business of First Kentucky between annual
meetings of stockholders, its effect may be to deter hostile takeovers by making
it more difficult for a person or entity to obtain immediate control of First
Kentucky and impose its will on remaining stockholders before the next annual
meeting of stockholders of First Kentucky. Article X of the First Kentucky
Certificate also provides that stockholder action may be taken only at a special
or annual meeting of stockholders and not by written consent.
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ASSESSMENT
Upon payment of adequate consideration for the issuance of shares of Peoples
First Common Stock, as determined by the Peoples First Board, the shares so
issued will be fully paid and nonassessable.
Upon payment for consideration for their issuance, shares of First Kentucky
Common Stock will be fully paid and nonassessable.
NO PREEMPTIVE RIGHTS
Neither the Peoples First Articles nor the First Kentucky Certificate
provide their respective stockholders preemptive rights to acquire unissued
shares.
TRANSFER AGENTS
The Transfer Agent and Registrar for Peoples First Common Stock is Boatmen's
Trust Company, St. Louis, Missouri. The Transfer Agent and Registrar for First
Kentucky Common Stock is First Kentucky Federal.
CERTAIN PROVISIONS THAT MAY HAVE AN ANTI-TAKEOVER EFFECT
Certain provisions of the Peoples First Articles and Bylaws and of the First
Kentucky Certificate and Bylaws and Delaware law may discourage a takeover
attempt of First Kentucky or Peoples First that holders of a majority of their
shares might determine to be in their best interest or in which stockholders
might receive a premium over the current market prices for their shares. These
provisions may render the removal of a director or the Board of Directors more
difficult and may deter or delay corporate changes of control that have not
received the requisite approval of the respective Boards of Directors.
SUPERMAJORITY VOTING PROVISIONS
PEOPLES FIRST. The Peoples First Articles require the affirmative vote of
the holders of at least 80% of the outstanding shares of Peoples First's voting
stock to approve mergers and certain other "Business Combinations" (as defined
in the Articles) with an entity controlled by a beneficial owner of more than
20% of the Peoples First's voting stock (an "Interested Shareholder"). The
supermajority voting provision does not apply if the transaction is either
approved by a majority of the members of the Peoples First Board who are
unaffiliated with the Interested Shareholder or if certain minimum price and
procedural requirements are met.
The 80% voting requirement subjects the approval of Business Combinations to
supermajority voting requirements that would not otherwise apply. This
provision, frequently called a "fair price" provision, is designed to help
ensure fair treatment of all shareholders in the event of a takeover. The
Peoples First Articles further provide that, unless the 80% voting requirement
applies or the transaction is approved by the majority of the members of the
Peoples First Board, the affirmative vote of the holders of at least two-thirds
of the outstanding shares of Peoples First's capital stock will be required to
approve certain corporate transactions not in the ordinary course of business.
In addition, certain provisions of the Peoples First Articles may not be
amended, repealed, or otherwise changed without approval of the shareholders by
a variable supermajority vote. While these provisions were adopted to place the
Peoples First Board in a better position to evaluate acquisition offers and to
negotiate with potential acquirers, certain of these provisions could have the
effect of deterring certain forms of Business Combinations, including tender or
exchange offers for Peoples First Common Stock. The provisions could also have
the effect of maintaining incumbent management or of discouraging or defeating
proposals that might be viewed as favorable by the holders of the majority of
Peoples First Common Stock.
FIRST KENTUCKY. Article XV of First Kentucky's Certificate requires the
approval of the holders of (i) at least 66 2/3% of First Kentucky's outstanding
shares of voting stock, and (ii) at least a majority of such shares, not
including shares deemed beneficially owned by a "Related Person," as defined
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therein, to approve certain "Business Combinations," as defined therein unless
the proposed transaction has been approved in advance by at least two-thirds of
the Continuing Directors in which case, the Business Combination shall only
require the affirmative vote as may be required by the Certificate of
Incorporation or by applicable laws or otherwise. Article XV defines the term
"Related Person" to include any individual, corporation, partnership or other
person or entity which together with its affiliates beneficially owns in the
aggregate 10% or more of the outstanding First Kentucky Common Stock, and
Article XV defines the term "Continuing Director" to mean a director who is
unaffiliated with the Related Person and who was a director before the Related
Person became a Related Person or is a successor to a Continuing Director and is
unaffiliated with the Related Person and is recommended to succeed a Continuing
Director by a majority of the Continuing Directors then on the Board of
Directors. The provisions of Article XV apply to any "Business Combination"
which is defined to include (i) any merger or consolidation of First Kentucky
with or into a Related Person; (ii) any sale, lease, exchange, transfer or other
disposition of all or a Substantial Part of the assets of First Kentucky or of a
subsidiary to a Related Person (the term "Substantial Part" is defined to
include more than 25% of First Kentucky's total assets); (iii) any merger or
consolidation of a Related Person with or into First Kentucky or a subsidiary;
(iv) any sale, lease, exchange, transfer or other disposition of all or any
Substantial Part of the assets of a Related Person to First Kentucky or a
subsidiary; (v) the issuance of any securities of First Kentucky or a subsidiary
to a Related Person; (vi) the acquisition by First Kentucky or a subsidiary of
any securities of the Related Person; (vii) any reclassification of First
Kentucky Common Stock, or any recapitalization involving First Kentucky Common
Stock; and (viii) any agreement, contract or other arrangement providing for any
of the foregoing transactions.
BOARD CONSIDERATION OF CERTAIN NONMONETARY FACTORS IN THE EVENT OF AN OFFER
BY ANOTHER PARTY
PEOPLES FIRST. The Peoples First Articles require the Peoples First Board
to base its response to any offer to enter into a share exchange, merge,
consolidate, or otherwise purchase substantially all of the assets of Peoples
First, on several factors. The factors the Peoples First Board must consider
include (a) the consideration being offered (i.e., how does it compare to the
Board's then current estimate of the current or future value of Peoples First in
a freely negotiated transaction, and how does it compare to the Board's then
current estimate of the future value of Peoples First as an independent entity),
(b) the social, legal and economic effects on the communities in which Peoples
First and its subsidiaries operate or are located, (c) the social, legal and
economic effects upon employees, customers, suppliers and other constituents of
Peoples First and its subsidiaries, and (d) the competence, experience and
integrity of the acquiring party or parties and its or their management.
FIRST KENTUCKY. Article XVI of First Kentucky's Certificate directs the
First Kentucky Board, when evaluating a Business Combination or a tender or
exchange offer, to consider, in addition to the adequacy of the consideration to
be received in connection with any such transaction, certain specified factors
and any other factors the Board of Directors deems relevant. Among the factors
the board must consider are: the social and economic effects of the transaction
on First Kentucky and its subsidiaries, employees, depositors, loan and other
customers, creditors, and other elements of the communities in which First
Kentucky and its subsidiaries operate or are located; the business and financial
condition and earnings prospects of the acquiring party or parties; and the
competence, experience, and integrity of the acquiring party or parties and its
or their management.
ADDITIONAL ANTI-TAKEOVER PROVISIONS
PEOPLES FIRST. Article 13 of the Peoples First Articles provides that
Articles 7 (supermajority voting requirement for certain transactions), 8 ("fair
price" provision governing certain Business Combinations), 9 (Board
consideration of certain nonmonetary factors in response to acquisition
proposals), 10 (number and removal of directors and vacant directorships), 11
(classification of directors), 12 (indemnification) and 13 (amendment and repeal
of certain articles) may only be
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altered, amended or repealed by the affirmative vote of the number of shares
entitled to vote equal to the sum of (i) the number of shares beneficially owned
by any "Interested Shareholder" (as defined in Article 8) plus (ii) one-half of
all remaining shares entitled to vote.
FIRST KENTUCKY. Article XI of First Kentucky's Certificate provides that
any stockholder desiring to make a nomination for the election of directors or a
proposal for new business at a meeting of stockholders must submit written
notice to First Kentucky not fewer than 30 or more than 60 days in advance of
the meeting.
Article XII of First Kentucky's Certificate provides that the number of
directors of First Kentucky (exclusive of directors, if any, to be elected by
the holders of any to-be-issued shares of preferred stock of First Kentucky)
shall not be less than five nor more than 11 as shall be provided from time to
time in accordance with First Kentucky's Bylaws. Additionally, the power to
determine the number of directors within these numerical limitations and the
power to fill vacancies, whether occurring by reason of an increase in the
number of directors or by resignation, is vested in the First Kentucky Board.
Article XIV of First Kentucky's Certificate provides that, until June 18,
1996, no person may directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of equity security of First
Kentucky unless the offer or acquisition shall have been approved in advance by
a two-thirds vote of the Continuing Directors. In addition, until June 18, 1996,
each share beneficially owned in violation of the foregoing percentage
limitation, as determined by a majority of the Continuing Directors, as defined
in Article XV, shall not be counted as shares entitled to vote, shall not be
voted by any person or counted as voting shares in connection with any matter
submitted to stockholders for a vote, and shall not be counted as outstanding
for purposes of determining a quorum or the affirmative vote necessary to
approve any matter submitted to its stockholders for a vote.
Article XIX of First Kentucky's Certificate provides that First Kentucky's
Bylaws may be amended by the affirmative vote of either a two-thirds of the
First Kentucky Board or the holders of at least 66 2/3% of the outstanding
shares of First Kentucky's stock entitled to vote generally in the election of
directors. Absent this provision, Delaware law provides that a corporation's
bylaws may be amended by the holders of a majority of the outstanding capital
stock. First Kentucky's Bylaws contain numerous powers concerning its
governance, such as fixing the number of directors and determining the number of
directors constituting a quorum.
Article XX of First Kentucky's Certificate provides that specified
provisions contained in the Certificate may not be repealed or amended except
upon the affirmative vote of at least 66 2/3% or 80% of the outstanding shares
of stock entitled to vote generally in the election of directors. This
requirement exceeds the majority vote of the outstanding stock that would
otherwise be required by the DGCL for the repeal or amendment of a provision of
First Kentucky's Certificate. The specific provisions for which a 66 2/3% or
larger vote is required by Article XX are (i) Article X governing the calling of
special meetings, the absence of cumulative voting rights and the requirement
that stockholder action be only taken at annual or special meetings, (ii)
Article XI requiring written notice of nominations for the election of directors
and new business proposals, (iii) Article XII governing the number of directors,
the filling of vacancies on the First Kentucky Board and classified terms of the
Board, (iv) Article XIV restricting certain acquisitions of more than 10% of
First Kentucky's equity securities, (v) Article XV governing the requirement for
the approval of certain Business Combinations involving Related Persons, (vi)
Article XVI regarding the consideration of certain nonmonetary factors in the
event of an offer by another party, (vii) Article XVII pertaining to the
elimination of the liability of the directors to First Kentucky and its
stockholders for monetary damages, with certain exceptions, for breach of
fiduciary duty, (viii) Article XVIII providing for the indemnification of
directors, officers, employees and agents of First Kentucky, and (ix) Article
XIX and Article XX governing the required stockholder vote for amending the
Bylaws and Certificate of Incorporation, respectively of First Kentucky. In
addition, an 80% vote is required for an amendment of Article XIII governing
removals of directors.
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FIRST KENTUCKY BANCORP, INC.
First Kentucky was incorporated under Delaware law on January 10, 1991 at
the direction of the Board of Directors of First Kentucky Federal for the
purpose of becoming a holding company for First Kentucky Federal. On June 18,
1991, First Kentucky acquired all the outstanding stock of First Kentucky
Federal in connection with its conversion to stock form.
First Kentucky is classified as a unitary savings and loan holding company
and is subject to regulation by the OTS. First Kentucky's principal business is
the business of First Kentucky Federal and First Kentucky Federal's subsidiary.
As a holding company, First Kentucky has greater flexibility than First Kentucky
Federal to diversify its business activities, such as through the use of
existing or newly formed subsidiaries or through acquisition or merger. The
holding company structure also permits First Kentucky to expand the financial
services currently offered through First Kentucky Federal and its subsidiary. So
long as First Kentucky remains a unitary savings and loan holding company and
First Kentucky Federal satisfies the "Qualified Thrift Lender" test, First
Kentucky may diversify its activities in such a manner as to include any
activities allowed by regulation to a unitary savings and loan holding company.
See "Supervision and Regulation of First Kentucky."
Before its acquisition of the stock of First Kentucky Federal, First
Kentucky had no assets or liabilities and engaged in no business activities.
Since the acquisition, First Kentucky has not engaged in any significant
activity other than holding the stock of First Kentucky Federal and operating a
savings and loan business through First Kentucky Federal. Accordingly, the
information set forth in this Prospectus-Proxy Statement, including financial
statements and related data, relates primarily to First Kentucky Federal and its
subsidiary.
The executive offices of First Kentucky and First Kentucky Federal are
located at 214 North First Street, Central City, Kentucky 42330, and the main
telephone number is (502) 754-1331.
FIRST KENTUCKY FEDERAL
First Kentucky Federal was incorporated in 1934 as Central City Federal
Savings and Loan Association and changed its name to First Federal Savings and
Loan Association of Central City in 1967. In January 1984, First Federal Savings
and Loan Association of Central City and Ohio County Federal Savings and Loan
Association merged in a transaction accounted for as a pooling of interests and
the combined entity adopted the corporate title "First Kentucky Federal Savings
and Loan Association." In 1990, First Kentucky Federal converted to a federally
chartered savings bank and adopted its current corporate title in order to
emphasize the broader array of services it now offers. In June 1991, First
Kentucky Federal converted from mutual to stock form and simultaneously became a
wholly owned subsidiary of First Kentucky. First Kentucky Federal is primarily
engaged in the business of attracting deposits from the general public and
originating permanent and construction loans secured by residential properties
in Kentucky. To a lesser extent, First Kentucky Federal originates consumer
loans and home equity loans. First Kentucky Federal conducts its operations
through its main office in Central City, Kentucky and five branch offices in
Muhlenberg, Ohio, McLean and Butler Counties. First Kentucky Federal is the
largest financial institution headquartered in its market area.
First Kentucky Federal has historically followed a conservative business
strategy, investing primarily in one-to four-family mortgages and U.S. Treasury
and federal agency securities. To improve its long-term profitability and
capital position, First Kentucky Federal undertook an asset restructuring in
1988 that included a controlled shrinkage in First Kentucky Federal's asset base
and an increase in the percentage of First Kentucky Federal's assets represented
by adjustable-rate mortgages. As part of the restructuring, First Kentucky
Federal began purchasing adjustable-rate, single-family mortgages from selected
thrift institutions and mortgage bankers in other parts of Kentucky.
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Such loans must meet the same underwriting criteria as direct originations. As a
result of its restructuring, First Kentucky Federal believes that it has reduced
its exposure to risk from fluctuating interest rates and has increased the
percentage of its assets that constitute Qualified Thrift Investments as defined
under applicable regulations.
As a federally chartered savings association, First Kentucky Federal's
deposits are insured by the Savings Association Insurance Fund ("SAIF") of the
Federal Deposit Insurance Corporation ("FDIC") up to applicable limits for each
depositor. First Kentucky Federal is a member of the Federal Home Loan Bank
("FHLB") of Cincinnati, which is one of the 12 district banks comprising the
FHLB System. First Kentucky Federal is subject to comprehensive examination,
supervision and regulation by the OTS and the FDIC. This regulation is intended
primarily for the protection of depositors.
MARKET AREA. First Kentucky Federal's primary market for its lending and
deposit services is Muhlenberg, Ohio, McLean and Butler Counties in Western
Kentucky, a rural region whose economy has historically been dominated by coal
mining and agriculture. First Kentucky Federal's primary market area has
experienced an economic decline since the collapse of energy prices in the late
1970s. Although the region has begun attracting light industry, it is still
characterized by high unemployment. The 1991 unemployment rates, as estimated by
the Kentucky Cabinet for Human Resources, for Muhlenberg and Ohio Counties in
which four of First Kentucky Federal's offices are located were approximately
double the national average. Muhlenberg County's estimated unemployment rate for
1991 was 12.8%; and Ohio County's estimated 1991 unemployment rate was 13.5%.
The estimated 1991 unemployment rate for McLean County, in which one of First
Kentucky Federal's offices is located, was 12.4%. The estimated 1991
unemployment rate for Butler County was 7.4%, the same as Kentucky's overall
estimated 1991 rate, compared to the 1991 national average of 6.7%.
Per capita personal income in Kentucky for 1991 was $15,539, 81.4% of the
national average of $19,082, ranking Kentucky 42nd in the country, according to
the Kentucky Cabinet for Human Resources.
1990 Census public information listed Muhlenberg County's population as
31,318, of which 8,058 persons or 25.7% were under the age of 18 years and 4,738
persons or 15.1% were over 65 years of age.
Specified owner-occupied housing units were 6,159 in Muhlenberg County
according to 1990 Census public information with a median value of $37,300, well
below the national average. According to the same information, 4,259 units or
69.15% of 6,159 specified owner-occupied units were valued at less than $50,000;
177 units or 2.87% were valued at more than $100,000.
LENDING ACTIVITIES
GENERAL. The principal lending activity of First Kentucky Federal is the
origination and purchase of conventional adjustable-rate first mortgage loans
for the purpose of purchasing or refinancing owner-occupied, one-to four-family
residential properties in its primary market area. First Kentucky Federal also
originates fixed-rate, residential mortgages that fully amortize over a ten-year
term. All residential mortgages are currently originated or purchased for
portfolio. In addition, First Kentucky Federal engages in consumer lending in
the form of loans secured by deposits in First Kentucky Federal, installment
loans, automobile and other vehicle loans and home equity lines of credit to
existing first mortgage customers. First Kentucky Federal also holds in
portfolio loans secured by commercial and multi-family (i.e., more than
four-family) real estate and commercial loans. At September 30, 1993,
approximately $66.3 million or 81.7% of First Kentucky Federal's total loans
(before the deduction of undisbursed funds, unearned fees and loan loss
allowances) consisted of loans secured by one-to four-family residential
properties, almost all of which were loans secured by owner-occupied,
single-family properties.
Before the 1980s, First Kentucky Federal's residential lending activities
consisted largely of originating fixed-rate mortgage loans with maturities of up
to 25 years for retention in the loan portfolio. Subsequently, however,
fundamental changes in the regulation of savings institutions and unprecedented
economic conditions combined to increase significantly both the level and
volatility of
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First Kentucky Federal's cost of funds. In addition, the economy in First
Kentucky Federal's primary market area began experiencing a decline, which
significantly limited loan origination opportunities. To preserve income in an
adverse market, First Kentucky Federal for a time deemphasized long-term
mortgage lending and devoted a higher percentage of its assets to long-term
investment securities. See "Investment Activities." More recently, First
Kentucky Federal has sought to build a more rate-sensitive loan portfolio by
originating adjustable-rate, single-family mortgages. First Kentucky Federal has
also engaged in short-term consumer lending and developed a ten-year residential
mortgage. First Kentucky Federal has supplemented loan originations in its
primary market area with selective purchases of adjustable-rate, one-to
four-family mortgages from selected thrift institutions and mortgage bankers in
Kentucky. See "Lending Activities -- Originations and Purchases of Mortgage
Loans." During fiscal year 1993, First Kentucky Federal purchased
mortgage-backed securities to supplement loan originations in view of declining
demand for adjustable-rate, one-to four-family mortgages. See "Investment
Activities."
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Set forth below is selected data relating to the composition of First
Kentucky Federal's loan portfolio by type of loan and type of security on the
dates indicated. As of September 30, 1993, First Kentucky Federal had no
concentrations of loans exceeding 10% of total loans other than as disclosed
below.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------------------------------------------
1993 1992 1991
---------------------- ---------------------- ----------------------
AMOUNT % AMOUNT % AMOUNT %
--------- ----------- --------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Type of Loan:
Conventional real estate loans --
Interim construction loans................. $ 2,052 2.5% $ 1,299 1.5% $ 453 0.5%
Loans on existing property (1)............. 65,228 80.5 68,920 82.0 84,968 85.1
Participations............................. 1,721 2.1 1,885 2.2 2,275 2.3
Consumer loans --
Savings account loans...................... 2,522 3.1 2,327 2.8 2,761 2.8
Home improvement loans..................... 11 -- 14 -- 34 --
Home equity loans.......................... 687 0.8 720 0.9 656 0.7
Other (2).................................. 7,819 9.7 7,942 9.4 7,291 7.3
Commercial loans............................. 1,036 1.3 988 1.2 1,304 1.3
--------- ----- --------- ----- --------- -----
81,076 100.0 % 84,095 100.0 % 99,742 100.0 %
----- ----- -----
----- ----- -----
Less:
Loans in process........................... (1,288) (830) (423)
Discounts and other........................ (795) (821) (797)
Loan loss allowance........................ (760) (756) (527)
--------- --------- ---------
Total.................................... $ 78,233 $ 81,688 $ 97,995
--------- --------- ---------
--------- --------- ---------
Type of Security:
Residential real estate
One-to four-family......................... $ 66,265 81.7 % $ 68,827 81.8 % $ 83,788 84.0 %
Five-or more-family........................ 2,274 2.8 2,415 2.9 2,561 2.6
Commercial or industrial real estate......... 4,458 5.5 4,465 5.3 5,523 5.5
Savings accounts............................. 2,522 3.1 2,327 2.8 2,761 2.8
Other (2).................................... 5,557 6.9 6,061 7.2 5,109 5.1
--------- ----- --------- ----- --------- -----
81,076 100.0 % 84,095 100.0 % 99,742 100.0 %
----- ----- -----
----- ----- -----
Less:
Loans in process........................... (1,288) (830) (423)
Discounts and other........................ (795) (821) (797)
Loan loss allowance........................ (760) (756) (527)
--------- --------- ---------
Total.................................... $ 78,233 $ 81,688 $ 97,995
--------- --------- ---------
--------- --------- ---------
<FN>
- ------------------------
(1) Includes construction loans converted to permanent loans.
(2) Includes loans secured by automobiles, boats, and recreational vehicles
and installment loans.
</TABLE>
51
<PAGE>
LOAN MATURITY SCHEDULE. The following table sets forth certain information
at September 30, 1993 regarding the dollar amount of loans (net of unearned
discounts on consumer loans) maturing in First Kentucky Federal's portfolio
based on their contractual terms to maturity, including scheduled repayments of
principal. Demand loans, loans having no stated schedule of repayments and no
stated maturity, and overdrafts are reported as due in one year or less.
<TABLE>
<CAPTION>
DUE IN ONE DUE AFTER ONE DUE AFTER
YEAR OR LESS THROUGH FIVE FIVE YEARS
AFTER YEARS AFTER AFTER
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1993 1993 1993 TOTAL
------------- -------------- ------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Real estate mortgage.......................... $ 4,867 $ 21,178 $ 40,904 $ 66,949
Real estate construction...................... 54 237 1,761 2,052
Real estate installment....................... 2,562 1,850 68 4,480
Commercial.................................... 620 264 113 997
Other......................................... 2,779 912 2,331 6,022
------------- -------------- ------------- ---------
Total....................................... $ 10,882 $ 24,441 $ 45,177 $ 80,500
------------- -------------- ------------- ---------
------------- -------------- ------------- ---------
</TABLE>
The next table sets forth the dollar amount of all loans at September 30,
1993 and due one year after September 30, 1993 which have predetermined interest
rates and have floating or adjustable interest rates.
<TABLE>
<CAPTION>
FLOATING OR
ADJUSTABLE
PREDETERMINED RATES RATE TOTAL
------------------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Real estate mortgage.................................. $ 16,917 $ 45,165 $ 62,082
Real estate construction.............................. 197 1,801 1,998
Real estate installment............................... 1,839 79 1,918
Commercial............................................ 343 34 377
Other................................................. 1,203 2,040 3,243
-------- -------------- ---------
Total............................................... $ 20,499 $ 49,119 $ 69,618
-------- -------------- ---------
-------- -------------- ---------
</TABLE>
ONE-TO FOUR-FAMILY REAL ESTATE LENDING. The primary emphasis in First
Kentucky Federal's lending activity is the origination of loans secured by first
liens on owner-occupied, one-to four-family residential properties. First
Kentucky Federal's mortgage loan originations are generally for terms of 10 to
25 years, amortized on a monthly basis, with principal and interest due each
month. Residential real estate loans often remain outstanding for significantly
shorter periods than their contractual terms. Borrowers may refinance or prepay
loans at their option, typically without penalty. First Kentucky Federal
generally requires borrowers to secure hazard insurance naming First Kentucky
Federal as loss payee on residential mortgage loans in the amount of the loan.
First Kentucky Federal principally offers one-year, adjustable-rate mortgage
loans with rate adjustments indexed to the weekly average rate of U.S. Treasury
securities adjusted to a constant one-year maturity (the "one-year U.S. Treasury
bill rate"). First Kentucky Federal's loan portfolio also includes
adjustable-rate loans indexed to the monthly national median cost of funds index
for thrift institutions as compiled by the OTS (the "national median cost of
funds index"). At September 30, 1993, First Kentucky Federal had approximately
$10.7 million in adjustable-rate mortgages indexed to the one-year U.S. Treasury
bill rate and $27.5 million indexed to the national median cost of funds index.
The interest rates on these mortgages are adjustable once a year or once every
three years with limitations on upward adjustments of 100 or 200 basis points
per adjustment period, and a 400 or 500 basis point cap on upward rate
adjustments over the life of the loan. Certain of First Kentucky Federal's
adjustable rate loans have a 100 or 200 basis point limit on downward
adjustments. The retention of adjustable-rate mortgage loans in First Kentucky
Federal's loan portfolio helps reduce First Kentucky Federal's exposure to
increases in interest rates to less than it would be if First Kentucky Federal
only held long-term, fixed-rate residential loans. However, there are
unquantifiable
52
<PAGE>
credit risks resulting from potential increased costs to the borrower as a
result of repricing of adjustable-rate mortgage loans. It is possible that
during periods of rising interest rates, the risk of default on adjustable-rate
mortgage loans may increase due to the upward adjustment of interest cost to the
borrower. Further, the majority of the adjustable-rate mortgages originated or
purchased by First Kentucky Federal have provided for initial rates of interest
below the rates that would prevail were the index used for pricing applied
initially. These loans are subject to increased risk of delinquency or default
as the higher, fully indexed rate of interest subsequently comes into effect,
replacing the lower initial rate. First Kentucky Federal estimates that there
were in portfolio at September 30, 1993 approximately $1.6 million in
adjustable-rate loans on which the rates paid by borrowers are below the fully
indexed rate. Borrowers on adjustable-rate mortgages, however, must generally
qualify for the loan at the fully indexed rate.
Although adjustable-rate mortgage loans allow First Kentucky Federal to
increase the sensitivity of its asset base to changes in interest rates, the
extent of this interest sensitivity is limited by the periodic and lifetime
interest rate ceilings contained in adjustable-rate mortgage loan contracts. In
addition, interest rates on adjustable-rate mortgages using the national median
cost of funds index generally trail the market because of delays in publishing
the index. In declining rate environments, however, borrowers may seek to
refinance their adjustable-rate mortgages with fixed-rate loans in order to lock
in a lower rate. Accordingly, there can be no assurance that yields on First
Kentucky Federal's adjustable-rate mortgages will adjust sufficiently to
compensate for increases in First Kentucky Federal's cost of funds. First
Kentucky Federal does not originate or purchase adjustable-rate residential
mortgages with terms that could result in negative amortization. First Kentucky
Federal originated approximately $12.5 million in adjustable-rate mortgage loans
for the year ended September 30, 1993. Adjustable-rate mortgage loans amounted
to approximately $47.6 million, or 58.7%, of the loan portfolio at September 30,
1993 which includes renegotiable-rate mortgages which are no longer offered.
Fixed-rate, one-to four-family mortgages currently offered by First Kentucky
Federal are ten, fifteen and twenty year, fully amortizing mortgages. First
Kentucky Federal will only finance purchases of mobile homes for a term of not
more than ten years and only if the mobile home is permanently affixed to a
foundation on land owned by the borrower. First Kentucky Federal also requires a
first lien against both the mobile home and the land to which it is affixed.
Modular homes affixed to land are financed for up to 15-year terms. At September
30, 1993, First Kentucky Federal's mortgage portfolio included approximately
$316,000 in loans for which a mobile home or a modular home is part of the
security.
Under OTS regulations which became effective March 19, 1993, savings
associations must adopt and maintain written policies that establish appropriate
limits and standards for extensions of credit that are secured by liens or
interests in real estate or are made for the purpose of financing permanent
improvements to real estate. These policies must establish loan portfolio
diversification standards, prudent underwriting standards, including
loan-to-value limits, that are clear and measurable, loan administration
procedures and documentation, approval and reporting requirements. The real
estate lending policies must reflect consideration of the Interagency Guidelines
for Real Estate Lending Policies (the "Interagency Guidelines") that have been
adopted by the federal bank regulators.
The Interagency Guidelines, among other things, call upon depository
institutions to establish internal loan-to-value limits for real estate loans
that are not in excess the following supervisory limits: (i) for loans secured
by raw land, the supervisory loan-to-value limit is 65% of the value of the
collateral; (ii) for land development loans (i.e., loans for the purpose of
improving unimproved property prior to the erection of structures), the
supervisory limit is 75%; (iii) for loans for the construction of commercial,
multifamily or other nonresidential property, the supervisory limit is 80%; (iv)
for loans for the construction of one-to-four family properties, the supervisory
limit is 85%; and (v) for loans secured by other improved property (e.g.,
farmland, completed commercial property and other income-producing property
including non-owner-occupied one-to-four family property), the limit is 85%.
Although no supervisory loan-to-value limit has been established for
owner-occupied, one-to-
53
<PAGE>
four family and home equity loans, the Interagency Guidelines state that for any
such loan with a loan-to-value ratio that equals or exceeds 90% at origination,
an institution should require appropriate credit enhancement in the form of
either mortgage insurance or readily marketable collateral.
The Interagency Guidelines state that it may be appropriate in individual
cases to originate or purchase loans with loan-to-value ratios in excess of the
supervisory loan-to-value limits, based on the support provided by other credit
factors. The aggregate amount of loans in excess of the supervisory
loan-to-value limits, however, should not exceed 100% of total capital and the
total of such loans secured by commercial, agricultural, multifamily and other
non-one-to-four family residential properties should not exceed 30% of total
capital. The supervisory loan-to-value limits do not apply to certain categories
of loans including loans insured or guaranteed by the U.S. government and its
agencies or by financially capable state, local or municipal governments or
agencies, loans backed by the full faith and credit of a state government, loans
that are to be sold promptly after origination without recourse to a financially
responsible party, loans that are renewed, refinanced or restructured without
the advancement of new funds, loans that are renewed, refinanced or restructured
in connection with a workout, loans to facilitate sales of real estate acquired
by the institution in the ordinary course of collecting a debt previously
contracted and loans where the real estate is not the primary collateral.
First Kentucky Federal's lending policies generally limit the maximum
loan-to-value ratio on residential mortgage loans to 80% of the lesser of the
appraised value or purchase price. First Kentucky Federal will originate
residential mortgages with loan-to-value ratios of up to 90% provided the
borrower obtains private mortgage insurance reducing First Kentucky Federal's
loss exposure to 80%. First Kentucky Federal generally charges higher rates on
one-to four-family mortgages with loan-to-value ratios in excess of 80%. The
maximum loan-to-value ratio for loans for which part of the security is a mobile
home is 70% and the maximum loan-to-value for loans secured by modular homes is
75%.
All appraisals performed in connection with federally related transactions
must be performed by state-certified or state-licensed appraisers after December
31, 1992. Federally related transactions are defined to include real
estate-related financial transactions that the OTS regulates and would include
mortgages made by First Kentucky Federal. Appraisals by state-certified
appraisers will be required for all such transactions having a value of
$1,000,000 or more. The OTS is authorized to determine other circumstances in
which appraisals must be performed by state-certified appraisers. The OTS has
adopted regulations requiring that all real estate-related financial
transactions engaged in by savings associations having a transaction value of
$250,000 or more, other than those involving appraisals of one-to four-family
residential properties, shall require an appraisal performed by a
state-certified appraiser. One-to four-family residential property financing may
require an appraisal by a state-certified appraiser if the amount involved
exceeds $1,000,000 or the financing involves a "complex" one-to four-family
property appraisal. Exceptions are made for financings in which the transaction
value is $100,000 or less or when the lien is not necessary security. The
federal banking agencies have recently proposed to increase the minimum level
for required appraisals to $250,000. Management of First Kentucky Federal does
not anticipate that these regulations will have a material effect on its lending
activities, since First Kentucky Federal already requires a licensed appraiser
on all transactions.
CONSTRUCTION LENDING. First Kentucky Federal's construction lending has
primarily involved lending to individuals for construction of primary
residences. First Kentucky Federal has only financed construction of other
properties on a limited basis. At September 30, 1993, the loan portfolio
included $2,051,749 in loans secured by properties under construction.
All of First Kentucky Federal's construction loans are structured to convert
to permanent loans upon completion of construction. The interest rates and fees
charged during the construction phase, which generally lasts six months, are the
same as those charged on the permanent loan. Loan proceeds are disbursed during
the construction phase according to a draw schedule based on the stage of
completion. Construction projects are inspected by appraisers. Construction
loans are underwritten
54
<PAGE>
on the basis of the estimated value of the property as completed and
loan-to-value ratios must conform to the requirements for the permanent loan.
First Kentucky Federal's construction loan borrowers are generally existing
customers of First Kentucky Federal.
Loans involving construction financing have a higher level of risk than
loans for the purchase of existing homes since collateral value and construction
costs can only be estimated at the time the loan is approved. First Kentucky
Federal has sought to minimize its risk in construction lending by offering such
financing only to persons who intend to occupy the completed structure and
limiting construction lending to market areas with which management is familiar.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LENDING. At September 30, 1993,
loans secured by multi-family (i.e., more than four units) and commercial
properties constituted approximately $6.4 million, or 7.9% of First Kentucky
Federal's total loans. First Kentucky Federal's permanent multi-family and
commercial real estate loans are secured by improved property such as office
buildings and apartment buildings, nursing homes, and to a lesser extent retail
centers which are located in First Kentucky Federal's primary market area. First
Kentucky Federal has not actively pursued this form of lending in recent years.
Multi-family and commercial real estate loans generally have terms of 10 to
25 years. Multi-family and commercial mortgages are generally made in amounts
not exceeding 75% of the lesser of the appraised value or purchase price of the
property. All of First Kentucky Federal's multi-family and commercial property
loans require regular payments of principal and interest and generally have
floating rates indexed to the one-year U.S. Treasury bill rate. First Kentucky
Federal also offers a self-amortizing ten-year, fixed-rate loan for multi-family
and commercial property.
Loans secured by multi-family and commercial real estate generally are
larger and involve greater risks than one-to four-family residential mortgage
loans. Because payments on loans secured by such properties are often dependent
on successful operation or management of the properties, repayment of such loans
may be subject to a greater extent to adverse conditions in the real estate
market or the economy. First Kentucky Federal seeks to minimize these risks in a
variety of ways, including limiting the size and loan-to-value ratios of its
multi-family and commercial real estate loans and restricting such loans to its
primary market area. First Kentucky Federal's larger multi-family loans have
also involved rent or payment guarantees from the U.S. Department of Housing and
Urban Development.
The aggregate amount of loans which a federal association may make on the
security of liens on non-residential real property may not exceed 400% of the
institution's total capital. In addition, the Director of OTS is authorized to
permit federal savings associations to exceed the 400% of capital limit in
certain circumstances. First Kentucky Federal's non-residential real property
loans did not exceed 400% of total capital at September 30, 1993.
FIRREA provides that the loans-to-one-borrower limits applicable to national
banks apply to savings associations in the same manner and to the same extent.
Previously, First Kentucky Federal was generally authorized to make loans to one
borrower, including related entities, in an amount equal to the lesser of 10% of
deposits or 100% of regulatory capital. Under the new limits, with certain
limited exceptions, loans and extensions of credit to a person outstanding at
one time shall not exceed 15% of the unimpaired capital and surplus of the
savings association. Loans and extensions of credit fully secured by readily
marketable collateral may comprise an additional 10% of unimpaired capital and
surplus. At September 30, 1993, the largest amount lent or committed to one
borrower by First Kentucky Federal was $1.38 million consisting of two loans
which were approximately 10.1% of First Kentucky Federal's current unimpaired
capital and surplus. The principal on all of the foregoing loans is guaranteed
by the Federal Housing Administration and a portion of the interest is
subsidized by the U.S. Department of Housing and Urban Development. At September
30, 1993, First Kentucky Federal had no lending relationships in excess of the
new loans-to-one-borrower limits.
CONSUMER LENDING. At September 30, 1993, total consumer loans were
approximately $11.0 million or 13.6% of First Kentucky Federal's total loan
portfolio. During recent years, First Kentucky
55
<PAGE>
Federal has not actively sought to originate consumer loans but has made
consumer lending available in order to fully service the needs of customers.
First Kentucky Federal has primarily emphasized origination of home equity loans
and lines of credit which have become an increasingly important form of consumer
lending since the Tax Reform Act of 1986 began a phased elimination of the
deductibility of interest paid on other forms of consumer credit. As of
September 30, 1993, home equity loans and lines of credit totaled $1.25 million
or 1.5% of the loan portfolio of which $757,000 has been disbursed.
First Kentucky Federal's home equity loans and lines of credit have been
made on the security of primary residences on which First Kentucky Federal has a
first mortgage. The amount of the line of credit may not exceed 80% of the
appraised value of the property less the outstanding principal of the first
mortgage. First Kentucky Federal's home equity lines of credit bear variable
rates of interest indexed to one-year U.S. Treasury bill rate. Funds committed
under home equity lines of credit may be accessed through special checking
accounts with minimum disbursements of $1,000. Consumer loans made by First
Kentucky Federal have also included automobile and installment loans and loans
secured by deposits in First Kentucky Federal. The original principal amounts of
First Kentucky Federal's automobile loans do not exceed 80% of the
manufacturer's suggested retail price on new vehicles or the lesser of the
National Automobile Dealers Association official used car guide loan value or
80% of purchase price for used vehicles. First Kentucky Federal does not
purchase automobile loans from dealers or other originators. The maximum term
offered on automobile loans is currently four years. However, management expects
to offer 60 month loans on new vehicles by the end of 1993.
First Kentucky Federal believes that the shorter terms and the normally
higher interest rates available on various types of consumer loans have been
helpful in maintaining a profitable spread between First Kentucky Federal's
average loan yield and its cost of funds. First Kentucky Federal also believes
that consumer lending is useful in developing and maintaining customer
relationships. Consumer loans do, however, pose additional risks of
collectibility when compared to traditional types of loans granted by thrift
institutions such as residential mortgage loans. First Kentucky Federal has
sought to reduce the risk of consumer lending by granting primarily home equity
loans and underwriting consumer loans on the basis of the borrower's ability to
repay. In addition, First Kentucky Federal generally takes some form of security
for its consumer loans.
COMMERCIAL LENDING. As a federal savings bank, First Kentucky Federal is
authorized to invest up to 10% of its assets in commercial loans not secured by
real property. At September 30, 1993, First Kentucky Federal had $655,000 or
0.81% of its loan portfolio, in such loans outstanding. First Kentucky Federal
has generally originated commercial loans to accommodate existing customers and
does not currently intend to expand this activity. First Kentucky Federal's
commercial loans have generally been made on the security of equipment or
accounts receivable. First Kentucky Federal anticipates that it will continue to
originate commercial loans, to the extent permitted by regulation, in accordance
with past practice.
LOAN SOLICITATION AND PROCESSING. Loan originations are derived from a
number of sources. Residential loan originations primarily come from walk-in
customers but also can be attributed to realtor referrals and referrals by
savers and borrowers. First Kentucky Federal also purchases loans from selected
thrift institutions and mortgage bankers in Kentucky. Loan applications are
underwritten and closed based on either Federal Home Loan Mortgage Corporation
("FHLMC") or Federal National Mortgage Association ("FNMA") underwriting
guidelines or First Kentucky Federal's own loan guidelines. Consumer and other
loan originations emanate from many of the same sources as for residential real
estate loan originations.
Upon receipt of a loan application from a prospective borrower, a credit
report and verifications are ordered to verify specific information relating to
the loan applicant's employment, income and credit standing. An appraisal of the
real estate intended to secure the proposed loan is undertaken by a fee
appraiser approved by First Kentucky Federal. Once a loan application has been
completed and all
56
<PAGE>
information has been obtained, the application is presented to First Kentucky
Federal's Loan Committee consisting of two directors for final approval.
Consumer loans within certain other limits may be approved by Bank officers.
Loan applicants are promptly notified in writing of the decision of First
Kentucky Federal. If the loan is approved, the notification will provide that
First Kentucky Federal's commitment will terminate within 60 days of the letter.
Commitment periods may be extended for good cause and upon written approval but
may be conditioned upon requalification by the borrower. Commitments for periods
of longer than 60 days may be granted upon request.
ORIGINATIONS AND PURCHASES OF MORTGAGE LOANS. The following table sets
forth certain information with respect to the loan origination and purchase
activity of First Kentucky Federal for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Loans originated:
Conventional real estate loans:
Construction loans............................................... $ 3,604 $ 1,906 $ 2,130
Loans on existing property....................................... 6,278 3,509 3,328
Loans refinanced................................................. 7,531 10,279 2,708
Consumer........................................................... 7,092 7,236 6,771
Commercial loans................................................... 365 324 532
Other loans........................................................ -- -- --
--------- --------- ---------
Total loans originated....................................... $ 24,870 $ 23,254 $ 15,469
--------- --------- ---------
--------- --------- ---------
Loans purchased:
Real estate loans:
Whole loans...................................................... $ -- $ -- $ --
Participations................................................... -- -- --
--------- --------- ---------
Total loans purchased........................................ $ -- $ -- $ --
--------- --------- ---------
--------- --------- ---------
</TABLE>
First Kentucky Federal's loan originations continued to increase during
fiscal year 1993 primarily as a result of increased volume in real estate
lending. Originations, net of refinancings, increased to $17.3 million in fiscal
year 1993, compared to $13.0 million in fiscal year 1992. Refinancings, which
had increased significantly in fiscal years 1992 as borrowers took advantage of
lower interest rates, continued to contribute to increased loan originations in
the current year.
During recent years, First Kentucky Federal has supplemented loan
originations in its primary market area with purchases of loans from selected
thrift institutions and mortgage bankers in other parts of Kentucky. First
Kentucky Federal's loan purchases have involved primarily adjustable-rate
mortgages secured by single-family properties located in Lexington, Kentucky.
First Kentucky Federal has also originated adjustable-rate mortgages through a
mortgage banker in Bowling Green, Kentucky. Both Lexington and Bowling Green
have experienced more favorable economic conditions than First Kentucky
Federal's primary market area in recent years. First Kentucky Federal only
purchases loans that meet its normal underwriting criteria. The majority of
purchased loans continue to be serviced by the originator for which the servicer
receives a fee equal to 3/8% of each loan payment. First Kentucky Federal made
no loan purchases during the most recent fiscal year in order to avoid
geographic concentrations outside its primary market area. First Kentucky
Federal has not sold any loans or participations.
INTEREST RATES AND LOAN FEES. Interest rates charged by First Kentucky
Federal on mortgage loans are primarily determined by competitive loan rates
offered in its market area. Mortgage loan rates reflect factors such as general
interest rate levels, the supply of money available to the savings
57
<PAGE>
industry and the demand for such loans. These factors are in turn affected by
general economic conditions, the monetary policies of the Federal government,
including the Federal Reserve Board, the general supply of money in the economy,
tax policies and governmental budget matters.
In addition to interest earned on loans and income from servicing of loans,
First Kentucky Federal receives fees in connection with loan commitments and
originations, loan modifications, late payments, changes of property ownership
and for miscellaneous services related to its loans. Income from these
activities varies from period to period with the volume and type of loans
originated, sold and purchased, which in turn is dependent on prevailing
mortgage interest rates and their effect on the demand for loans in the markets
served by First Kentucky Federal. To the extent that loans are originated or
acquired for the portfolio, generally accepted accounting principles limit
immediate recognition of loan origination or acquisition fees as revenues and
requires that such income (net of certain loan origination or acquisition costs)
be recognized over the estimated life of such loans. See Note 2 of Notes to
Consolidated Financial Statements.
NON-PERFORMING LOANS AND ASSET CLASSIFICATION. Loans are reviewed on a
regular basis and are placed on a non-accrual status when, in the opinion of
management, the collection of additional interest is doubtful. Residential and
commercial mortgage loans are generally placed on nonaccrual status when either
principal or interest is more than 90 days past due, unless management considers
the interest collectible. First Kentucky Federal, however, establishes reserves
for uncollected interest on all loans more than 90 days past due. Consumer loans
are generally charged off when or before the loan becomes 120 days delinquent.
First Kentucky Federal's collection procedures provide that when a loan is
10 days' past due for a consumer loan or 15 days' past due for a mortgage loan,
the borrower is contacted by mail, and payment is requested. If the delinquency
continues, subsequent efforts are made to contact the delinquent borrower.
Additional attempts are made to contact the borrower and if the loan continues
in a delinquent status for 120 days or more, First Kentucky Federal generally
initiates legal proceedings and/or charges off the loan.
Real estate acquired by First Kentucky Federal as a result of foreclosure is
classified as real estate owned until such time as it is sold. When such
property is acquired, it is recorded at the lower of the unpaid principal
balance or its fair market value. Any required write-down of the loan to its
fair market value is charged to the allowance for loan losses.
At September 30, 1993, First Kentucky Federal owned approximately $267,572
(net of valuation reserves of $99,410) of property acquired as the result of
foreclosure, repossession or by deed in lieu of foreclosure and classified as
"real estate owned" and repossessed assets. Of the six properties which make up
the total gross amount of $366,982, four properties, aggregating $81,674,
represent primarily undeveloped land on hand for several years and have been
fully reserved and one residential property ($18,000) is currently rented. An
apartment complex with a carrying value of $532,000 previously held in real
estate owned since 1987 was sold in February 1993. During September 1993,
management reclassified three loans to one borrower under in-substance
foreclosure as real estate owned with a fair market value of $267,308. The
underlying properties consist of several stores comprising a small shopping
center in Greenville, Kentucky. These properties are currently rented out at
approximately 60% capacity and foreclosure was effected in October 1993.
Management expects to dispose of the properties in the near future. At September
30, 1993, First Kentucky Federal's only foreclosure proceedings pertained to the
loans under in-substance foreclosure.
The following table sets forth information with respect to First Kentucky
Federal's non-performing assets for the periods indicated. As of September 30,
1993, there were no loans excluded from the
58
<PAGE>
table below where known information about the possible credit problems of
borrowers caused management to have serious doubts as to the ability of the
borrower to comply with present loan repayment terms and which may result in
disclosure of such loans in the future. In addition, for all years presented,
First Kentucky Federal had no restructured loans ("troubled debt restructurings"
as defined in SFAS No. 15).
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------------
1993 1992 1991
--------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Non-accrual loans:
Real Estate:
Residential........................................................... $ -- $ 28 $ 253
Commercial............................................................ -- 422 199
Commercial business..................................................... -- -- 12
Consumer................................................................ 41 41 47
--------- --------- ---------
Total............................................................. $ 41 $ 491 $ 511
--------- --------- ---------
--------- --------- ---------
Percentage of total loans............................................... 0.05% 0.60% 0.52%
--------- --------- ---------
--------- --------- ---------
Other non-performing assets (1)......................................... $ 268 $ 553 $ 806
--------- --------- ---------
--------- --------- ---------
Total non-accrual loans and non-performing assets....................... $ 309 $ 1,044 $ 1,317
--------- --------- ---------
--------- --------- ---------
Percentage of total assets.............................................. 0.18% 0.59% 0.75%
--------- --------- ---------
--------- --------- ---------
<FN>
- ------------------------
(1) Other non-performing assets represents property acquired by First Kentucky
Federal through foreclosure or repossession. This property is carried at
the lower of its fair market value or the principal balance of the related
loan.
</TABLE>
There were no non-accruing residential or commercial real estate loans at
September 30, 1993. Management attributes the continuing decline in non-accrual
loans during fiscal years 1993 and 1992 to increased collection efforts. During
September 1993, mortgage loans to one borrower with an aggregate principal
balance of $359,640 were reclassified as real estate owned under in-substance
foreclosure with a recorded fair market value of $267,308. These loans had
previously been accounted for as nonaccruing, and had been included in
non-accruing loans at prior year end.
Gross interest income of $44,523 would have been recorded on non-accrual
loans during the fiscal year ended September 30, 1993 if non-accrual loans at
such dates had been current in accordance with their terms and had been
outstanding throughout the period or since origination if held for part of the
period. Approximately $50,834 in interest income on these loans was included in
net income during the fiscal year ended September 30, 1993.
Federal regulations require savings associations to review their assets on a
regular basis and to classify them as "substandard," "doubtful" or "loss," if
warranted. Assets classified as substandard or doubtful require the institution
to establish general allowances for loan losses. If an asset or portion thereof
is classified loss, the insured institution must either establish specified
allowances for loan losses in the amount of 100% of the portion of the asset
classified loss, or charge off such amount. An asset which does not currently
warrant classification but which possesses weaknesses or deficiencies deserving
close attention is required to be designated as "special mention." Currently,
general loss allowances established to cover possible losses related to assets
classified substandard or doubtful may be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses do not qualify as regulatory capital. See "Supervision and Regulation of
First Kentucky Federal -- Regulatory Capital Requirements." OTS examiners may
disagree with the institution's classifications and amounts reserved. If an
institution does not agree with an examiner's classification of an asset, it may
appeal this determination to the OTS. First Kentucky Federal has determined that
as of September 30, 1993, it had $1.01 million of assets classified as
substandard, no assets classified as
59
<PAGE>
doubtful, and $131,000 in assets classified as loss. Allowances have been
established in the full amount of loss assets. Substandard assets include
certain loans which are not 90 days delinquent and are therefore not disclosed
in the table of nonperforming loans above but have been classified by management
because of a history of delinquency or payment arrearages. Such loans have not
been placed on non-accrual status because management considers the interest on
these loans collectible.
ALLOWANCE FOR LOAN LOSSES. In originating loans, First Kentucky Federal
recognizes that credit losses will be experienced and that the risk of loss will
vary with, among other things, the type of loan being made, the creditworthiness
of the borrower over the term of the loan and, in the case of a secured loan,
the quality of the security for the loan as well as general economic conditions.
It is management's policy to maintain an adequate allowance for loan losses
based on, among other things, First Kentucky Federal's and the industry's
historical loan loss experience, evaluation of economic conditions and regular
reviews of delinquencies and loan portfolio quality. Specific allowances are
provided for individual loans when ultimate collection is considered
questionable by management after reviewing the current status of loans which are
contractually past due and considering the net realizable value of the security
for the loan. Management continues to actively monitor First Kentucky Federal's
asset quality and to charge off loans against the allowance for loan losses when
appropriate or to provide specific loss reserves when necessary. Although
management believes it uses the best information available to make
determinations with respect to the allowance for loan losses, future adjustments
may be necessary if economic conditions differ substantially from the economic
conditions in the assumptions used in making the initial determinations. At
September 30, 1993, First Kentucky Federal had $131,000 in specific loan loss
reserves and $728,000 in general loan loss reserves.
60
<PAGE>
The following table sets forth an analysis of the changes in First Kentucky
Federal's allowance for loan loss account during the periods indicated.
<TABLE>
<CAPTION>
Year Ended September 30,
--------------------------------------
1993 1992 1991
------------ ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period............................................ $ 756,356 $ 527,035 $ 270,731
------------ ----------- -----------
Loans charged-off:
Real estate -- mortgage:
Residential........................................................... (112,112) (18,332) --
Commercial............................................................ -- -- --
Real estate -- construction............................................. -- -- --
Commercial business..................................................... -- -- --
Consumer................................................................ (47,794) (8,617) (29,671)
------------ ----------- -----------
Total charge-offs......................................................... (159,906) (26,949) (29,671)
------------ ----------- -----------
Recoveries:
Real estate -- mortgage:
Residential........................................................... 41,500 2,918 --
Commercial................................................................ -- -- --
Real estate -- construction............................................. -- -- --
Commercial business..................................................... -- -- --
Consumer................................................................ 40 352 21,975
------------ ----------- -----------
Total recoveries.......................................................... 41,540 3,270 21,975
------------ ----------- -----------
Net loan charge-offs...................................................... (118,366) (23,679) (7,696)
Provision for possible loan losses........................................ 122,000 253,000 264,000
------------ ----------- -----------
Balance at end of period.................................................. $ 759,990 $ 756,356 $ 527,035
------------ ----------- -----------
------------ ----------- -----------
Ratio of allowance for loan losses to loans outstanding at end of
period................................................................... 0.9% 0.9% 0.5%
Ratio of net charge-offs to average loans outstanding during the period... 0.19% 0.03% 0.01%
Average loans outstanding (in thousands of dollars)....................... $ 82,031 $ 88,552 $ 103,692
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
Net loan charge-offs did not increase significantly except for the loans
reclassified into real estate owned and allowances aggregating $92,300 were
written off in connection with the in-substance foreclosure.
61
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any category.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
----------------------------------------------------------------------------
1993 1992 1991
------------------------ ------------------------ ------------------------
% OF LOANS % OF LOANS % OF LOANS
IN EACH IN EACH IN EACH
CATEGORY TO CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate -- mortgage:
Residential................................. $ 653 85.88 % $ 529 70.0% $ 402 76.3%
Commercial.................................. -- -- 96 12.7 10 1.9
Consumer...................................... 107 14.12 131 17.3 115 21.8
Unallocated................................... -- -- -- -- -- --
----- ----- ----- ----- ----- -----
Total..................................... $ 760 100.0 % $ 756 100.0 % $ 527 100.0 %
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
</TABLE>
Numerous financial institutions throughout the United States have recently
incurred losses due to significant increases in loan loss provisions and
charge-offs resulting largely from higher levels of loan delinquencies and
foreclosures. Depressed real estate market conditions have adversely affected
the economies of various regions and have had a severe impact on the financial
condition and businesses of many of the financial institutions doing business in
these areas. Considerable uncertainty exists as to the future improvement or
deterioration of the real estate markets in these regions, or of its ultimate
impact on these financial institutions.
As a result of the declines in real estate market values and the significant
losses experienced by many financial institutions, there has been a greater
level of scrutiny by regulatory authorities of the loan portfolios of financial
institutions, undertaken as part of the examination of the institution by the
FDIC, OTS or other federal or state regulators. Results of recent examinations
indicate that these regulators may be applying more conservative criteria in
evaluating real estate market values, requiring significantly increased
provisions for potential loan losses. While First Kentucky Federal believes it
has established its existing allowances for loan losses in accordance with
generally accepted accounting principles, there can be no assurance that
regulators, in reviewing First Kentucky Federal's loan portfolio, will not
request First Kentucky Federal to significantly increase its allowance for loan
losses, thereby negatively affecting First Kentucky Federal's financial
condition and earnings.
The OTS has requested comment on a proposed policy statement on the adequacy
of general valuation allowances. The proposed policy statement provides that the
primary responsibility for judging the adequacy of general valuation allowances
lies with management. OTS examiners will evaluate the methodology and process
used by management to establish such allowances. If OTS examiners determine that
a savings association's policies, procedures and system are insufficient, the
examiners will judge the adequacy of the allowance by calculating whether the
allowance is at least equal to the following percentages of classified assets
and Special Mention assets: (i) 0% to 5% of Special Mention assets; (ii) 5% to
25% of Substandard assets; and (iii) 40% to 60% of Doubtful assets. In addition,
examiners will check whether the allowance for other assets is at least equal to
expected net charge-offs during the next year based on annual net charge-offs
experienced by the association during the past three to five years.
INVESTMENT ACTIVITIES
First Kentucky Federal is required under federal regulations to maintain a
minimum amount of liquid assets that can be invested in specified short-term
securities and is also permitted to make certain other investments. See
"Supervision and Regulation of First Kentucky Federal -- Liquidity
Requirements." It has generally been First Kentucky Federal's policy to maintain
a liquidity portfolio
62
<PAGE>
in excess of the amount required to satisfy regulatory requirements. First
Kentucky Federal's average daily and short-term liquidity ratios for the month
of September 1993 were 46.89% and 5.72%, respectively. Liquidity levels may be
increased or decreased depending upon the yields on investment alternatives,
management's judgment as to the attractiveness of the yields then available in
relation to other opportunities, its expectations of the level of yield that
will be available in the future and its projections as to the short-term demand
for funds to be used in First Kentucky Federal's loan origination and other
activities.
During the past several fiscal years, First Kentucky Federal has
substantially increased the size of its mortgage-backed securities portfolio as
cash flows from mortgage refinancings and maturing loans and investment
securities have been directed into this form of investment. Mortgage-backed
securities entitle First Kentucky Federal to receive a pro rata portion of the
cash flows from an identified pool of mortgages. Mortgage-backed securities are
considered qualified thrift investments which help First Kentucky Federal
satisfy the statutory qualified thrift lender test. See "Supervision and
Regulation of First Kentucky Federal -- Qualified Thrift Lender Test."
Mortgage-backed securities can also be used to help First Kentucky Federal
qualify as a "domestic building and loan association" under the Internal Revenue
Code which allows First Kentucky Federal to use certain advantageous tax rules.
See "Taxation." First Kentucky Federal's mortgage-backed securities portfolio
consists of FNMA and FHLMC participation certificates which are guaranteed as to
principal and interest by those entities. All of First Kentucky Federal's
mortgage-backed securities with stated average lives in excess of seven years
are secured by pools of one-year adjustable rate mortgages.
The following table sets forth the carrying value of First Kentucky
Federal's investment securities portfolio, short-term investments and FHLB stock
at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Investment securities:
U.S. Government and agency securities........................................ $ 14,814 $ 19,143 $ 26,245
Obligations of states and political subdivisions............................. 755 325 325
Certificates of deposit...................................................... -- -- 495
--------- --------- ---------
Total investment securities................................................ 15,569 19,468 27,065
FHLB of Cincinnati stock....................................................... 1,364 1,178 1,046
Overnight deposits............................................................. 5,000 10,500 11,725
Interest-bearing deposits...................................................... -- -- 1,699
--------- --------- ---------
21,933 31,146 41,535
Noninterest-bearing cash....................................................... 2,383 2,739 4,082
--------- --------- ---------
Total cash, FHLB stock and investment securities........................... $ 24,316 $ 33,885 $ 45,617
--------- --------- ---------
--------- --------- ---------
Mortgage-backed securities..................................................... $ 69,748 $ 58,114 $ 27,406
--------- --------- ---------
--------- --------- ---------
Market Values:
Investment securities........................................................ $ 17,133 $ 19,674 $ 26,582
--------- --------- ---------
--------- --------- ---------
Total cash, FHLB stock and investment securities............................. $ 25,880 $ 34,091 $ 41,052
--------- --------- ---------
--------- --------- ---------
Mortgage-backed securities................................................... $ 71,393 $ 60,365 $ 28,126
--------- --------- ---------
--------- --------- ---------
</TABLE>
In accordance with generally accepted accounting principles, First Kentucky
Federal carries its investment securities portfolio at cost, adjusted for
unaccreted discounts and unamortized premiums and only recognizes gains or
losses in income when realized. In September 1993, management sold its long-term
Treasury bonds in response to the OTS proposal to increase regulatory capital
requirements to account for interest rate risk and reinvested the proceeds in
instruments with a ten year or less average life. At September 30, 1993, the
market value of First Kentucky Federal's investment
63
<PAGE>
securities portfolio was approximately $1,564,000 above the current carrying
value and the market value of First Kentucky Federal's mortgage-backed
securities was approximately $1,645,000 above the current carrying value. See
"First Kentucky Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Impact of New Accounting Standards" and Note 4 of Notes
to Consolidated Financial Statements. At September 30, 1993, First Kentucky
Federal's intention is to hold these investment securities to maturity.
The following table sets forth the scheduled maturities, carrying values,
market values and average yields for certain of First Kentucky Federal's
investment securities, overnight deposits and mortgage-backed securities at
September 30, 1993. Since First Kentucky Federal does not have any significant
amount of tax exempt obligations in the investment portfolio, the weighted
average yields have not been converted to a tax-equivalent basis.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1993
------------------------------------------------------------------------------------------------------
ONE YEAR ONE TO FIVE TO MORE THAN TOTAL INVESTMENT
OR LESS FIVE YEARS TEN YEARS TEN YEARS SECURITIES
------------------ ------------------ ------------------ ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING AVERAGE CARRYING MARKET
VALUE YIELD VALUE YIELD VALUE YIELD VALUE YIELD VALUE VALUE
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
agency obligations...... $ -- --% $ 4,311 7.61% $10,503 6.87% $ -- --% $14,814 $ 16,359
Obligations of states and
political
subdivisions............ 90 5.30 200 5.30 -- -- 465 6.87 755 774
Overnight deposits....... 5,000 2.75 -- -- -- -- -- -- 5,000 5,000
Stock in FHLB of
Cincinnati.............. 1,364 4.50 -- -- -- -- -- -- 1,364 1,364
Mortgage-backed
securities.............. -- -- 57,709 6.59 4,835 5.91 7,204 6.44 69,748 71,393
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total................ $ 6,454 3.16% $62,220 6.66% $15,338 6.44% $ 7,669 6.47% $91,681 $ 94,890
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
<CAPTION>
WEIGHTED
AVERAGE
YIELD
--------
<S> <C>
U.S. Government and
agency obligations...... 6.96%
Obligations of states and
political
subdivisions............ 6.22
Overnight deposits....... 2.75
Stock in FHLB of
Cincinnati.............. 4.50
Mortgage-backed
securities.............. 6.53
--------
Total................ 6.36%
--------
--------
</TABLE>
DEPOSIT ACTIVITY AND OTHER SOURCES OF FUNDS
GENERAL. Deposits are a significant source of First Kentucky Federal's
funds for lending and other investment purposes. In addition to deposits, First
Kentucky Federal derives funds from loan principal repayments and interest
payments and maturing investment securities. Loan repayments and interest
payments are a relatively stable source of funds, while deposit inflows and
outflows are significantly influenced by general interest rates and money market
conditions. Borrowings may be used on a short-term basis to compensate for
reductions in the availability of funds from other sources. They may also be
used on a longer term basis for general business purposes. First Kentucky,
however, has not used borrowings.
DEPOSITS. Consumer and commercial deposits are attracted principally from
within First Kentucky Federal's primary market area through the offering of a
variety of deposit instruments, including passbook and statement accounts and
certificates of deposit ranging in term from 30 days to 4 years. Deposit account
terms vary, with the principal differences being the minimum balance required,
the time periods the funds must remain on deposit and the interest rate. First
Kentucky Federal also offers individual retirement accounts ("IRAs").
First Kentucky Federal's policies are designed primarily to attract deposits
from local residents through its branch network rather than to actively solicit
deposits from areas outside its primary market. First Kentucky Federal does not
accept deposits from brokers due to the volatility and rate sensitivity of such
deposits. Interest rates paid, maturity terms, service fees and withdrawal
penalties are established by First Kentucky Federal on a periodic basis.
Determination of rates and terms are predicated upon funds acquisition and
liquidity requirements, rates paid by competitors, growth goals and federal
regulations.
During recent periods, First Kentucky Federal has sought to stabilize its
costs of funds and improve its asset/liability match by offering more
competitive rates on certificates of deposits. As a
64
<PAGE>
result of these efforts, approximately 22.57% of First Kentucky Federal's
deposits at September 30, 1993 were certificates with maturities greater than 18
months. In addition, 23.37% of First Kentucky Federal's deposits were three-and
six-month certificates. Because of declining rates during fiscal years 1992 and
1993, however, depositors began investing the proceeds from maturing
certificates of deposits in passbook savings and money market accounts rather
than renewing certificates.
Certificates of deposit with balances of $100,000 or more amounted to $6.47
million or 4.01% of deposits at September 30, 1993. The jumbo deposits in the
portfolio were obtained directly from local businesses and individuals which
have been longstanding customers of First Kentucky Federal and not through
deposit brokers. Jumbo deposits are generally made for terms of six months or
less and bear rates not more than 0.25% greater than those paid on deposits of
less than $100,000.
The following table sets forth the change in dollar amount of deposits in
the various types of accounts offered by First Kentucky Federal between the
dates indicated.
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT BALANCE AT
SEPTEMBER 30, % DECREASE SEPTEMBER 30, % INCREASE SEPTEMBER 30,
1993 DEPOSIT (INCREASE) 1992 DEPOSITS (DECREASE) 1991
------------- ----------- ----------- ------------- ------------ ----------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Noninterest checking.. $ 2,308 1.4% $ 1,139 $ 1,169 0.7% $ 1,041 $ 128
NOW accounts.......... 9,732 6.1 (394) 10,126 6.1 (207) 10,333
Jumbo certificates.... 5,847 3.6 376 5,471 3.3 (150) 5,621
Super NOW accounts.... 90 0.0 12 78 0.0 3 75
Passbook and regular
savings.............. 28,138 17.4 2,496 25,642 15.5 4,886 20,756
Money market deposit
accounts............. 17,660 10.9 37 17,623 10.7 1,825 15,798
Three and six month
money market
certificates......... 37,715 23.4 (1,651) 39,366 23.8 (442) 39,808
18, 30 and 48 month
certificates......... 46,429 28.8 (6,866) 53,295 32.2 (6,533) 59,828
IRA accounts.......... 12,084 7.5 876 11,208 6.8 758 10,450
Other certificates
(1).................. 1,372 .9 (74) 1,446 0.9 (226) 1,672
------------- ----- ----------- ------------- ----- ----------- -------------
Total............. $ 161,375 100.0% $ (4,049) $ 165,424 100.0% $ 955 $ 164,469
------------- ----- ----------- ------------- ----- ----------- -------------
------------- ----- ----------- ------------- ----- ----------- -------------
<CAPTION>
%
DEPOSITS
------------
<S> <C>
Noninterest checking.. 0.1%
NOW accounts.......... 6.3
Jumbo certificates.... 3.4
Super NOW accounts.... 0.0
Passbook and regular
savings.............. 12.6
Money market deposit
accounts............. 9.6
Three and six month
money market
certificates......... 24.2
18, 30 and 48 month
certificates......... 36.4
IRA accounts.......... 6.4
Other certificates
(1).................. 1.0
-----
Total............. 100.0%
-----
-----
<FN>
- ------------------------------
(1) Includes certificates of 12, 24 and 36 month maturities and maturities in
excess of 48 months.
</TABLE>
The following table sets forth the average balances and interest rates based
on month end balances for interest-bearing transaction accounts and time
deposits as of the dates indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------------------------
1993 1992 1991
------------------------ ------------------------ ------------------------
INTEREST- INTEREST- INTEREST-
BEARING BEARING BEARING
TRANSACTION TIME TRANSACTION TIME TRANSACTION TIME
ACCOUNTS DEPOSITS ACCOUNTS DEPOSITS ACCOUNTS DEPOSITS
----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Average Balance.................... $ 57,535 $ 105,803 $ 51,916 $ 114,506 $ 44,184 $ 117,825
Average Rate....................... 2.67% 4.85% 3.18 % 5.43% 5.21 % 6.92%
</TABLE>
65
<PAGE>
Deposits in First Kentucky Federal as of September 30, 1993 were represented
by the various types of savings programs described below.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE PERCENTAGE
INTEREST MINIMUM OF TOTAL
RATE CATEGORY TERM BALANCE SAVINGS
- ----------- --------------------------------------- ------------- ----------- BALANCE -----------
--------------
(IN THOUSANDS)
<C> <S> <C> <C> <C> <C>
--% Noninterest checking N/A $ 100 $ 2,308 1.43%
1.78 NOW accounts N/A 300 9,732 6.03
2.75 Passbook statement accounts N/A 100 27,658 17.14
2.75 Money market deposit accounts N/A 2,500 17,660 10.94
2.50 Super NOW accounts * N/A 2,500 90 0.06
2.75 90-day passbook * 90 days -- 480 0.30
3.32 12-month fixed-rate, fixed-term * 12 months 500 70 0.04
3.75 18-month fixed-rate, fixed-term 18 months 1,000 11,313 7.01
4.97 30-month fixed-rate, fixed-term 30 months 1,000 16,018 9.93
6.75 36-month fixed-rate, fixed-term * 36 months 500 73 0.05
6.81 48-month fixed-rate, fixed-term 48 months 1,000 19,098 11.83
7.78 72-month fixed-rate, fixed-term * 6 years 500 500 0.31
8.03 96-month fixed-rate, fixed-term * 8 years 1,000 729 0.45
4.80 18-month IRAs 18 months N/A 12,084 7.49
3.06 6-month money market 182 days 2,500 36,639 22.70
2.78 3-month money market 91 days 2,500 1,076 0.67
4.42 Jumbos Negotiable 100,000 5,847 3.62
-------------- -----------
$ 161,375 100.00%
-------------- -----------
-------------- -----------
<FN>
- ------------------------
*No longer offered.
</TABLE>
The following table sets forth First Kentucky Federal's certificates of
deposit classified by rates as of the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------------------
1993 1992 1991
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
2-2.99%.......................................................... $ 1,397 $ -- $ --
3-3.99%.......................................................... 46,664 32,622 --
4-4.99%.......................................................... 30,138 28,046 --
5-5.99%.......................................................... 7,004 9,791 32,264
6-6.99%.......................................................... 5,649 11,534 27,998
7-7.99%.......................................................... 2,975 12,490 31,682
8-8.99%.......................................................... 9,620 16,303 25,434
----------- ----------- -----------
$ 103,447 $ 110,786 $ 117,378
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
66
<PAGE>
The following table sets forth the amount and maturities of certificates of
deposit by rate and specified weighted average interest rate categories at
September 30, 1993.
<TABLE>
<CAPTION>
AMOUNT DUE
---------------------------------------------------------
UP TO ONE AFTER 3
YEAR 1-2 YEARS 2-3 YEARS YEARS TOTAL
--------- --------- ----------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
2-2.99%....................................... $ 1,397 $ -- $ -- $ -- $ 1,397
3-3.99%....................................... 42,109 4,555 -- -- 46,664
4-4.99%....................................... 11,626 10,625 3,890 3,997 30,138
5-5.99%....................................... 2,158 906 2,402 1,538 7,004
6-6.99%....................................... 4,293 793 563 -- 5,649
7-7.99%....................................... 303 2,273 367 32 2,975
8-8.99%....................................... 8,113 1,478 11 18 9,620
--------- --------- ----------- --------- -----------
$ 69,999 $ 20,630 $ 7,233 $ 5,585 $ 103,447
--------- --------- ----------- --------- -----------
--------- --------- ----------- --------- -----------
Weighted average rate......................... 4.22% 4.94% 4.92 % 4.93% 4.46%
</TABLE>
The following table indicates the amount of First Kentucky Federal's
certificates of deposit of $100,000 or more by time remaining until maturity as
of September 30, 1993.
<TABLE>
<CAPTION>
A WEIGHTED
AVERAGE RATE
AMOUNT ---------------
--------------
(IN THOUSANDS)
<S> <C> <C>
Three months or less...................................................... $ 1,927 3.68%
Three through six months.................................................. 1,242 3.68
Six through twelve months................................................. 712 6.02
Over twelve months........................................................ 2,593 5.30
------- ---
Total................................................................. $ 6,474 4.59%
------- ---
------- ---
</TABLE>
First Kentucky Federal's deposit base at September 30, 1993 included $103.4
million in certificates of deposit with a weighted average rate of 4.46%. Of
these certificates of deposit, approximately $70.0 million (43.38% of total
deposits at September 30, 1993) with a weighted average rate of 4.22% will
mature prior to September 30, 1994. The rates on these certificates are higher
than the rates currently being paid on similar certificates. First Kentucky
Federal will seek to retain these deposits to the extent consistent with its
long-term objective of maintaining positive interest rate spreads. Depending
upon interest rates existing at the time such certificates mature, First
Kentucky Federal's cost of funds may be significantly affected by the rollover
of these funds. A decrease in such cost of funds, if any, may have a material
impact on First Kentucky Federal's operations. Additionally, to the extent such
deposits do not rollover, First Kentucky Federal may, if necessary, use other
sources of funds, including the proceeds from maturing investment securities and
borrowings from the FHLB of Cincinnati, to replace such deposits. See
"Borrowings."
The following table analyzes First Kentucky Federal's deposit flows for the
periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net increase (decrease) before interest credited...................... $ (7,944) $ (4,156) $ (2,438)
Interest credited..................................................... 3,895 5,181 6,123
--------- --------- ---------
Net increase (decrease) in deposits................................... $ (4,049) $ 1,025 $ 3,685
--------- --------- ---------
--------- --------- ---------
</TABLE>
First Kentucky Federal attributes the decrease in deposits before interest
credited during fiscal year 1993 to the declining rates offered by First
Kentucky Federal which reflect declines in general
67
<PAGE>
market interest rates and have made deposits a less attractive investment
alternative for many depositors. First Kentucky Federal has also priced its
deposits conservatively due to its decreased funding needs in view of the
decline in loan origination activity during the period.
BORROWINGS. Savings deposits are the primary source of funds of First
Kentucky Federal's lending and investment activities and for its general
business activities. First Kentucky Federal may, however, use advances from the
FHLB of Cincinnati to supplement its supply of lendable funds and to meet
deposit withdrawal requirements. The FHLB of Cincinnati functions as a central
reserve bank providing credit for savings institutions and certain other member
financial institutions. As a member, First Kentucky Federal is required to own
capital stock in the FHLB and is authorized to apply for advances on the
security of such stock and certain of its home mortgages and other assets
(principally, securities which are obligations of, or guaranteed by, the United
States) provided certain standards related to creditworthiness have been met.
Advances from the FHLB are typically secured by First Kentucky Federal's stock
in the FHLB and a portion of First Kentucky Federal's mortgage loans. The FHLB
has served as First Kentucky Federal's primary borrowing source. At September
30, 1993, however, First Kentucky Federal had no advances from the FHLB of
Cincinnati.
SUBSIDIARY ACTIVITIES
As a federally chartered savings bank, First Kentucky Federal is permitted
to invest an amount equal to 2% of its assets in subsidiaries with an additional
investment of 1% of assets where such investment serves primarily community,
inner-city, and community development purposes. Under such limitations, as of
September 30, 1993, First Kentucky Federal was authorized to invest up to
approximately $5.0 million in the stock of or loans to subsidiaries including
the additional 1% investment for community inner-city and community development
purposes. Subject to applicable loans-to-one-borrower restrictions, First
Kentucky Federal may also invest an amount not to exceed 50% of its total
capital in conforming loans to service corporations in which it owns more than
10% of the outstanding capital stock. In addition, federal savings associations
may invest without limitation in operating subsidiaries engaged only in
activities (other than deposit-taking) that a federal association may undertake
directly and in which the association owns at least 50% of the voting stock.
The activities of First Kentucky Federal's wholly owned subsidiary, Home
Service Corporation of Hartford, Inc. ("Home Service") are currently not
significant. Home Service was originally organized to manage real estate
acquired by First Kentucky Federal through foreclosure. First Kentucky Federal
contracts for real estate appraisal services through Home Service and First
Kentucky Federal officers assign premiums received for sales of credit life
insurance to customers to Home Service. At September 30, 1993, First Kentucky
Federal's aggregate investment in Home Service consisted of $50,000 in capital
stock.
SAIF-insured savings associations, like First Kentucky Federal, are required
to give the FDIC and the Director of the OTS 30 days' prior notice before
establishing or acquiring a new subsidiary, or commencing any new activity
through an existing subsidiary. Both the FDIC and the Director of the OTS have
authority to order termination of subsidiary activities determined to pose a
risk to the safety or soundness of the institution. In addition, recently
adopted capital requirements require savings associations to deduct the amount
of their investments in and extensions of credit to subsidiaries engaged in
activities not permissible to national banks from capital in determining
regulatory capital compliance. See "Supervision and Regulation of First Kentucky
Federal -- Regulatory Capital Requirements."
EMPLOYEES
As of September 30, 1993, First Kentucky and its subsidiary had 55 full-time
and three part-time employees, none of whom were represented by a collective
bargaining agreement. First Kentucky Federal believes that it enjoys good
relations with its personnel.
68
<PAGE>
COMPETITION
First Kentucky Federal is one of two thrift institutions and 12 commercial
banks with offices in Muhlenberg, McLean, Ohio and Butler Counties. First
Kentucky Federal was the 10th largest thrift institution in Kentucky at December
31, 1992 based on asset size. First Kentucky Federal is the largest financial
institution headquartered in its market area and the predominant residential
mortgage lender. All but one of the commercial banks in First Kentucky Federal's
primary market area are locally owned. First Kentucky Federal experiences
substantial competition both in attracting and retaining savings deposits and in
the making of mortgage and other loans. Direct competition for savings deposits
comes from other savings institutions, credit unions and commercial banks
located in its primary market area. Additional significant competition for
savings deposits comes from money market mutual funds and corporate and
government debt securities. Management believes that negative publicity
regarding the thrift industry during recent years has affected First Kentucky
Federal's deposit-gathering. Declining interest rates during the most recent
fiscal year have also made deposits a less attractive investment. Management is
unable to predict the impact of these trends.
The primary factors in competing for loans are interest rates and loan
origination fees and the range of services offered by various financial
institutions. Competition for origination of real estate loans normally comes
from other thrift institutions, commercial banks, mortgage bankers, mortgage
brokers and insurance companies. First Kentucky Federal is able to compete
effectively in its primary market area by offering competitive interest rates
and loan fees, and a wide variety of deposit products, and by emphasizing
personal customer service and cultivating relationships with local businesses.
Recent federal legislation has increased First Kentucky Federal's operating
costs. In addition to higher premiums for deposit insurance, First Kentucky
Federal is now required to pay assessments to federal regulators and has
incurred higher regulatory reporting and compliance costs. Although the
long-term effects are uncertain, management believes that these increased costs
have made it more difficult to compete in the short-term.
TAXATION
GENERAL. First Kentucky and its subsidiaries file a consolidated federal
income tax return on a fiscal year basis. Consolidated returns have the effect
of eliminating intercompany distributions, including dividends, from the
computation of consolidated taxable income for the taxable year in which the
distributions occur.
FEDERAL INCOME TAXATION. Thrift institutions are subject to the provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), in the same
general manner as other corporations. However, institutions such as First
Kentucky Federal which meet certain definitional tests and other conditions
prescribed by the Code may benefit from certain favorable provisions regarding
their deductions from taxable income for annual additions to their bad debt
reserve. For purposes of the bad debt reserve deduction, loans are separated
into "qualifying real property loans," which generally are loans secured by
interests in certain real property, and nonqualifying loans, which are all other
loans. The bad debt reserve deduction with respect to nonqualifying loans must
be based on actual loss experience. The amount of the bad debt reserve deduction
with respect to qualifying real property loans may be based upon actual loss
experience (the "experience method") or a percentage of taxable income
determined without regard to such deduction (the "percentage of taxable income
method").
First Kentucky Federal has historically elected to use the percentage of
taxable income method. Under the percentage of taxable income method, the bad
debt reserve deduction for qualifying real property loans is computed as a
percentage, which Congress has reduced from as much as 60% in prior years to 8%
of taxable income, with certain adjustments, effective for taxable years
beginning after 1986. The allowable deduction under the percentage of taxable
income method (the "percentage bad debt deduction") for taxable years beginning
before 1987 was scaled downward in the event that less than 82% of the total
dollar amount of the assets of an association qualified within certain
designated categories. When the percentage method bad debt deduction was lowered
to 8%, the 82% qualifying
69
<PAGE>
assets requirement was lowered to 60%. For all taxable years, there is no
deduction in the event that less than 60% of the total dollar amount of the
assets of an association falls within such categories. Moreover, in such case,
First Kentucky Federal could be required to recapture, generally over a period
of up to four years, its existing bad debt reserve. As of September 30, 1993,
more than the required amount of First Kentucky Federal's total assets fell
within such category.
The bad debt deduction under the percentage of taxable income method is
subject to certain limitations. First, the amount added to the reserve for
losses on qualifying real property loans may not exceed the amount necessary to
increase the balance of such reserve at the close of the taxable year to 6% of
such loans outstanding at the end of the taxable year. Further, the addition to
the reserve for losses on qualifying real property loans cannot exceed the
amount which, when added to that year's addition to the bad debt reserve for
losses on nonqualifying loans, equals the amount by which 12% of total deposits
or withdrawable accounts of depositors at year-end exceeds the sum of surplus,
undivided profits and reserves at the beginning of the year. Finally, the
percentage bad debt deduction under the percentage of taxable income method is
reduced by the deduction for losses on nonqualifying loans.
Earnings appropriated to First Kentucky Federal's bad debt reserve and
claimed as a tax deduction are not available for the payment of cash dividends
or for distribution to shareholders (including distributions made on dissolution
or liquidation), unless First Kentucky Federal includes the amount in taxable
income, along with the amount deemed necessary to pay the resulting federal
income tax.
For taxable years beginning after December 31, 1986, the Code imposes an
alternative minimum tax at a rate of 20%. The alternative minimum tax generally
applies to a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI") and is payable to the extent
such AMTI is in excess of an exemption amount. The Code provides that an item of
tax preference is the excess of the bad debt deduction allowable for a taxable
year pursuant to the percentage of taxable income method over the amount
allowable under the experience method. The other items of tax preference that
constitute AMTI include (a) tax-exempt interest on newly-issued (generally,
issued on or after August 8, 1986) private activity bonds other than certain
qualified bonds and (b) for taxable years including 1987 through 1989, 50% of
the excess of (i) the taxpayer's pre-tax adjusted net book income over (ii) AMTI
(determined without regard to this latter preference and prior to reduction by
net operating losses). For taxable years beginning after 1989, this latter
preference will be replaced by 75% of the excess (if any) of (i) 75% of adjusted
current earnings as defined in the Code, over (ii) AMTI (determined without
regard to this preference and prior to reduction by net operating losses). For
any taxable year beginning after 1986, net operating losses can offset no more
than 90% of AMTI. Certain payments of alternative minimum taxes may be used as
credits against regular tax liabilities in future years. In addition, for
taxable years after 1986 and before 1992, corporations, including thrift
institutions, are also subject to an environmental tax equal to 0.12% of the
excess of AMTI for the taxable year (determined without regard to net operating
losses and the deduction for the environmental tax) over $2.0 million.
First Kentucky Federal's federal income tax returns have not been audited in
the last five years. For further information regarding federal income taxes, see
Note 12 of Notes to Consolidated Financial Statements.
STATE INCOME TAXATION. The Commonwealth of Kentucky imposes no income or
franchise taxes on savings and loan associations, and no tax on or measured by
tangible personal property. However, First Kentucky (on an unconsolidated basis)
and First Kentucky Federal's wholly-owned subsidiary must pay a Kentucky state
income tax, as well as a tax on capital. The tax on income is 4.0% for the first
$25,000 of taxable income, 5.0% for the next $25,000, 6.0% for the next $50,000,
7.0% for the next $150,000 and 8.25% for all income over $250,000.
First Kentucky Federal is subject to a Kentucky ad valorem tax. Assessed at
the beginning of each calendar year, this tax is 0.1% of First Kentucky
Federal's savings accounts, common stock, capital, and retained income with
certain deductions for amounts borrowed by depositors and for securities
70
<PAGE>
guaranteed by the U.S. Government or certain of its agencies. For the fiscal
year ended September 30, 1993, the amount of such expense was $174,160 and is
included in other expenses in the Consolidated Statements of Income.
First Kentucky is subject to an annual State of Delaware franchise tax based
on the authorized number shares of First Kentucky's capital stock.
PROPERTIES
The following table sets forth the location and certain additional
information regarding First Kentucky Federal's offices and other material
properties as of September 30, 1993. All of the listed properties are owned by
First Kentucky Federal.
<TABLE>
<CAPTION>
NET BOOK VALUE APPROXIMATE
TOTAL AT SEPTEMBER SQUARE
YEAR OPENED INVESTMENT 30, 1993 FOOTAGE
----------- ------------- -------------- -------------
<S> <C> <C> <C> <C>
MAIN OFFICE:
214 North First Street 1962 $ 698,014 $ 303,491 9,702
Central City, Kentucky 42330
BRANCH OFFICES:
145 North Main Street 1967 1,094,588 905,810 6,226
Greenville, Kentucky 42345
500 North Main Street 1975 273,967 124,687 2,860
Beaver Dam, Kentucky 42320
424 Main Street 1974 171,473 76,281 4,500
Hartford, Kentucky 42347
3rd & Hill Street 1977 209,258 114,260 2,157
Livermore, Kentucky 42352
121 West Logan Street 1988 75,485 65,489 1,200
Morgantown, Kentucky 42261
------------- --------------
$ 2,522,785 $ 1,590,018
------------- --------------
OTHER:
Hill Street
Livermore, Kentucky 42352
(Former office facility presently
rented as triplex) $ 23,500 $ --
147 North Main Street
Greenville, Kentucky 42345
(Former office facility presently
leased to insurance agency) 165,305 79,240
------------- --------------
$ 2,711,590 $ 1,669,258
------------- --------------
------------- --------------
</TABLE>
At September 30, 1993, the net book value of First Kentucky Federal's
furniture, fixtures and equipment was $205,843. See Note 6 of Notes to
Consolidated Financial Statements.
LEGAL PROCEEDINGS
There are no material legal proceedings to which First Kentucky or First
Kentucky Federal or its subsidiary is a party or to which any of their property
is subject. From time to time, First Kentucky Federal is a party to various
legal proceedings incident to its business.
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<PAGE>
FIRST KENTUCKY MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
First Kentucky Federal's principal business consists of accepting deposits
from the general public through its branches and investing these funds in loans
secured by one-to four-family residential properties located in First Kentucky
Federal's market areas. First Kentucky Federal also maintains a substantial
investment portfolio and originates consumer loans and a limited amount of
commercial loans.
First Kentucky Federal's net income is dependent primarily on its net
interest income, which is the difference between interest earned on its loans
and investments and the interest paid on interest-bearing liabilities. First
Kentucky Federal's net income is also affected by the generation of noninterest
income such as service charges and other fees. In addition, net income is
affected by the level of operating expenses, amount of loan loss reserves set
aside each year, and the amount of income tax expense.
First Kentucky Federal's operations and those of the entire thrift industry
are significantly affected by prevailing economic conditions, competition, and
the monetary and fiscal policies of governmental agencies. Lending activities
are influenced by the demand for the supply of housing, competition among
lenders, the level of interest rates, and the availability of funds. Deposit
flows and costs of funds are influenced by prevailing market rates of interest,
primarily on competing investments, account maturities, and the levels of
personal income and savings in the market area.
1993 VERSUS 1992
The favorable trend in First Kentucky Federal's interest rate spread
contributed to the increase in net income which was $1,756,000 in fiscal year
1993, compared to $1,451,000 for fiscal year 1992. The increase in net interest
income offset a decline in other income attributable to the disposition of
certain real estate. Net income for fiscal year 1993 also benefitted from a
lower provision for loan loss.
FIRST KENTUCKY BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30, CHANGE
-------------------- --------------------
1993 1992 AMOUNT PERCENT
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest income............................................ $ 12,271 $ 14,128 $ (1,857) (13.14)%
Interest expense........................................... 6,684 9,092 (2,408) (26.49)
--------- --------- --------- ---------
Net interest income.................................... 5,587 5,036 551 10.96
Provision for loan losses.................................. 122 253 (131) (51.78)
--------- --------- --------- ---------
Net interest income after provision for loan losses.... 5,465 4,783 682 14.28
Other income............................................... 449 641 (192) (30.06)
Other expense.............................................. 3,322 3,228 94 2.89
--------- --------- --------- ---------
Income before income taxes............................. 2,592 2,196 396 18.06
Income taxes............................................... 836 745 91 12.19
--------- --------- --------- ---------
Net income............................................. $ 1,756 $ 1,451 $ 305 21.08%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
NET INTEREST INCOME. Net interest income for fiscal year 1993 increased
$551,000, or 10.94%, to $5.6 million as compared to $5.0 million for fiscal year
1992. This increase in net interest income was primarily due to the continuing
trend of declining interest rates which increased the interest rate spread to
3.11% in fiscal year 1993 from 2.81% in fiscal year 1992. Fiscal year 1993
interest rate spread increased 10.68% over fiscal year 1992; 1992 interest rate
spread increased 20.09% over fiscal year 1991. Management does not expect the
same degree of improvement in First Kentucky Federal's
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<PAGE>
interest rate spread in the future since market rates appear to have stabilized.
Net interest income also benefitted from an increase in the ratio of
interest-earning assets to interest-bearing liabilities to 104.27% in fiscal
year 1993 from 102.54% during fiscal year 1992. The increase in this ratio was
attributable to a reduction in non-earning assets and an increase in
stockholders' equity.
Net interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities, and the rate earned or paid on them. The following
table sets forth, for the periods indicated, information regarding the total
dollar amounts of interest income from interest-earning assets and the resulting
average yields; the total dollar amounts of interest expense on interest-bearing
liabilities and the resulting average costs; average net interest-earning assets
and the interest rate spreads; and average interest-earning assets, net interest
income, and the net yield earned on interest-earning assets. Average balances
are derived from month-end balances. Management does not believe that the use of
month-end balances instead of daily average balances has caused any material
difference in the information presented. Non-accrual loans have been included in
the average of loans receivable.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------
1993 1992
----------------------------------- -----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
----------- --------- ----------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning asset:
Loan portfolio (1)................... $ 79,334 $ 6,598 8.32% $ 87,276 $ 8,107 9.29%
Mortgage-backed securities........... 66,897 4,174 6.24 48,224 3,686 7.64
Investment securities and other
short-term investments.............. 24,084 1,499 6.22 35,096 2,335 6.65
----------- --------- ----------- ----------- --------- -----------
Total interest-earning assets...... 170,315 12,271 7.20 170,596 14,128 8.28
Non-interest-earning assets............ 6,871 7,995
----------- -----------
Total assets....................... $ 177,186 $ 178,591
----------- -----------
----------- -----------
Interest-bearing liabilities:
Deposits (2)......................... $ 163,338 6,684 4.09 $ 166,372 $ 9,092 5.47
----------- --------- ----------- ----------- --------- -----------
Total interest-bearing
liabilities....................... 163,338 6,684 4.09 166,372 9,092 5.47
--------- ----------- --------- -----------
Non-interest-bearing liabilities....... 1,120 1,265
----------- -----------
Total liabilities.................. 164,458 167,637
Stockholders' equity................... 12,728 10,954
----------- -----------
Total liabilities and stockholders'
equity............................ $ 177,186 $ 178,591
----------- -----------
----------- -----------
Net interest income.................... $ 5,587 $ 5,036
--------- ---------
--------- ---------
Interest rate spread................... 3.11% 2.81%
----------- -----------
----------- -----------
Net yield on interest-earning assets... 3.28% 2.95%
----------- -----------
----------- -----------
Ratio of average interest-earning
assets to average interest-bearing
liabilities........................... 104.27% 102.54%
----------- -----------
----------- -----------
<FN>
- ------------------------
(1) Includes nonaccrual loans.
(2) Includes non-interest-bearing deposits.
</TABLE>
73
<PAGE>
Net interest income can also be analyzed in terms of the impact of changing
rates and changing volumes. The following table shows, for the periods
indicated, the changes in interest income and interest expense attributable to
changes in volume (changes in average volume multiplied by prior period average
rate), changes in rate (changes in average rate multiplied by prior period
average volume), and total net change. Changes attributable to the combined
impact of volume and rate have been allocated proportionately to changes due to
volume and changes due to rate.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1993 VS. 1992
---------------------------------------------
INCREASE (DECREASE)
DUE TO
---------------------------------------------
VOLUME RATE TOTAL
------------- -------------- --------------
<S> <C> <C> <C>
Interest income:
Loan portfolio................................................... $ (702,899) $ (806,556) $ (1,509,455)
Mortgage-backed securities....................................... 1,248,255 (759,525) 488,730
Investment securities and other short-term investments........... (693,243) (142,870) (836,113)
------------- -------------- --------------
Total interest-earning assets.................................. (147,887) (1,708,951) (1,856,838)
------------- -------------- --------------
Interest expense:
Deposits......................................................... (162,381) (2,246,357) (2,408,738)
------------- -------------- --------------
Total interest-bearing liabilities............................. (162,381) (2,246,357) (2,408,738)
------------- -------------- --------------
Change in net interest income...................................... $ 14,494 $ 537,406 $ 551,900
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
INTEREST INCOME. First Kentucky Federal's interest income declined
$1,857,000 or 13.14% to $12,271,000 in fiscal year 1993 from $14,128,000 in
fiscal year 1992. First Kentucky Federal's average interest-earning assets
decreased 0.2% to $170,315,000 during fiscal year 1993 from $170,596,000 in
fiscal year 1992. The principal reasons for the decline in First Kentucky
Federal's interest income was the environment of generally lower interest rates
which have led to higher levels of refinancings of the loans in First Kentucky
Federal's portfolio and reduced yields available on other assets.
First Kentucky Federal's average mortgage loan yield was 8.32% in fiscal
year 1993, compared to 9.29% in fiscal year 1992. Average loans outstanding
decreased $7,942,000, or 9.10%, while average mortgage-backed securities which
generally have lower yields than loans increased $18,673,000, or 38.72%. The
average decrease in interest income from investment securities and
interest-bearing deposits was mainly due to shifting investments from
interest-earning cash accounts to mortgage-backed securities, which also showed
lower yields as high-rate certificates have matured. The shift in
interest-earning assets into mortgage-backed securities reflects borrower
preferences for fixed-rate mortgages which First Kentucky Federal does not hold
in portfolio as well as the limited lending opportunities in First Kentucky
Federal's primary lending markets. Management anticipates that the shift towards
mortgage-backed securities will continue until lending demand increases in its
primary markets.
INTEREST EXPENSE. First Kentucky Federal's interest expense which consisted
of interest paid on customer deposits declined $2,408,000 or 26.49% to
$6,684,000 in fiscal year 1993 from $9,092,000 in fiscal year 1992, as First
Kentucky Federal's average rate paid on its customer deposits decreased to 4.09%
in fiscal year 1993, compared to 5.47% in fiscal year 1992. In addition, average
interest-bearing deposits declined 1.82% to $163,338,000 in fiscal year 1993
from $166,372,000 in fiscal year 1992. First Kentucky Federal's average rate
paid on its time deposits decreased to 4.85% in fiscal year 1993, compared to
5.43% in fiscal year 1992; the average rate paid on interest-bearing transaction
accounts decreased to 2.67%, compared to 3.18% in fiscal year 1992. The average
cost of First Kentucky Federal's deposits was 3.73% at September 30, 1993,
compared to 4.69% at September 30, 1992.
PROVISION FOR LOAN LOSSES. During fiscal year 1993, First Kentucky Federal
provided $122,000 for loan losses compared to $253,000 during fiscal year 1992,
which increased the total allowance for
74
<PAGE>
loan losses to $760,000 at September 30, 1993. At September 30, 1993 and 1992,
First Kentucky Federal's ratios of allowance for loan losses to total loans
outstanding were 0.94% and 0.90%, respectively. Management considers the
valuation allowances adequate for its current loan portfolio and no significant
changes in loan portfolio charge-offs or non-performing assets are anticipated
at this time.
OTHER INCOME AND OTHER EXPENSES. Other income decreased $193,000 or 30.06%
to $449,000 in fiscal year 1993, from $641,000 in fiscal year 1992. The
significant decrease is primarily due to the loss of income from real estate
operations due to the sale, in February 1993, of an income-producing apartment
complex previously held in real estate owned. In addition, prior fiscal year
income had been increased due to the one-time settlement of income from the sale
of U.S. coins of approximately $30,000, increased fee income due to the
heightened mortgage loan refinancing activity in that year, and $13,000 gain
recognized on the sale of its U.S. Treasury bond portfolio.
Total other expenses increased by $94,000 or 2.89% to $3,322,000 in fiscal
year 1993 compared to $3,228,000 in fiscal year 1992. Compensation and fringe
benefits increased $104,000 or 6.70% primarily as a result of recognizing the
cost of awards of First Kentucky Federal's Management Recognition Plan ("MRP")
Trust in the current fiscal year due to an acceleration of vesting in accordance
with the terms of the MRP.
These additional costs were partially offset by the fact that no further
additions to the allowance for loss on real estate were necessary during the
current fiscal year, whereas $50,000 were included in total other expenses in
fiscal year 1992. Federal insurance premium expense and Kentucky building and
loan tax were adjusted to current balances.
INCOME TAXES. Income tax expense for fiscal year 1993 was $836,000 compared
to $745,000 in fiscal year 1992, reflecting the higher level of First Kentucky
Federal's pretax income in fiscal year 1993. For further information, see Note
12 to Consolidated Financial Statements.
BALANCE SHEET REVIEW. Total assets at fiscal year-end 1993 were
$175,681,000 compared to $178,035,000 at the end of fiscal year 1992. Total
average assets decreased $1,405,000 or 0.75% to $177,186,000 in fiscal year
1993. This decrease is primarily attributable to the decrease in average
customer deposits of $3,034,000 or 1.86% in fiscal year 1993.
Mortgage-backed securities increased $11.6 million or 20.02% to $69,748,000
at September 30, 1993 compared to $58,114,000 at September 30, 1992. The
increase in mortgage-backed securities was
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<PAGE>
funded by maturing investment securities of approximately $5.0 million,
principal collections in excess of loan originations of approximately $3.0
million, the transfer of cash from other short-term investments and reinvestment
of principal collected on the mortgage-backed securities portfolio.
<TABLE>
<CAPTION>
September 30, Change
------------------------ ----------------------
1993 1992 Amount Percent
----------- ----------- --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Cash............................................................ $ 7,383 $ 13,239 $ (5,856) (44.23 )%
Investment securities........................................... 15,569 19,468 (3,899) (20.03 )
Mortgage-backed securities...................................... 69,748 58,114 11,634 20.02
Loans, net...................................................... 78,233 81,688 (3,455) (4.23 )
Office properties, net.......................................... 1,875 1,988 (113) (5.66 )
Real estate owned, net.......................................... 268 553 (285) (51.63 )
FHLB stock...................................................... 1,364 1,178 186 15.75
Other assets.................................................... 1,241 1,807 (566) (31.32 )
----------- ----------- --------- -----------
$ 175,681 $ 178,035 $ (2,354) (1.32 )%
----------- ----------- --------- -----------
----------- ----------- --------- -----------
Customer deposits............................................... $ 161,375 $ 165,424 $ (4,049) (2.45 )%
Other liabilities............................................... 555 769 (214) (27.86 )
----------- ----------- --------- -----------
161,930 166,193 (4,263) (2.57 )
Stockholders' equity............................................ 13,751 11,842 1,909 16.12
----------- ----------- --------- -----------
$ 175,681 $ 178,035 $ (2,354) (1.32 )%
----------- ----------- --------- -----------
----------- ----------- --------- -----------
</TABLE>
LOANS. Net loans averaged $79,334,000 during fiscal year 1993 and were
$78,233,000 at year-end. Total loans averaged $82,031,000 in fiscal year 1993
and were $80,500,000, net of unearned income of $576,000, at September 30, 1993.
Total loans have decreased primarily in first mortgage loans purchased by First
Kentucky Federal from other banks outside its lending area. In many instances,
borrowers repaid existing loans and refinanced at lower rates with other
financial institutions in their immediate area. First mortgage loans originated
by First Kentucky Federal showed a net increase of $770,000 or 1.42% to
$55,128,000 at September 30, 1993, as compared to fiscal year-end 1992. First
Kentucky Federal did not acquire new loans outside its primary lending area and
has not entered into any commitments to do so at year-end.
The allowance for loss on loans was $760,000 at September 30, 1993, as
compared to $756,000 at September 30, 1992, and 0.94% of total loans at
September 30, 1993 as compared to 0.90% of total loans at September 30, 1992.
INVESTMENT SECURITIES, INCLUDING MORTGAGE-BACKED SECURITIES. Average
investment securities, including mortgage-backed securities, increased to
$84,303,000 during fiscal year 1993, as compared to $71,649,000 during fiscal
year 1992. The fiscal year-end composition is as follows:
<TABLE>
<CAPTION>
September 30, Change
-------------------- --------------------
1993 1992 Amount Percent
--------- --------- --------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury and Agency obligations................................ $ 14,814 $ 19,143 $ (4,329) (22.61)%
State and municipal obligations..................................... 755 325 430 132.40
--------- --------- --------- ---------
15,569 19,468 (3,899) (20.03)
Mortgage-backed securities.......................................... 69,748 58,114 11,634 20.02
--------- --------- --------- ---------
$ 85,317 $ 77,582 $ 7,735 9.97%
--------- --------- --------- ---------
--------- --------- --------- ---------
Estimated market value.............................................. $ 88,526 $ 80,039 $ 8,487 10.60%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
DEPOSITS AND BORROWED FUNDS. Total customer deposits averaged $163,338,000
in fiscal year 1993, a decrease of $3,034,000 or 1.82%. The weighted average
rate paid on all deposits decreased to 4.09% in fiscal year 1993 from 5.47% in
the prior fiscal year. First Kentucky Federal's fiscal year 1993
76
<PAGE>
average balance of time deposits decreased $8,702,000 or 7.60% to $105,803,000
with a weighted average rate of 4.85%, as compared to an average balance of
$114,506,000 in fiscal year 1992, paying an average rate of 5.43%. This decrease
in average time deposits was partially offset by an increase in interest-bearing
transaction accounts. The average balance of these accounts increased $5,668,000
or 10.93% to $57,535,000 with a weighted average rate of 2.67%, as compared to
an average balance of $51,867,000 with a weighted average rate of 3.18% in
fiscal year 1992.
First Kentucky Federal's time deposits at September 30, 1993 decreased
$7,339,000 or 6.62% to $103,447,000 from $110,786,000 at September 30, 1992. As
of September 30, 1993, $85,203,000 or 82.36% of total time deposits were paying
less than 6.00%, compared to $70,459,000 or 63.60% at September 30, 1992. Time
deposits aggregating approximately $69,999,000, or 67.67% of total time deposits
at September 30, 1993, will mature prior to September 30, 1994. Interest-bearing
transaction accounts at September 30, 1993 aggregated $55,620,000, an increase
of $2,151,000 or 4.02% from fiscal year-end 1992.
The weighted average rate of First Kentucky Federal's time deposits was
4.46% at September 30, 1993, compared to 5.43% at September 30, 1992. The
weighted average rate of First Kentucky Federal's interest-bearing transaction
accounts was 2.54% at September 30, 1993, as compared to 3.91% at September 30,
1992. Noninterest checking accounts aggregated $2,308,000 at September 30, 1993,
almost double from $1,169,000 at prior fiscal year-end.
The decreasing trend in the number of deposit accounts and increasing trend
of average deposits amounts is primarily due to First Kentucky Federal's policy
of assessing a quarterly charge on passbook savings if the daily balance falls
below a certain amount any time during the quarter. Prior to April 1989, when
this policy went into effect, many small inactive accounts were maintained by
First Kentucky Federal and included in the total number of deposits.
At September 30, 1993, borrowed funds of $158,000 represents debt incurred
by First Kentucky's Employee Stock Ownership Plan to acquire 25,357 shares of
First Kentucky Common Stock in the 1991 conversion.
STOCKHOLDERS' EQUITY. At September 30, 1993, stockholders' equity totaled
$13,751,000, an increase of $1,909,000 or 16.12% over fiscal year-end 1992. This
increase consisted of the retention of net earnings of $1,756,000, less cash
dividends of $280,000, the issuance of common stock in connection with the
exercise of options for 36,225 shares under the First Kentucky Bancorp, Inc.
1991 Stock Option Plan which contributed $362,000 to stockholders' equity and
repayments on ESOP obligations, aggregating $71,000 with the accompanying tax
benefits.
1992 VERSUS 1991
Net income in fiscal year 1992 was $1,451,000 compared to $727,000 in fiscal
year 1991. The significant increase is mainly due to the favorable trend in
First Kentucky Federal's interest rate spread. The sale of common stock to
certain depositors of First Kentucky Federal in June 1991 also contributed by
adding approximately $3.15 million for investment purposes for the entire fiscal
year.
77
<PAGE>
FIRST KENTUCKY BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended
September 30, Change
-------------------- ---------------------
1993 1992 Amount Percent
--------- --------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest income....................................................... $ 14,128 $ 14,941 $ (813) (5.44)%
Interest expense...................................................... 9,092 11,009 (1,917) (17.41)
--------- --------- --------- ----------
Net interest income................................................. 5,036 3,932 1,104 28.08
Provision for loan losses............................................. 253 264 (11) (4.17)
--------- --------- --------- ----------
Net interest income after provision for loan losses................. 4,783 3,668 1,115 30.40
Other income.......................................................... 641 492 149 30.31
Other expense......................................................... 3,228 3,000 228 7.62
--------- --------- --------- ----------
Income before income taxes............................................ 2,196 1,160 1,036 89.27
Income taxes.......................................................... 745 433 312 71.87
--------- --------- --------- ----------
Net income............................................................ $ 1,451 $ 727 $ 724 99.66%
--------- --------- --------- ----------
--------- --------- --------- ----------
</TABLE>
NET INTEREST INCOME. Net interest income for fiscal year 1992 increased
$1.1 million or 28.08%, to $5.0 million as compared to $3.9 million for fiscal
year 1991. This increase in net interest income was primarily due to declining
interest rates which resulted in an improved interest rate spread. The interest
rate spread improved from 2.34% in fiscal year 1991 to 2.81% in fiscal year
1992. The capital raised from the conversion in June 1991 also increased First
Kentucky Federal's ratio of interest-earning assets to interest-bearing
liabilities which had a positive effect on net interest income.
Net interest income depends upon the volume of interest-earning assets and
interest-bearing liabilities, and the rate earned or paid on them. The following
table sets forth, for the periods indicated, information regarding the total
dollar amounts of interest income from interest-earning assets and the resulting
average yields; the total dollar amounts of interest expense on interest-bearing
liabilities and the resulting average costs; average net interest-earning assets
and the interest rate spreads; and average interest-earning assets, net interest
income, and the net yield earned on interest-earning assets. Average balances
are derived from month-end balances. Management does
78
<PAGE>
not believe that the use of month-end balances instead of daily average balances
has caused any material difference in the information presented. Non-accrual
loans have been included in the average of loans receivable.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------------------
1992 1991
----------------------------------- -----------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST YIELD/COST BALANCE INTEREST YIELD/COST
----------- --------- ----------- ----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning asset:
Loan portfolio (1)........................ $ 87,276 $ 8,107 9.29% $ 103,692 $ 10,288 9.92%
Mortgage-backed securities................ 48,224 3,686 7.64 14,631 1,259 8.61
Investment securities and other short-term
investments.............................. 35,096 2,335 6.65 45,101 3,394 7.52
----------- --------- ----------- ----------- --------- -----------
Total interest-earning assets........... 170,596 14,128 8.28 163,424 14,941 9.14
Non-interest-earning assets................. 7,995 7,954
----------- -----------
Total assets............................ $ 178,591 $ 171,378
----------- -----------
----------- -----------
Interest-bearing liabilities:
Deposits (2).............................. $ 166,372 $ 9,092 5.47 $ 161,987 $ 11,009 6.80
----------- --------- ----------- ----------- --------- -----------
Total interest-bearing liabilities...... 166,372 9,092 5.47 161,987 11,009 6.80
--------- ----------- --------- -----------
Non-interest-bearing liabilities............ 1,265 1,092
----------- -----------
Total liabilities....................... 167,637 163,079
Stockholders' equity........................ 10,954 8,299
----------- -----------
Total liabilities and stockholders'
equity................................. $ 178,591 $ 171,378
----------- -----------
----------- -----------
Net interest income......................... $ 5,036 $ 3,932
--------- ---------
--------- ---------
Interest rate spread........................ 2.81% 2.34%
----------- -----------
----------- -----------
Net yield on interest-earning assets........ 2.95% 2.41%
----------- -----------
----------- -----------
Ratio of average interest-earning assets to
average interest-bearing liabilities....... 102.54% 100.89%
----------- -----------
----------- -----------
<FN>
- ------------------------
(1) Includes nonaccrual loans.
(2) Includes non-interest-bearing deposits.
</TABLE>
Net interest income can also be analyzed in terms of the impact of changing
rates and changing volumes. The following table shows, for the periods
indicated, the changes in interest income and interest expense attributable to
changes in volume (changes in average volume multiplied by prior
79
<PAGE>
period average rate), changes in rate (changes in average rate multiplied by
prior period average volume), and total net change. Changes attributable to the
combined impact of volume and rate have been allocated proportionately to
changes due to volume and changes due to rate.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1992 VS. 1991
----------------------------------------------
INCREASE (DECREASE)
DUE TO
----------------------------------------------
VOLUME RATE TOTAL
-------------- -------------- --------------
<S> <C> <C> <C>
Interest Income:
Loan portfolio.................................................. $ (1,488,016) $ (692,176) $ (2,180,192)
Mortgage-backed securities...................................... 2,587,618 (160,850) 2,426,768
Investment securities and other short-term investments.......... (691,349) (367,503) (1,058,852)
-------------- -------------- --------------
Total interest-earning assets................................. 408,253 (1,220,529) (812,276)
-------------- -------------- --------------
Interest expense:
Deposits........................................................ 306,546 (2,222,801) (1,916,255)
-------------- -------------- --------------
Total interest-bearing liabilities............................ 306,546 (2,222,801) (1,916,255)
-------------- -------------- --------------
Change in net interest income..................................... $ 101,707 $ 1,002,272 $ 1,103,979
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
INTEREST INCOME. Total interest income declined $813,000 or 5.44% to
$14,128,000 in fiscal year 1992 from $14,941,000 in fiscal year 1991. First
Kentucky Federal's average interest-earning assets increased 4.39% to
$170,596,000 during fiscal year 1992 from $163,424,000 during fiscal year 1991.
The increase between fiscal years 1992 and 1991 reflected primarily a higher
average investment in mortgage-backed securities and decreases in First Kentucky
Federal's loan portfolio and investment securities.
First Kentucky Federal's average mortgage loan yield was 9.29% in fiscal
year 1992, compared to 9.92% in fiscal year 1991. The average yield on
interest-earning assets declined to 8.28% in fiscal year 1992 from 9.14% in
fiscal year 1991. This decrease followed the general trend in interest rates and
caused the decline in gross interest income.
INTEREST EXPENSE. The increase in First Kentucky Federal's interest-earning
assets was funded primarily by an increase in customer deposits. Average
interest-bearing liabilities rose to $166,372,000 in fiscal year 1992 from
$161,987,000 in fiscal year 1991, an increase of 2.71%. This change in customer
deposits reflects primarily an increase in passbook savings accounts which is
offset by a decrease in certificates of deposit.
Interest expense, however, declined 17.41% to $9,092,000 in fiscal year 1992
from $11,009,000 in fiscal year 1991, as First Kentucky Federal's average rate
paid on its customer deposits decreased to 5.47% in fiscal year 1992, compared
to 6.80% in fiscal year 1991. First Kentucky Federal's average rate paid on its
time deposits decreased to 5.43% in fiscal year 1992, compared to 6.92% in
fiscal year 1991; the average rate paid on interest-bearing transaction accounts
decreased to 3.18% in fiscal year 1992, compared to 5.21% in fiscal year 1991.
The average cost of First Kentucky Federal's deposits was 4.69% in September
1992, compared to 6.45% in September 1991.
PROVISION FOR LOAN LOSSES. During fiscal year 1992, First Kentucky Federal
provided $253,000 for loan losses compared to $264,000 during fiscal year 1991,
which increased the total allowance for loan losses to $756,000 at September 30,
1992, an amount considered adequate by management in light of continuing
depressed economic conditions in First Kentucky Federal's primary market area
and evolving regulatory standards affecting First Kentucky Federal and its
industry nationwide. First Kentucky Federal's ratios of allowance for loan
losses to loans outstanding were 0.90% and 0.53% at September 30, 1992 and 1991,
respectively.
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<PAGE>
OTHER INCOME AND OTHER EXPENSES. Other income increased 30.31% to $641,000
in fiscal year 1992, from $492,000 in fiscal year 1991. Loan fees and service
charges increased $103,000 or 29.82% in fiscal year 1992, primarily due to an
increase in deferred fees being taken into income on prepaid mortgage loans.
Other miscellaneous income increased 35.02% or $29,000 to $113,000 in fiscal
year 1992, primarily due to a one-time settlement of income from sale of U.S.
coins of approximately $30,000.
In addition, First Kentucky Federal recognized a $13,000 gain on the sale of
its U.S. Treasury bond portfolio. Management sold these bonds to effect a
restructuring of its long-term, fixed-rate asset portfolio.
Total other expenses increased by $228,000 or 7.62% to $3,228,000 in fiscal
year 1992, compared to $3,000,000 in fiscal year 1991. Compensation and other
employee benefits increased $153,000 or 10.89% primarily due to normal salary
raises, additional employees and a general rise in the cost of employee health
care. Net occupancy decreased $10,000 or 3.17% due to lower maintenance expenses
in the current fiscal year and reduced depreciation expense on office buildings
and furniture and equipment. Federal insurance premiums increased due to the
increase in customer deposits. The FDIC has adopted a risk-based insurance
premium system under which depository institutions would be assessed at a higher
rate if they are considered to pose a higher risk to the deposit insurance fund
based on their capital and other supervisory concerns. The increase in First
Kentucky Federal's deposit insurance expense, if any, is not expected to be
significant. Other miscellaneous expenses increased $39,000 or 6.88% due to
increases in advertising expenditures as well as new expenditures of the holding
company for legal fees, printing, and Delaware franchise tax.
INCOME TAXES. Income tax expense for fiscal year 1992 was $745,000 compared
to $433,000 in fiscal year 1991, primarily reflecting the higher level of First
Kentucky Federal's current pretax income. For further information, see Note 12
to consolidated financial statements of First Kentucky Federal's 1993 Annual
Report.
BALANCE SHEET REVIEW. First Kentucky Federal's total assets increased 1.30%
to $178,035,000 at September 30, 1992, compared with $175,756,000 at September
30, 1991. The growth in total assets in fiscal year 1992 reflected primarily an
increase in mortgage-backed securities which was funded by net principal
repayments, maturing investments and the growth in customer deposits. Total
average assets increased $7,213,000 or 4.21% to $178.6 million in fiscal year
1992; this increase is partially attributable to the issuance of common stock in
fiscal year 1991, which contributed $3.1 million, net of expenses, in June 1991.
Mortgage-backed securities increased $30.7 million or more than doubled to
$58,114,000, at September 30, 1992 compared to $27,406,000 at September 30,
1991. As noted above, this increase was funded by investing cash from net
principal repayments, maturing investments and cash from the
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<PAGE>
sale of long-term U.S. Treasury bonds. Management sold these long-term,
fixed-rate assets in response to the Office of Thrift Supervision's proposed
additional capital requirements for interest rate risk and reinvested the
proceeds in instruments with a ten year or less average life.
<TABLE>
<CAPTION>
SEPTEMBER 30, CHANGE
------------------------ ----------------------
1992 1991 AMOUNT PERCENT
----------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash........................................................... $ 13,239 $ 17,507 $ (4,268) (24.38)%
Investment securities.......................................... 19,468 27,065 (7,597) (28.07)
Mortgage-backed securities..................................... 58,114 27,406 30,708 112.05
Loans, net..................................................... 81,688 98,059 (16,371) (16.70)
Office properties, net......................................... 1,988 2,048 (60) (2.95)
Real estate owned, net......................................... 553 806 (253) (31.38)
FHLB stock..................................................... 1,178 1,046 132 12.67
Other assets................................................... 1,807 1,819 (12) (0.69)
----------- ----------- ---------- ----------
$ 178,035 $ 175,756 $ 2,279 1.30%
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
Customer deposits.............................................. $ 165,424 $ 164,469 $ 955 0.58%
Other liabilities.............................................. 769 1,082 (313) (28.93)
----------- ----------- ---------- ----------
166,193 165,551 642 0.39
Stockholders' equity........................................... 11,842 10,205 1,637 16.04
----------- ----------- ---------- ----------
$ 178,035 $ 175,756 $ 2,279 1.30%
----------- ----------- ---------- ----------
----------- ----------- ---------- ----------
</TABLE>
LOANS. Net loans averaged $87.3 million in fiscal year 1992 and were $81.7
million at September 30, 1992, compared to an average net loan balance of $103.7
million in fiscal year 1991 and $98.1 million at fiscal year-end 1991. Total
loans decreased primarily in first mortgage loans due to paybacks of loans
purchased from other banks outside First Kentucky Federal's primary lending
area. At fiscal year-end 1992, conventional first mortgage loans aggregated
$72,104,000, compared to $87,695,000 a year ago, a decline of $15.6 million or
17.78%.
The allowance for loan losses was $756,000 at September 30, 1992, as
compared to $527,000 at fiscal year-end 1991. Management continued in its
attempt to attain a higher allowance for loan losses in light of continuing
depressed economic conditions in First Kentucky Federal's primary market area
and evolving regulatory standards affecting First Kentucky Federal and its
industry nationwide. The allowance increased to 0.90% of total loans at
September 30, 1992, as compared to 0.53% at September 30, 1991.
INVESTMENT SECURITIES, INCLUDING MORTGAGE BACKED SECURITIES. Investment
securities decreased $7,597,000, primarily due to the sale of First Kentucky
Federal's long-term, fixed rate U.S. Treasury bonds, proceeds of which were
partially reinvested in mortgage-backed securities, along with cash from other
short-term investments, net principal loan repayments and the increase in
customer deposits. The composition at fiscal year-end 1992 and 1991 is as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, CHANGE
-------------------- --------------------
1992 1991 AMOUNT PERCENT
--------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury and Agency obligations............................... $ 19,143 $ 26,245 $ (7,102) (27.06)%
State and municipal obligations.................................... 325 325 -- --
Other.............................................................. -- 495 (495) (100.00)
--------- --------- --------- ---------
19,468 27,065 (7,597) (28.07)
Mortgage-backed securities......................................... 58,114 27,406 30,708 112.05
--------- --------- --------- ---------
$ 77,582 $ 54,471 $ 23,111 42.43%
--------- --------- --------- ---------
--------- --------- --------- ---------
Estimated market value............................................. $ 80,039 $ 54,708 $ 25,331 46.30%
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
82
<PAGE>
DEPOSITS AND BORROWED FUNDS. Total deposits averaged $166.4 million in
fiscal year 1992, a $4.4 million or 2.71% increase. The weighted average rate
paid on all deposits in fiscal year 1992 decreased to 5.47% from 6.79% in the
prior fiscal year. First Kentucky Federal's fiscal year 1992 average balance of
time deposits decreased $3,319,000 or 2.82% to $114.5 million with a weighted
average rate of 5.43% as compared to an average balance of $117.8 million in
fiscal year 1991 paying an average rate of 6.92%. The decrease in time deposits
was offset by an increase of $7.7 million or 17.50% in the average balance of
interest-earning transaction accounts to $51,916,000 paying a weighted average
rate of 3.18% in fiscal year 1992, down 2.03% from the weighted average rate of
5.21% in fiscal year 1991. At September 30, 1992, time deposits aggregated
$110,786,000, as compared to $117,378,000 at fiscal year-end 1991. Time deposits
aggregating approximately $76.2 million (46.1% of total deposits at September
30, 1992) with a weighted average rate of 5.09% were scheduled to mature prior
to September 30, 1993.
At September 30, 1992, borrowed funds of $202,856 represented debt incurred
by First Kentucky's Employee Stock Ownership Plan to acquire 25,357 shares of
First Kentucky's common stock in the 1991 conversion.
STOCKHOLDERS' EQUITY. At September 30, 1992, stockholders' equity totaled
$11.8 million, an increase of $1.6 million or 16.04% over fiscal year-end 1991.
This increase consisted of the retention of net earnings of $1.4 million and the
issuance of 10,867 shares of common stock to the Management Recognition Plan
Trust for $12.50 per share or a total of $136,000.
IMPACT OF NEW ACCOUNTING STANDARDS
The FASB has issued SFAS No. 109, ACCOUNTING FOR INCOME TAXES, which
supersedes SFAS No. 96. SFAS No. 109 is effective for fiscal years beginning
after December 15, 1992, with earlier adoption permitted. First Kentucky will
adopt SFAS No. 109 on a prospective basis for the fiscal year ending September
30, 1994. Management believes that the adoption of SFAS No. 109 will not have a
material effect on First Kentucky's financial position. Also see Note 12 to the
Consolidated Financial Statements.
In July 1991, the Securities and Exchange Commission issued Staff Accounting
Bulletin ("SAB") No. 91 to serve as interim guidance until the standard on
accounting for income taxes discussed above is adopted regarding the accounting
for income tax benefits of thrift bad debt deductions. SAB No. 91 discusses the
difference between the financial statement bad debt reserves and tax bad debt
reserves and prescribes the use of the "one difference" method under SFAS No. 96
or the "cumulative" method under Accounting Principles Board Opinion No. 11.
First Kentucky Federal believes the issuance of this bulletin will not have a
material effect on its financial condition or results of operations.
SFAS No. 106, EMPLOYERS' ACCOUNTING FOR POSTRETIREMENT BENEFITS OTHER THAN
PENSIONS, establishes accounting standards for employers' accounting for
postretirement benefits other than pensions. First Kentucky has no
postretirement benefits other than pensions and, accordingly, believes there
will be no effect on its financial condition or results of operations from the
issuance of SFAS No. 106.
In May 1993, the FASB issued SFAS 114, ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN. SFAS 114 is effective for fiscal years beginning after
December 15, 1994. Early adoption of SFAS 114 is allowed. SFAS 114 requires that
impaired loans be measured at the present value of expected future cash flows
discounted at the loan's original effective interest rate or, as a practical
expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral-dependent. Management does not believe that
adoption of SFAS 114 will have a material effect on First Kentucky Federal's
financial condition or results of operations.
83
<PAGE>
In February 1993, the FASB issued SFAS 115, ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES. The statement addresses the
accounting and reporting for investments in equity securities that have readily
determinable fair values and for all investments in debt securities as defined.
Those investments would be classified in three categories and be accounted for
as follows: debt securities that the entity has the positive intent and ability
to hold to maturity would be classified as held to maturity and reported at
amortized cost; debt and equity securities that are held for current resale
would be classified as trading securities and reported at fair value, with
unrealized gains and losses included in earnings; and debt and equity securities
not classified as either securities held to maturity or trading securities would
be classified as securities available for sale and reported at fair value, with
unrealized gains and losses reported as a net amount in a separate component of
shareholders' equity. This statement is effective for fiscal years beginning
after December 15, 1993. First Kentucky Federal plans to adopt the provisions of
the statement in its fiscal year ending September 30, 1995, and cannot at this
time estimate what effect adoption will have on its financial condition or
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
First Kentucky's primary source of funds is dividends declared by First
Kentucky Federal. The payment of dividends by First Kentucky Federal is subject
to certain regulatory restrictions. Management believes that First Kentucky,
however, has sufficient liquidity available to meet its current requirements
including the payment of dividends to stockholders.
First Kentucky Federal is required by OTS regulations to maintain minimum
levels of specified liquid assets which are currently equal to 5% of deposits
and short-term borrowings. First Kentucky Federal's average daily liquidity
ratio for the month of September 1993 was 46.89% and its short-term liquidity
for such period was 5.72%.
First Kentucky Federal's sources of funds for investments and operations are
net income, deposits from its primary market area, principal and interest
payments on loans and mortgage-backed securities and proceeds from maturing
investment securities. Its principal funding commitments are for the origination
or purchase of loans and the payment of maturing deposits. Deposit accounts are
considered a primary source of funds supporting First Kentucky Federal's lending
and investment activities. Deposit accounts were approximately $161.4 million at
September 30, 1993. During the past three fiscal years, one of First Kentucky
Federal's largest sources of cash flow has been proceeds from maturities of
investment securities and principal payments on mortgage-backed securities which
provided $22.0 million, $11.8 million and $11.8 million, respectively. Net cash
flows from loan repayments declined to $3.0 million during fiscal year 1993 from
$16.2 million in fiscal year 1992 due to a decline in refinancing activities.
During recent years, First Kentucky Federal has used proceeds from maturing
investment securities to fund deposit withdrawals and loan originations and for
the purchase of mortgage-backed securities which has been its primary investing
activity. As a result, the net cash used in investing activities has declined
over the past three fiscal years. During fiscal year 1993, First Kentucky
Federal used a net of $3.7 million in investing activities as it invested
available cash and cash equivalents primarily in mortgage-backed securities.
Despite this use of cash, First Kentucky Federal continues to maintain an
investment securities portfolio substantially in excess of liquidity
requirements. Also see Note 10 to Consolidated Financial Statements.
IMPACT OF INFLATION AND CHANGING PRICES
First Kentucky's Consolidated Financial Statements and notes thereto,
presented herein, have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial position and
operating results in terms of historical dollars without consideration of the
changes in the relative purchasing power of money over time due to inflation.
The impact of inflation is reflected in the increased costs of First Kentucky's
operations. Unlike most industrial companies, nearly all the assets and
liabilities of First Kentucky are monetary. As a result, interest
84
<PAGE>
rates have a greater impact on First Kentucky's performance than do the effects
of general levels of inflation. Interest rates do not necessarily move in the
same direction or to the same extent as the price of goods and services.
ASSET/LIABILITY MANAGEMENT
Net interest income, the primary component of First Kentucky Federal's net
income, is derived from the difference or "spread" between the yield on
interest-earning assets and the cost of interest-bearing liabilities. First
Kentucky Federal has sought to reduce its exposure to changes in interest rates
by matching more closely the effective maturities or repricings of its
interest-sensitive assets and liabilities. In accordance with First Kentucky
Federal's interest rate risk policy, management has emphasized the origination
and/or purchase of adjustable-rate mortgages and mortgage-backed securities. In
addition, it is First Kentucky Federal's policy to originate all long-term,
fixed-rate mortgages in accordance with guidelines of the FHLMC and the FNMA to
facilitate their sale in the secondary market. At September 30, 1993, First
Kentucky Federal held approximately $47.6 million in loans with adjustable
interest rates, which represented approximately 60.8% of First Kentucky
Federal's total loan portfolio. In addition, First Kentucky Federal reduces
interest rate risk by maintaining a substantial portfolio of short-term
investments. At September 30, 1993, the investment portfolio totalled $85.3
million. The average maturity on the investment portfolio is approximately 7
years.
As a result of First Kentucky Federal's interest rate risk management policy
and management's strategy of emphasizing the origination of short-term and/or
adjustable-rate mortgages, First Kentucky Federal's excess of interest-bearing
liabilities over interest-earning assets maturing or repricing within one year
at September 30, 1993, was estimated to be $73.9 million or 42.08% of total
assets. First Kentucky Federal's current one-year gap is within the guidelines
established by management and approved by the Board of Directors. Management
considers numerous factors when establishing these guidelines including current
interest rate margins, capital levels and any guidelines provided by the OTS.
GAP ANALYSIS. The matching of assets and liabilities may be analyzed by
examining the extent to which such assets and liabilities are "interest
rate-sensitive" and by monitoring an institution's interest rate-sensitivity
"gap". An asset or liability is said to be interest rate-sensitive within a
specific time period if it will mature or reprice within that time period. The
interest rate-sensitivity gap is defined as the excess of interest-earning
assets maturing or repricing within a specific time period over interest-bearing
liabilities maturing or repricing within that time period. A gap is considered
positive when the amount of interest rate-sensitive assets exceeds the amount of
interest rate-sensitive liabilities. A gap is considered negative when the
amount of interest rate-sensitive liabilities exceeds interest rate-sensitive
assets. During a period of rising interest rates, a negative gap would tend to
adversely affect net interest income while a positive gap would tend to result
in an increase in net interest income. During a period of falling interest
rates, a negative gap would tend to result in an increase in net interest income
while a positive gap would tend to adversely affect net interest income.
The following table sets forth the amounts of interest-earning assets and
interest-bearing liabilities outstanding at September 30, 1993 which are
expected to reprice or mature in each of the future time periods shown. Except
as stated below, the amount of assets or liabilities shown which reprice or
mature during a particular period was determined in accordance with the
contractual terms of the asset or liability. Prepayment assumptions for
fixed-rate loans and mortgage-backed securities and erosion rates on passbook
accounts are based on assumptions prepared by the OTS as of June 30, 1992, which
are the most recent assumptions available from the OTS and which management
believes are consistent with the prepayment and erosion experience of First
Kentucky Federal at September 30, 1993. Adjustable-rate loans are assumed to
reprice at contractual repricing intervals.
The table indicates the time periods in which interest-earning assets and
interest-bearing liabilities will mature or reprice in accordance with their
contractual terms. However, the table does not necessarily indicate the impact
of general interest rate movements on First Kentucky Federal's net
85
<PAGE>
interest yield because the repricing of various categories of assets and
liabilities is discretionary and is subject to competitive and other pressures.
As a result, various assets and liabilities indicated as repricing within the
same period may in fact reprice at different times and at different rate levels.
<TABLE>
<CAPTION>
TERM TO REPRICING
-------------------------------------------------------------------------------------
OVER THREE
MONTHS TOTAL OVER ONE
THREE MONTHS THROUGH ONE YEAR THROUGH OVER
OR LESS ONE YEAR OR LESS FIVE YEARS FIVE YEARS TOTAL
------------- ------------- -------------- ------------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Rate-sensitive assets:
Loan portfolio............. $ 2,031 $ 48,031 $ 50,062 $ 11,852 $ 16,320 $ 78,234
Mortgage-backed
securities................ -- -- -- 57,709 12,039 69,748
Investment securities and
other short-term
investments............... 6,364 90 6,454 4,511 10,968 21,933
------------- ------------- -------------- ------------- ----------- -----------
Total rate-sensitive
assets.................. 8,395 48,121 56,516 74,072 39,327 169,915
Rate-sensitive liabilities:
Deposits................... 82,315 43,304 125,619 33,437 11 159,067
------------- ------------- -------------- ------------- ----------- -----------
Difference between rate-
sensitive liabilities and
rate-sensitive assets
("gap")..................... $ (73,920) $ (4,817) $ (69,103) $ 40,635 $ 39,316 $ 10,848
------------- ------------- -------------- ------------- ----------- -----------
------------- ------------- -------------- ------------- ----------- -----------
Cumulative gap............... $ (73,920) $ (69,103) $ (69,103) $ (28,468) $ 10,848 $ 10,848
------------- ------------- -------------- ------------- ----------- -----------
------------- ------------- -------------- ------------- ----------- -----------
Ratio of cumulative gap to
total assets................ (42.08)% (39.33 )% (39.33 )% (16.20 )% 6.17 % 6.17%
------------- ------------- -------------- ------------- ----------- -----------
------------- ------------- -------------- ------------- ----------- -----------
</TABLE>
86
<PAGE>
PRINCIPAL STOCKHOLDERS OF FIRST KENTUCKY
As of September 30, 1993, there were 409,342 shares of First Kentucky Common
Stock held by approximately 370 stockholders. The following table sets forth
certain information, as of September 30, 1993, concerning shares of First
Kentucky Common Stock beneficially owned by all executive officers and directors
of First Kentucky as a group. Other than as disclosed below, management knows of
no person who beneficially owned more than 5% of First Kentucky's Common Stock
outstanding at the Record Date.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF
NATURE OF SHARES OF
NAME AND ADDRESS BENEFICIAL COMMON STOCK
OF BENEFICIAL OWNER OWNERSHIP (1) OUTSTANDING
- ---------------------------------------------------- ------------- ---------------
<S> <C> <C>
First Kentucky Bancorp, Inc.
Employee Stock Ownership Plan and Trust
214 North First Street
Central City, Kentucky 42330 25,357 6.19%
Dennis W. Kirtley
First Kentucky Bancorp, Inc.
214 North First Street
Central City, Kentucky 42330 34,161(2) 8.35%
All Directors and
Executive Officers as
a Group (8 persons) 109,862(3) 26.84%
<FN>
- ------------------------
(1) In accordance with Rule 13d-3 under the Securities Exchange Act of 1934, a
person is deemed to be the beneficial owner, for purposes of this table,
of any shares of the Common Stock if he or she has or shares voting or
investment power with respect to such security, or has a right to acquire
beneficial ownership at any time within 60 days from the Record Date. As
used herein, "voting power" is the power to vote or direct the voting of
shares and "investment power" is the power to dispose or direct the
disposition of shares. Except as otherwise noted, ownership is direct and
the named individuals and group exercise sole voting and investment power
over the shares of the Common Stock.
(2) Includes 3,000 shares held in individual retirement account and 500 shares
held in spouse's individual retirement account. Includes 496 shares
allocated to Mr. Kirtley's accounts in the ESOP the voting of which shares
he has the power to direct. Does not include 200 shares held by adult
children over which shares Mr. Kirtley disclaims beneficial ownership.
(3) Includes shares held by certain directors and officers as custodians under
Uniform Transfers to Minors Acts, by their spouses and children and for
the benefit of certain directors and officers under individual retirement
accounts as described in the footnotes to the table of ownership under
"Election of Directors." Includes 864 shares allocated to the accounts of
directors and executive officers pursuant to the ESOP the voting of which
shares directors and executive officers have the power to direct. Does not
include 20,286 unallocated shares of the Common Stock held by the ESOP the
voting of which is directed by Messrs. Baker, Berryman and Williams in
their capacity as the ESOP Trustees.
</TABLE>
87
<PAGE>
FIRST KENTUCKY COMMON STOCK PRICE RANGE AND DIVIDENDS
First Kentucky Common Stock is traded on a very limited basis and is not
quoted on NASDAQ. The table below sets forth for the calendar periods indicated
(i) high and low per share sales prices for First Kentucky Common Stock, as such
information is available to the management of First Kentucky, and (ii) the
frequency and amount of all cash dividends declared on First Kentucky Common
Stock.
<TABLE>
<CAPTION>
CASH
DIVIDEND
YEAR HIGH LOW DECLARED
- --------------------------------------------------------------- --------- --------- -----------
<S> <C> <C> <C>
1991:
Third Quarter................................................ $ 12.50 $ 12.00 $ --
Fourth Quarter............................................... * * --
1992:
First Quarter................................................ $ 15.00 $ 15.00 $ --
Second Quarter............................................... * * --
Third Quarter................................................ * * --
Fourth Quarter............................................... 15.00 15.00 --
1993:
First Quarter................................................ $ 17.50 $ 17.00 $ .75
Second Quarter............................................... 18.40 17.50 --
Third Quarter................................................ 17.50 17.50 --
Fourth Quarter............................................... 19.00 19.00 --
<FN>
- ------------------------
*No trades known to management of First Kentucky.
</TABLE>
The last sales price per share of First Kentucky Common Stock before public
announcement of the Merger known to management of First Kentucky was $19.00 on
October 8, 1993. No sales transactions in First Kentucky Common Stock are known
to the management of First Kentucky since October 8, 1993. At January 14, 1994,
the last reported sales price per share of Peoples First Common Stock was
$27.00. At that price the aggregate value of the Merger Consideration per share
of First Kentucky Common Stock would be $61.34.
PROPOSAL III
ADJOURNMENT OF ANNUAL MEETING
Approval of the Merger (Proposal II) requires the affirmative vote of a
majority of the total votes eligible to be cast at the Annual Meeting. If there
are an insufficient number of shares of First Kentucky Common Stock present in
person or by proxy at the Annual Meeting to approve the proposed Merger, the
First Kentucky Board intends to adjourn the Annual Meeting to a later date. The
place and date to which the Annual Meeting would be adjourned would be announced
at the Annual Meeting, but would not be more than 29 days after the date of the
Annual Meeting.
The effect of any such adjournment would be to permit First Kentucky to
solicit additional proxies for approval of the Merger. While such an adjournment
would not invalidate any proxies previously filed, including those filed by
stockholders voting against the proposed Merger, it would afford First Kentucky
the opportunity to solicit additional proxies in favor of the Merger.
The First Kentucky Board recommends a vote "FOR" the approval of the
adjournment in the circumstances described above. Approval of the adjournment
requires the affirmative vote of the holders of a majority of shares of First
Kentucky Common Stock present in person or by proxy at the Annual Meeting.
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<PAGE>
SUPERVISION AND REGULATION OF FIRST KENTUCKY
REGULATION OF FIRST KENTUCKY FEDERAL
GENERAL. As a savings association, First Kentucky Federal is subject to
extensive regulation by the OTS. The lending activities and other investments of
First Kentucky Federal must comply with various federal regulatory requirements.
OTS periodically examines First Kentucky Federal for compliance with various
regulatory requirements. The FDIC also has the authority to conduct special
examinations of SAIF members. First Kentucky Federal must file reports with OTS
describing its activities and financial condition. First Kentucky Federal is
also subject to certain reserve requirements promulgated by the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"). This
supervision and regulation is intended primarily for the protection of
depositors. Certain of these regulatory requirements are referred to below or
appear elsewhere herein.
REGULATORY CAPITAL REQUIREMENTS. Under OTS capital standards, savings
associations must maintain "tangible" capital equal to 1.5% of adjusted total
assets, "core" capital equal to 3.0% of adjusted total assets and a combination
of core and "supplementary" capital equal to 8.0% of "risk-weighted" assets. In
addition, the OTS has recently adopted regulations which impose certain
restrictions on savings associations that have a total risk-based capital ratio
that is less than 8.0%, a ratio of Tier 1 capital to risk-weighted assets of
less than 4.0% or a ratio of Tier 1 capital to adjusted total assets of less
than 4.0% (or 3.0% if the institution is rated composite 1 under the OTS
examination rating system). See "-- Prompt Corrective Regulatory Action." For
purposes of this regulation, Tier 1 capital has the same definition as core
capital which is defined as common stockholders' equity (including retained
earnings), noncumulative perpetual preferred stock and related surplus, minority
interests in the equity accounts of fully consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits and "qualifying supervisory
goodwill." Core capital is generally reduced by the amount of the savings
association's intangible assets for which no market exists. Limited exceptions
to the deduction of intangible assets are provided for purchased mortgage
servicing rights and qualifying supervisory goodwill. Tangible capital is given
the same definition as core capital but does not include an exception for
qualifying supervisory goodwill and is reduced by the amount of all the savings
association's intangible assets with only a limited exception for purchased
mortgage servicing rights. Both core and tangible capital are further reduced by
an amount equal to a gradually increasing percentage of the savings
association's debt and equity investments in subsidiaries engaged in activities
not permissible to national banks other than subsidiaries engaged in activities
undertaken as agent for customers or in mortgage banking activities and
subsidiary depository institutions or their holding companies. As of September
30, 1993, First Kentucky Federal had no investments in or extensions of credit
to subsidiaries engaged in activities not permitted to national banks.
Adjusted total assets are a savings association's total assets as determined
under generally accepted accounting principles increased by certain goodwill
amounts and by a pro rated portion of the assets of subsidiaries in which the
savings association holds a minority interest and which are not engaged in
activities for which the capital rules require deduction of its debt and equity
investments as well as a pro rated portion of the assets of other subsidiaries
for which deduction is not fully required under phase-in rules. Adjusted total
assets are reduced by the amount of assets that have been deducted from capital,
the portion of the savings association's investments in subsidiaries that must
be deducted from capital under the capital rules and, for purposes of the core
capital requirement, qualifying supervisory goodwill.
In determining compliance with the risk-based capital requirement, a savings
association is allowed to use both core capital and supplementary capital
provided the amount of supplementary capital used does not exceed the savings
association's core capital. Supplementary capital is defined to include certain
preferred stock issues, nonwithdrawable accounts and pledged deposits that do
not qualify as core capital, certain approved subordinated debt, certain other
capital instruments and a portion of the savings association's general loss
allowances. Total core and supplementary capital are reduced by the amount of
capital instruments held by other depository institutions pursuant to
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<PAGE>
reciprocal arrangements and, after July 1, 1990, by an increasing percentage of
the savings association's high loan-to-value ratio land loans and
non-residential construction loans and equity investments other than those
deducted from core and tangible capital. As of September 30, 1993, First
Kentucky Federal had no high ratio land or non-residential construction loans
and no equity investments for which OTS regulations require a phased deduction
from total capital after July 1, 1990.
The risk-based capital requirement is measured against risk-weighted assets
which equal the sum of each asset and the credit-equivalent amount of each
off-balance sheet item after being multiplied by an assigned risk weight. Under
the OTS risk-weighting system, one- to four-family first mortgages not more than
90 days past due with loan-to-value ratios under 80% are assigned a risk weight
of 50%. Consumer and residential construction loans are assigned a risk weight
of 100%. Mortgage-backed securities issued, or fully guaranteed as to principal
and interest, by the FHLMC are assigned a 20% risk weight. Cash and U.S.
Government securities backed by the full faith and credit of the U.S. Government
are given a 0% risk weight.
The table below presents First Kentucky Federal's capital position relative
to its various regulatory capital requirements at September 30, 1993.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1993
----------------------
PERCENT OF
AMOUNT ASSETS (1)
--------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Tangible Capital....................................................... $ 12,771 7.27%
Tangible Capital Requirement........................................... 2,634 1.50
--------- -----
Excess............................................................... $ 10,137 5.77%
--------- -----
--------- -----
Tier 1/Core Capital.................................................... $ 12,771 7.27%
Tier 1/Core Capital Requirement........................................ 7,024 4.00
--------- -----
Excess............................................................... $ 5,747 3.27%
--------- -----
--------- -----
Tier 1 Risk-Based Capital.............................................. $ 12,804 19.08%
Tier 1 Risk-Based Capital Requirement.................................. 2,684 4.00
--------- -----
Excess............................................................... $ 10,120 15.08%
--------- -----
--------- -----
Total Capital (i.e., Core and Supplementary Capital)................... $ 13,472 20.08%
Risk-Based Capital Requirement......................................... 5,368 8.00
--------- -----
Excess............................................................... $ 8,104 12.08%
--------- -----
--------- -----
<FN>
- ------------------------
(1) Based upon adjusted total assets for purposes of the tangible capital and
core capital requirements, and risk-weighted assets for purposes of the
risk-based capital requirements.
</TABLE>
Under FIRREA, the capital standards applicable to savings associations must
be no less stringent than those applicable to national banks. Effective December
31, 1990, the Office of the Comptroller of the Currency ("OCC") adopted
regulations implementing more stringent core capital requirements for national
banks. The OCC regulations establish a new minimum core capital ratio of 3% for
the most highly rated banks, with at least an additional 100 to 200 basis point
"cushion" amount of additional capital required on a case-by-case basis,
considering the quality of risk management systems and the overall risk in
individual banks. The OTS has recently proposed an amendment to its capital
regulations establishing a minimum core capital ratio of 3.00% for savings
associations rated composite 1 under the OTS MACRO rating system. For all other
savings associations, the minimum core capital ratio will be 3.00% plus at least
an additional 100 to 200 basis points. In determining the amount of additional
core capital, the OTS will assess both the quality of risk management systems
and the level of overall risk in each individual savings association through the
supervisory process on a case-by-case basis.
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<PAGE>
The OTS has recently adopted an amendment to its risk-based capital
requirements that will, effective July 1, 1994, require savings institutions
with more than a "normal" level of interest rate risk to maintain additional
total capital. A savings institution's interest rate risk will be measured in
terms of the sensitivity of its "net portfolio value" to changes in interest
rates. Net portfolio value is defined, generally, as the present value of
expected cash inflows from existing assets and off-balance sheet contracts less
the present value of expected cash outflows from existing liabilities. A savings
institution will be considered to have a "normal" level of interest rate risk
exposure if the decline in its net portfolio value after an immediate 200 basis
point increase or decrease in market interest rates (whichever results in the
greater decline) is less than two percent of the current estimated economic
value of its assets. A savings institution with a greater than normal interest
rate risk will be required to deduct from total capital, for purposes of
calculating its risk-based capital requirement, an amount (the "interest rate
risk component") equal to one-half the difference between the institution's
measured interest rate risk and the normal level of interest rate risk,
multiplied by the economic value of its total assets.
The OTS will calculate the sensitivity of a savings institution's net
portfolio value based on data submitted by the institution in a schedule to its
quarterly Thrift Financial Report and using the interest rate risk measurement
model adopted by the OTS. The amount of the interest rate risk component, if
any, to be deducted from a savings institution's total capital will be based on
the institution's Thrift Financial Report filed two quarters earlier. Savings
institutions with less than $300 million in assets and a risk-based capital
ratio above 12% are generally exempt from filing the interest rate risk schedule
with their Thrift Financial Reports. However, the OTS will require any exempt
savings institution that it determines may have a high level of interest rate
risk exposure to file such schedule on a quarterly basis. First Kentucky Federal
has determined that, on the basis of current financial data, it would not be
deemed to have more than normal level of interest rate risk under the new rule
and believes that it will not be required to increase its total capital as a
result of the rule.
In addition to requiring generally applicable capital standards for savings
associations, the Director of OTS is authorized to establish the minimum level
of capital for a savings association at such amount or at such ratio of
capital-to-assets as the Director determines to be necessary or appropriate for
such association in light of the particular circumstances of the association.
The Director of OTS may treat the failure of any savings association to maintain
capital at or above such level as an unsafe or unsound practice and may issue a
directive requiring any savings association which fails to maintain capital at
or above the minimum level required by the Director to submit and adhere to a
plan for increasing capital. Such an order may be enforced in the same manner as
an order issued by the FDIC.
PROMPT CORRECTIVE REGULATORY ACTION. Under the Federal Deposit Insurance
Corporation Improvement Act ("FDICIA"), the federal banking regulators are
required to take prompt corrective action if an insured depository institution
fails to satisfy certain minimum capital requirements. All institutions,
regardless of their capital levels, are restricted from making any capital
distribution or paying any management fees if the institution would thereafter
fail to satisfy the minimum levels for any of its capital requirements. An
institution that fails to meet the minimum level for any relevant capital
measure (an "undercapitalized institution") may be: (i) subject to increased
monitoring by the appropriate federal banking regulator; (ii) required to submit
an acceptable capital restoration plan within 45 days; (iii) subject to asset
growth limits; and (iv) required to obtain prior regulatory approval for
acquisitions, branching and new lines of businesses. The capital restoration
plan must include a guarantee by the institution's holding company that the
institution will comply with the plan until it has been adequately capitalized
on average for four consecutive quarters, under which the holding company would
be liable up to the lesser of 5% of the institution's total assets or the amount
necessary to bring the institution into capital compliance as of the date it
failed to comply with its
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<PAGE>
capital restoration plan. A "significantly undercapitalized" institution, as
well as any undercapitalized institution that did not submit an acceptable
capital restoration plan, may be subject to regulatory demands for
recapitalization, broader application of restrictions on transactions with
affiliates, limitations on interest rates paid on deposits, asset growth and
other activities, possible replacement of directors and officers, and
restrictions on capital distributions by any bank holding company controlling
the institution. Any company controlling the institution could also be required
to divest the institution or the institution could be required to divest
subsidiaries. The senior executive officers of a significantly undercapitalized
institution may not receive bonuses or increases in compensation without prior
approval and the institution is prohibited from making payments of principal or
interest on its subordinated debt. In their discretion, the federal banking
regulators may also impose the foregoing sanctions on an undercapitalized
institution if the regulators determine that such actions are necessary to carry
out the purposes of the prompt corrective action provisions. If an institution's
ratio of tangible capital to total assets falls below a "critical capital
level," the institution will be subject to conservatorship or receivership
within 90 days unless periodic determinations are made that forbearance from
such action would better protect the deposit insurance fund. Unless appropriate
findings and certifications are made by the appropriate federal bank regulatory
agencies, a critically undercapitalized institution must be placed in
receivership if it remains critically undercapitalized on average during the
calendar quarter beginning 270 days after the date it became critically
undercapitalized. If a savings association is in compliance with an approved
capital plan on the date of enactment of FDICIA, however, it will not be
required to submit a capital restoration plan if it is undercapitalized or
become subject to the statutory prompt corrective action provisions applicable
to significantly and critically undercapitalized institutions prior to July 1,
1994.
Effective December 19, 1992, the federal banking regulators, including the
OTS, adopted regulations implementing the prompt corrective action provisions of
FDICIA. Under such regulations, the federal banking regulators will measure a
depository institution's capital adequacy on the basis of the institution's
total risk-based capital ratio (the ratio of its total capital to risk-weighted
assets), Tier 1 risk-based capital ratio (the ratio of its core capital to
risk-weighted assets) and leverage ratio (the ratio of its core capital to
adjusted total assets). Under the regulations, a savings association that is not
subject to an order or written directive to meet or maintain a specific capital
level will be deemed "well capitalized" if it also has: (i) a total risk-based
capital ratio of 10% or greater; (ii) a Tier 1 risk-based capital ratio of 6.0%
or greater; and (iii) a leverage ratio of 5.0% or greater. An "adequately
capitalized" savings association is a savings association that does not meet the
definition of well capitalized and has: (i) a total risk-based capital ratio of
8.0% or greater; (ii) a Tier 1 capital risk-based ratio of 4.0% or greater; and
(iii) a leverage ratio of 4.0% or greater (or 3.0% or greater if the savings
association has a composite 1 MACRO rating). An "undercapitalized institution"
is a savings association that has (i) a total risk-based capital ratio less than
8.0%; or (ii) a Tier 1 risk-based capital ratio of less than 4.0%; or (iii) a
leverage ratio of less than 4.0% (or 3.0% if the association has a composite 1
MACRO rating). A "significantly undercapitalized" institution is defined as a
savings association that has: (i) a total risk-based capital ratio of less than
6.0%; or (ii) a Tier 1 risk-based capital ratio of less than 3.0%; or (iii) a
leverage ratio of less than 3.0%. A "critically undercapitalized" savings
association is defined as a savings association that has a ratio of core capital
to total assets of less than 2.0%. The OTS may reclassify a well capitalized
savings association as adequately capitalized and may require an adequately
capitalized or undercapitalized association to comply with the supervisory
actions applicable to associations in the next lower capital category if the OTS
determines, after notice and an opportunity for a hearing, that the savings
association is in an unsafe or unsound condition or that the association has
received and not corrected a less-than-satisfactory rating for any MACRO rating
category. First Kentucky Federal is classified as "well capitalized" under the
new regulations.
QUALIFIED THRIFT LENDER TEST. A savings association that does not meet the
Qualified Thrift Lender test ("QTL Test") must either convert to a bank charter
or comply with the following restrictions on its operations: (i) the institution
may not engage in any new activity or make any new investment, directly or
indirectly, unless such activity or investment is permissible for a national
bank; (ii) the branching powers of the institution shall be restricted to those
of a national bank;
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<PAGE>
(iii) the institution shall not be eligible to obtain any advances from its
FHLB; and (iv) payment of dividends by the institution shall be subject to the
rules regarding payment of dividends by a national bank. Upon the expiration of
three years from the date the institution ceases to be a Qualified Thrift
Lender, it must cease any activity, and not retain any investment not
permissible for a national bank and immediately repay any outstanding FHLB
advances (subject to safety and soundness considerations).
Effective January 1, 1992, the QTL Test was amended to require that
Qualified Thrift Investments represent 65% of portfolio assets rather than 70%
as previously required. Under OTS implementing regulations, portfolio assets are
defined as total assets less intangibles, property used by a savings association
in its business and liquidity investments in an amount not exceeding 20% of
assets. Qualified Thrift Investments do not include any intangible asset.
Subject to a 20% of portfolio assets limit, however, savings associations are
able to treat as Qualified Thrift Investments 200% of their investments in loans
to finance "starter homes" and loans for construction, development or
improvement of housing and community service facilities or for financing small
businesses in "credit-needy" areas.
A savings association that was not subject to penalties for failure to
maintain Qualified Thrift Lender status as of June 30, 1991 shall be deemed a
Qualified Thrift Lender as long as its percentage of Qualified Thrift
Investments continues to equal or exceed 65% in at least nine out of each 12
months. A savings association that fails to maintain Qualified Thrift Lender
status will be permitted to requalify once, and if it fails the QTL Test a
second time, it will become immediately subject to all penalties as if all time
limits on such penalties had expired. Since First Kentucky Federal was not
subject to sanctions for failure to comply with the QTL Test as of June 30,
1991, it will remain in compliance until its weekly average percentage of
Qualified Thrift Investments to portfolio assets falls below 65% for four or
more months as measured by monthly averages over the preceding 12-month period.
DIVIDEND LIMITATIONS. Under OTS regulations, First Kentucky Federal is not
permitted to pay dividends on its capital stock if its regulatory capital would
thereby be reduced below the amount then required for the liquidation account
established for the benefit of certain depositors of First Kentucky Federal at
the time of its conversion to stock form. In addition, savings association
subsidiaries of savings and loan holding companies are required to give the OTS
30 days' prior notice of any proposed declaration of dividends to the holding
company.
Federal regulations impose limitations on the payment of dividends and other
capital distributions (including stock repurchases and cash mergers) by First
Kentucky Federal. Under these regulations, a savings association that,
immediately prior to, and on a pro forma basis after giving effect to, a
proposed capital distribution, has total capital (as defined by OTS regulation)
that is equal to or greater than the amount of its fully phased-in capital
requirements (a "Tier 1 Association") is generally permitted without OTS
approval, after notice, to make capital distributions during a calendar year in
the amount equal to the greater of (i) 75% of net income for the previous four
quarters or (ii) up to 100% of its net income to date during the calendar year
plus an amount that would reduce by one-half the amount by which its total
capital to assets ratio exceeded its fully phased-in capital requirement to
assets ratio at the beginning of the calendar year. A savings association with
total capital in excess of current minimum capital requirements but not in
excess of the fully phased-in requirements (a "Tier 2 Association") is
permitted, after notice, to make capital distributions without OTS approval of
up to 75% of its net income for the previous four quarters, less dividends
already paid for such period. A savings association that fails to meet current
minimum capital requirements (a "Tier 3 Association") is prohibited from making
any capital distributions without the prior approval of the OTS. Tier 1
Associations that have been notified by the OTS that they are in need of more
than normal supervision will be treated as either a Tier 2 or Tier 3
Association. Unless the OTS determines that First Kentucky Federal is an
institution requiring more than normal supervision, First Kentucky Federal is
authorized to pay dividends in accordance with the provisions of the OTS
regulations discussed above as a Tier 1 Association. Under regulations which
took effect on December 19, 1992,
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<PAGE>
First Kentucky Federal is prohibited from making any capital distributions if
after making the distribution, First Kentucky Federal would have: (i) a total
risk-based capital ratio of less than 8.0%; (ii) a Tier 1 risk-based capital
ratio of less than 4.0%; or (iii) a leverage ratio of less than 4.0%.
In addition to the foregoing, earnings of First Kentucky Federal
appropriated to bad debt reserves and deducted for Federal income tax purposes
are not available for payment of cash dividends or other distributions to
stockholders without payment of taxes at the then current tax rate by First
Kentucky Federal on the amount of earnings removed from the reserves for such
distributions. See "Taxation." First Kentucky Federal intends to make full use
of this favorable tax treatment afforded to First Kentucky Federal and does not
contemplate use of any earnings of First Kentucky Federal in a manner which
would limit First Kentucky Federal's bad debt deduction or create federal tax
liabilities.
SAFETY AND SOUNDNESS STANDARDS. On November 18, 1993, federal banking
regulatory agencies, including the OTS, jointly published a notice of proposed
rulemaking dealing with standards for the safe and sound operation of financial
institutions, the adoption of which are required by FDICIA. If adopted in their
present form, the proposed regulations would require savings institutions to
maintain internal controls and information systems and internal audit systems
that are appropriate for the size, nature and scope of the institution's
business. The proposed rule would also require certain basic standards to be
observed in loan documentation, credit underwriting, interest rate risk
exposure, and asset growth. Savings institutions would also be called upon to
maintain safeguards to prevent the payment of compensation, fees and benefits
that are excessive or that could lead to material financial loss, and to take
into account factors such as comparable compensation practices at comparable
institutions.
The proposed regulations would also require a savings institution to
maintain a ratio of classified assets to total capital and ineligible allowances
that is no greater 1.0, and would require that savings institutions have minimum
earnings sufficient to absorb losses without impairing capital (an institution
would meet this standard if it would remain in compliance with minimum capital
requirements assuming that its net income or loss over the last four quarters of
earnings continued over the next four quarters). The proposed regulations would
also require savings and loan holding companies to ensure that transactions
involving the holding company, one of its affiliates or directors or officers,
and a savings institution satisfy applicable fiduciary principles, not have a
detrimental effect on the savings institution's safe and sound operation, and
not create a serious risk that the liabilities of the holding company might be
imposed on the institution. The proposed regulations would require holding
companies to take corporate actions necessary or enable subsidiary savings
institutions to comply with the regulations, and to refrain from taking any
action which could impede compliance. The OTS may require institutions to file
safety and soundness plans to cure any deficiency. The OTS may issue orders
directing an institutions to correct a deficiency or to take or refrain from
taking actions prohibited by Section 39 of FDICIA, and may assess civil money
penalties or take other enforcement action if such an order is violated.
Although it is too early to predict with certainty what impact the proposed
rulemaking, if adopted in its current form, would have on First Kentucky
Federal, it is not believed that it would have a material adverse effect on
their operations.
DEPOSIT INSURANCE. First Kentucky Federal is required to pay assessments
based on a percent of its insured deposits to the FDIC for insurance of its
deposits by the SAIF. From January 1, 1991 through December 31, 1993, the
assessment rate shall not be less than 0.23% of insured deposits. From January
1, 1994 through December 31, 1997, the assessment rate shall not be less than
0.18%. After December 31, 1997, the SAIF assessment rate will be a rate
determined by the FDIC to be appropriate to increase the reserve ratio of the
SAIF to 1.25% of insured deposits or such higher percentage as the FDIC
determines to be appropriate but not less than 0.15%.
First Kentucky Federal's deposits are insured up to applicable limits under
SAIF. On November 22, 1993, the Resolution Trust Corporation Completion Act (the
"RTC Act") was approved by the United States Congress extending authority of the
Resolution Trust Corporation ("RTC") to take
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failed thrift institutions into conservatorship or receivership through a date
between January 1, 1995 and July 1, 1995 to be selected by the Chairman of the
Thrift Depositor Protection Oversight Board. The legislation allows the RTC to
use up to $18.3 billion to resolve failed thrifts by removing the April 1, 1992
limitation on funds previously provided under the RTC Refinancing, Restructuring
and Improvement Act of 1991. As a condition for the release of any funds in
excess of $10 billion, the Secretary of the Treasury must certify to the
Congress that the RTC has taken such actions as may be necessary to comply with
management reforms required by the legislation, or that as of the date of
certification, the RTC is continuing to make adequate progress toward full
compliance with such requirements. Because the Bank Insurance Fund ("BIF"),
which insures the deposits of commercial banks, has higher reserves and is
expected to be responsible for fewer troubled institutions, commercial banks
including commercial banks in First Kentucky Federal's market area are expected
to have significantly lower deposit insurance assessments than savings
associations in the future which could adversely impact First Kentucky Federal's
ability to compete for deposits and loans.
Under FDICIA, the FDIC is required to establish a risk-based assessment
system for insured depository institutions to become effective by January 1,
1994. The FDIC has adopted a transitional risk-based deposit insurance
assessment system which became effective on January 1, 1993 and will become the
final risk-based premium system on January 1, 1994. Under the transitional
system, the assessment rate for an insured depository institution will depend on
the assessment risk classification assigned to the institution by the FDIC which
will be determined by the institution's capital level and supervisory
evaluations. Institutions will be assigned to one of three capital groups --
well capitalized, adequately capitalized or undercapitalized -- based on the
data reported to regulators for date closest to the last day of the seventh
month preceding the semi-annual assessment period. Well capitalized institutions
are institutions satisfying the following capital ratio standards: (i) total
risk-based capital ratio of 10.0% or greater; (ii) Tier 1 risk-based capital
ratio of 6.0% or greater; and (iii) Tier 1 leverage ratio of 5.0% or greater.
Adequately capitalized institutions are institutions that do not meet the
standards for well capitalized institutions but which satisfy the following
capital ratio standards: (i) total risk-based capital ratio of 8.0% or greater;
(ii) Tier 1 risk-based capital ratio of 4.0% or greater; and (iii) Tier 1
leverage ratio of 4.0% or greater. Undercapitalized institutions consist of
institutions that do not qualify as either "well capitalized" or "adequately
capitalized." Within each capital group, institutions will be assigned to one of
three subgroups on the basis of supervisory evaluations by the institution's
primary supervisory authority and such other information as the FDIC determines
to be relevant to the institution's financial condition and the risk posed to
the deposit insurance fund. Subgroup A will consist of financially sound
institutions with only a few minor weaknesses. Subgroup B consists of
institutions that demonstrate weaknesses which, if not corrected, could result
in significant deterioration of the institution and increased risk of loss to
the deposit insurance fund. Subgroup C consists of institutions that pose a
substantial probability of loss to the deposit insurance fund unless effective
corrective action is taken. The assessment rate will range from 0.23% of
deposits for well capitalized institutions in Subgroup A to 0.31% of deposits
for undercapitalized institutions in Subgroup C.
SAIF members are generally prohibited from converting to the status of BIF
members or merging with or transferring assets to a BIF member before August 9,
1994. The FDIC, however, may approve such a transaction in the case of a SAIF
member in default or if the transaction involves an insubstantial portion of the
deposits of each participant. In addition, mergers, transfers of assets and
assumptions of liabilities may be approved by the appropriate bank regulator so
long as deposit insurance premiums continue to be paid to the SAIF for deposits
attributable to the SAIF members plus an adjustment for the annual rate of
growth of deposits in the surviving bank without regard to subsequent
acquisitions. Each depository institution participating in a SAIF to BIF
conversion transaction is required to pay an exit fee to the SAIF and an
entrance fee to the BIF. A savings association may adopt a commercial bank or
savings bank charter prior to August 9, 1994 if the resulting bank remains a
SAIF member.
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The FDIC has adopted a regulation which provides that any insured depository
institution with a ratio of Tier 1 capital to total assets of less than 2% will
be deemed to be operating in an unsafe or unsound condition, which would
constitute grounds for the initiation of termination of deposit insurance
proceedings. The FDIC, however, would not initiate termination of insurance
proceedings if the depository institution has entered into and is in compliance
with a written agreement with its primary regulator, and the FDIC is a party to
the agreement, to increase its Tier 1 capital to such level as the FDIC deems
appropriate. Tier 1 capital is defined as the sum of common stockholders'
equity, noncumulative perpetual preferred stock (including any related surplus)
and minority interests in consolidated subsidiaries, minus all intangible assets
other than mortgage servicing rights and qualifying supervisory goodwill
eligible for inclusion in core capital under OTS regulations and minus
identified losses and investments in certain securities subsidiaries. Insured
depository institutions with Tier 1 capital equal to or greater than 2% of total
assets may also be deemed to be operating in an unsafe or unsound condition
notwithstanding such capital level. The regulation further provides that in
considering applications that must be submitted to it by savings associations,
the FDIC will take into account whether the savings association is meeting with
the Tier 1 capital requirement for state non-member banks of 4% of total assets
for all but the most highly rated state non-member banks.
FEDERAL HOME LOAN BANK SYSTEM. First Kentucky Federal is a member of the
FHLB, which consists of 12 Federal Home Loan Banks subject to supervision and
regulation by the Federal Housing Finance Board ("FHFB"). The Federal Home Loan
Banks provide a central credit facility primarily for member institutions. As a
member of the FHLB of Cincinnati, First Kentucky Federal is required to acquire
and hold shares of capital stock in the FHLB of Cincinnati in an amount at least
equal to 1% of the aggregate unpaid principal of its home mortgage loans, home
purchase contracts, and similar obligations at the beginning of each year, or
1/20 of its advances from the FHLB of Cincinnati, whichever is greater. First
Kentucky Federal was in compliance with this requirement with investment in FHLB
of Cincinnati stock at September 30, 1993, of $1,363,700. The FHLB of Cincinnati
is funded primarily from proceeds derived from the sale of consolidated
obligations of the FHLB System. It makes advances to members in accordance with
policies and procedures established by the FHFB and the Board of Directors of
the FHLB of Cincinnati. As of September 30, 1993, First Kentucky Federal had no
advances from the FHLB of Cincinnati. See "Deposit Activity and Other Sources of
Funds -- Borrowings."
LIQUIDITY REQUIREMENTS. First Kentucky Federal is required to maintain
average daily balances of liquid assets (cash, certain time deposits, bankers'
acceptances, highly rated corporate debt and commercial paper, securities of
certain mutual funds, and specified United States government, state or federal
agency obligations) equal to the monthly average of not less than a specified
percentage (currently 5%) of its net withdrawable savings deposits plus
short-term borrowings. First Kentucky Federal is also required to maintain
average daily balances of short-term liquid assets at a specified percentage
(currently 1%) of the total of its net withdrawable savings accounts and
borrowings payable in one year or less. Monetary penalties may be imposed for
failure to meet liquidity requirements. The average daily and short-term
liquidity ratios of First Kentucky Federal for the September 30, 1993, were
46.89% and 5.72%, respectively.
FEDERAL RESERVE SYSTEM. Pursuant to regulations of the Federal Reserve
Board, a thrift institution must maintain average daily reserves equal to 3% on
the first $51.9 million of transaction accounts, plus 10% on the remainder. This
percentage is subject to adjustment by the Federal Reserve Board. Because
required reserves must be maintained in the form of vault cash or in a
non-interest bearing account at a Federal Reserve Bank, the effect of the
reserve requirement is to reduce the amount of the institution's
interest-earning assets. As of September 30, 1993, First Kentucky Federal met
its reserve requirements.
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REGULATION OF FIRST KENTUCKY
GENERAL. First Kentucky is registered as a savings and loan holding company
with the OTS and subject to OTS regulations, examinations, supervision and
reporting requirements. As a subsidiary of a savings and loan holding company,
First Kentucky Federal is subject to certain restrictions in its dealings with
First Kentucky and affiliates thereof.
ACTIVITIES RESTRICTIONS. The Board of Directors of First Kentucky presently
operates First Kentucky as a unitary savings and loan holding company. There are
generally no restrictions on the activities of a unitary savings and loan
holding company. However, if the Director of OTS determines that there is
reasonable cause to believe that the continuation by a savings and loan holding
company of an activity constitutes a serious risk to the financial safety,
soundness, or stability of its subsidiary savings association, the Director of
OTS may impose such restrictions as deemed necessary to address such risk and
limiting (i) payment of dividends by the savings association, (ii) transactions
between the savings association and its affiliates, and (iii) any activities of
the savings association that might create a serious risk that the liabilities of
the holding company and its affiliates may be imposed on the savings
association. Notwithstanding the above rules as to permissible business
activities of unitary savings and loan holding companies, if the savings
association subsidiary of such a holding company fails to meet the QTL Test,
then such unitary holding company shall also presently become subject to the
activities restrictions applicable to multiple holding companies and unless the
savings association requalifies as a Qualified Thrift Lender within one year
thereafter, register as, and become subject to, the restrictions applicable to a
bank holding company.
If First Kentucky were to acquire control of another savings association,
other than through merger or other business combination with First Kentucky
Federal, First Kentucky would thereupon become a multiple savings and loan
holding company. Except where such acquisition is pursuant to the authority to
approve emergency thrift acquisitions and where each subsidiary savings
association meets the QTL Test, the activities of First Kentucky and any of its
subsidiaries (other than First Kentucky Federal or other subsidiary savings
institutions) would thereafter be subject to further restrictions. The Home
Owners' Loan Act, as amended by FIRREA, provides that, among other things, no
multiple savings and loan holding company or subsidiary thereof which is not a
savings association shall commence or continue for a limited period of time
after becoming a multiple savings and loan holding company or subsidiary
thereof, any business activity, upon prior notice to, and no objection by the
OTS, other than (i) furnishing or performing management services for a
subsidiary savings association, (ii) conducting an insurance agency or escrow
business, (iii) holding, managing, or liquidating assets owned by or acquired
from a subsidiary savings institution, (iv) holding or managing properties used
or occupied by a subsidiary savings institution, (v) acting as trustee under
deeds of trust, (vi) those activities previously directly authorized by the
FSLIC by regulation as of March 5, 1987 to be engaged in by multiple holding
companies or (vii) those activities authorized by the Federal Reserve Board as
permissible for bank holding companies, unless the Director of OTS by regulation
prohibits or limits such activities for savings and loan holding companies.
Those activities described in (vii) above must also be approved by the Director
of OTS prior to being engaged in by a multiple holding company.
TRANSACTIONS WITH AFFILIATES. Transactions between savings associations and
any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act.
An affiliate of a savings association is any company or entity which controls,
is controlled by or is under common control with the savings association. In a
holding company context, the parent holding company of a savings association
(such as First Kentucky) and any companies which are controlled by such parent
holding company are affiliates of the savings association. Generally, Sections
23A and 23B (i) limit the extent to which the savings institution or its
subsidiaries may engage in "covered transactions" with any one affiliate to an
amount equal to 10% of such institution's capital stock and surplus, and contain
an aggregate limit on all such transactions with all affiliates to an amount
equal to 20% of such capital stock and surplus and (ii) require that all such
transactions be on terms substantially the same, or at least as favorable, to
the institution or subsidiary as those provided to a non-affiliate. The term
"covered transaction"
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includes the making of loans, purchase of assets, issuance of a guarantee and
similar other types of transactions. In addition to the restrictions imposed by
Sections 23A and 23B, no savings association may (i) loan or otherwise extend
credit to an affiliate, except for any affiliate which engages only in
activities which are permissible for bank holding companies, or (ii) purchase or
invest in any stocks, bonds, debentures, notes or similar obligations of any
affiliate, except for affiliates which are subsidiaries of the savings
association.
Savings associations are also subject to the restrictions contained in
Section 22(h) of the Federal Reserve Act on loans to executive officers,
directors and principal stockholders. Under Section 22(h), loans to an executive
officer and to a greater than 10% stockholder of a savings association (18% in
the case of institutions located in an area with less than 30,000 in
population), and certain affiliated entities of either, may not exceed, together
with all other outstanding loans to such person and affiliated entities the
association's loan to one borrower limit (generally equal to 15% of the
institution's unimpaired capital and surplus and an additional 10% of such
capital and surplus for loans fully secured by certain readily marketable
collateral). Section 22(h) also prohibits loans, above amounts prescribed by the
appropriate federal banking agency, to directors, executive officers and greater
than 10% stockholders of a savings association, and their respective affiliates,
unless such loan is approved in advance by a majority of the board of directors
of the association with any "interested" director not participating in the
voting. The Federal Reserve Board has prescribed the loan amount (which includes
all other outstanding loans to such person), as to which such prior board of
director approval if required, as being the greater of $25,000 or 5% of capital
and surplus (up to $500,000). Further, the Federal Reserve Board pursuant to
Section 22(h) requires that loans to directors, executive officers and principal
stockholders be made on terms substantially the same as offered in comparable
transactions to other persons.
Savings associations are also subject to the requirements and restrictions
of Section 22(g) of the Federal Reserve Act on loans to executive officers and
the restrictions of 12 U.S.C. Section1972 on certain tying arrangements and
extensions of credit by correspondent banks. Section 22(g) of the Federal
Reserve Act requires that loans to executive officers of depository institutions
not be made on terms more favorable than those afforded to other borrowers,
requires approval for such extensions of credit by the board of directors of the
institution, and imposes reporting requirements for and additional restrictions
on the type, amount and terms of credits to such officers. Section 1972
prohibits (i) a depository institution from extending credit to or offering any
other services, or fixing or varying the consideration for such extension of
credit or service, on the condition that the customer obtain some additional
service from the institution or certain of its affiliates or not obtain services
of a competitor of the institution, subject to certain exceptions, and (ii)
extensions of credit to executive officers, directors, and greater than 10%
stockholders of a depository institution by any other institution which has a
correspondent banking relationship with the institution, unless such extension
of credit is on substantially the same terms as those prevailing at the time for
comparable transactions with other persons and does not involve more than the
normal risk of repayment or present other unfavorable features.
RESTRICTIONS ON ACQUISITIONS. The Home Owners' Loan Act generally prohibits
a savings and loan holding company from acquiring, without prior approval of the
Director of OTS, (i) control of any other savings association or savings and
loan holding company or substantially all the assets thereof or (ii) more than
5% of the voting shares of a savings association or holding company thereof
which is not a subsidiary. Under certain circumstances, a registered savings and
loan holding company is permitted to acquire, with the approval of the Director
of OTS, up to 15% of the voting shares of an under-capitalized savings
association pursuant to a "qualified stock issuance" without that savings
association being deemed controlled by the holding company. In order for the
shares acquired to constitute a "qualified stock issuance," the shares must
consist of previously unissued stock or treasury shares, the shares must be
acquired for cash, the savings and loan holding company's other subsidiaries
must have tangible capital of at least 6 1/2% of total assets, there must not be
more than one common director or officer between the savings and loan holding
company and the issuing savings
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association and transactions between the savings association and the savings and
loan holding company and any of its affiliates must conform to Sections 23A and
23B of the Federal Reserve Act. Except with the prior approval of the Director
of OTS, no director or officer of a savings and loan holding company or person
owning or controlling by proxy or otherwise more than 25% of such company's
stock, may also acquire control of any savings association, other than a
subsidiary savings association, or of any other savings and loan holding
company.
The Director of OTS may only approve acquisitions resulting in the formation
of a multiple savings and loan holding company which controls savings
associations in more than one state if: (i) the multiple savings and loan
holding company involved controls a savings institution which operated a home or
branch office in the state of the association to be acquired as of March 5,
1987; (ii) the acquiror is authorized to acquire control of the savings
association pursuant to the emergency acquisition provisions of the Federal
Deposit Insurance Act; or (iii) the statutes of the state in which the
association to be acquired is located specifically permit institutions to be
acquired by state-chartered associations or savings and loan holding companies
located in the state where the acquiring entity is located (or by a holding
company that controls such state-chartered savings institutions).
Under the laws of Kentucky, a savings and loan association holding company
having its principal place of business in any state may acquire control of any
Kentucky savings and loan association or of any savings and loan association
holding company having its principal place of business in Kentucky, if the state
in which the acquiring savings and loan holding company has its principal place
of business authorizes acquisitions of savings and loan associations or savings
and loan association holding companies in that state by a savings and loan
association holding company having its principal place of business in Kentucky
under conditions substantially no more restrictive than those imposed by
Kentucky law. Kentucky law prohibits acquisitions of Kentucky savings and loan
associations that would result in the acquiror controlling Kentucky savings and
loan associations holding more than 15% of the total deposits in all Kentucky
savings and loan associations. Until July 15, 1993, no company may acquire more
than three Kentucky savings and loan associations during any 12-month period. In
addition, no savings and loan holding company may acquire a Kentucky savings and
loan association chartered after July 15, 1988 that has been in existence less
than 5 years.
The OTS has recently amended its regulations to permit federal associations
to branch in any state or states of the United States and its territories.
Except in supervisory cases or when interstate branching is otherwise permitted
by state law or other statutory provision, a federal association may not
establish an out-of-state branch unless (i) the federal association qualifies as
a "domestic building and loan association" under Section7701(a)(19) of the
Internal Revenue Code and the total assets attributable to all branches of the
association in the state would qualify such branches taken as a whole for
treatment as a domestic building and loan association and (ii) such branch would
not result in (a) formation of a prohibited multi-state multiple savings and
loan holding company or (b) a violation of certain statutory restrictions on
branching by savings association subsidiaries of banking holding companies.
Federal associations generally may not establish new branches unless the
association meets or exceeds minimum regulatory capital requirements. The OTS
will also consider the association's record of compliance with the Community
Reinvestment Act of 1977 in connection with any branch application.
The BHCA has been amended to specifically authorize the Federal Reserve
Board to approve an application by a bank holding company to acquire control of
any savings association. Pursuant to rules promulgated by the Federal Reserve
Board, owning, controlling or operating a savings association is a permissible
activity for bank holding companies, if the savings association engages only in
deposit-taking activities and lending and other activities that are permissible
for bank holding companies. In approving such an application, the Federal
Reserve Board may not impose any restriction on transactions between the savings
association and its holding company affiliates except as required by Sections
23A and 23B of the Federal Reserve Act.
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A bank holding company that controls a savings association may merge or
consolidate the assets and liabilities of the savings association with, or
transfer assets and liabilities to, any subsidiary bank which is a member of the
BIF with the approval of the appropriate federal banking agency and the Federal
Reserve Board. The resulting bank will be required to continue to pay
assessments to the SAIF at the rates prescribed for SAIF members on the deposits
attributable to the merged savings association plus an annual growth increment.
In addition, the transaction must comply with the restrictions on interstate
acquisitions of commercial banks under the BHCA.
LEGAL MATTERS
Brown, Todd & Heyburn, 3200 Capital Holding Center, Louisville, Kentucky
40202-3363, will pass upon the legality of the shares of Peoples First Common
Stock offered hereby. For legal services rendered to Peoples First, Brown, Todd
& Heyburn will receive its customary hourly rates.
EXPERTS
The financial statements of First Kentucky as of September 30, 1993 and
1992, and for each of the years in the three-year period ended September 30,
1993, included in this Registration Statement, have been included in the
Registration Statement in reliance upon the report of Whelan, Doerr, Pike &
Pawley, PSC, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing. A representative of Whelan, Doerr, Pike & Pawley, PSC is expected to
be present at the Annual Meeting to respond to stockholders' questions and will
have the opportunity to make a statement if he so desires.
The consolidated financial statements of Peoples First as of December 31,
1992 and 1991 and for each of the years in the three-year period ended December
31, 1992 incorporated by reference in the Registration Statement have been
incorporated in the Registration Statement in reliance upon the report of KPMG
Peat Marwick, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing. Representatives of KPMG Peat Marwick are expected to be present at
the Annual Meeting.
OTHER BUSINESS
As of the date of this Prospectus-Proxy Statement, the First Kentucky Board
knows of no matters that will be presented for consideration at the Annual
Meeting, other than the matters set forth in the Notice of Annual Meeting of
Stockholders attached to this Prospectus-Proxy Statement. However, if any other
matters shall properly come before the Annual Meeting or any adjournments
thereof and are voted upon, the enclosed proxy will be deemed to confer
discretionary authority to the individuals named as proxies therein to vote the
shares represented by proxy as to any such matters.
STOCKHOLDER PROPOSALS
It is currently anticipated that the Merger will be consummated prior to the
planned date for the 1995 Annual Meeting of Stockholders. If the Merger is not
consummated prior to such date and the 1995 Annual Meeting of Stockholders is
held, any stockholder proposal to take action at such meeting must be received
at First Kentucky's executive office at 214 North First Street, Central City,
Kentucky 42330, no later than August 18, 1994 in order to be eligible for
inclusion in First Kentucky's proxy materials for next year's Annual Meeting of
Stockholders. Any such proposals shall be subject to the requirements of the
proxy rules adopted under the Securities Exchange Act of 1934.
ANNUAL REPORT ON FORM 10-KSB
A COPY OF FIRST KENTUCKY'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR
ENDED SEPTEMBER 30, 1993 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
WILL BE FURNISHED WITHOUT CHARGE TO STOCKHOLDERS AS OF THE RECORD DATE UPON
WRITTEN REQUEST TO BARBARA M. DIAMOND, CHIEF ACCOUNTING OFFICER, FIRST KENTUCKY
BANCORP, INC., P.O. BOX 110, CENTRAL CITY, KENTUCKY 42330.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
<TABLE>
<CAPTION>
PAGE NO.
-------------
<S> <C>
Independent Auditors' Report....................................................................... F-1
Balance Sheets as of September 30, 1993 and 1992................................................... F-2
Statements of Income For Years Ended September 30, 1993, 1992, and 1991............................ F-3
Statements of Stockholders' Equity For Years Ended September 30, 1993, 1992, and 1991.............. F-4
Statements of Cash Flows For Years Ended September 30, 1993, 1992, and 1991........................ F-5 to F-6
Notes to Consolidated Financial Statements......................................................... F-7 to F-24
</TABLE>
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INDEPENDENT AUDITORS' REPORT
Board of Directors
First Kentucky Bancorp, Inc.
Central City, Kentucky
We have audited the accompanying consolidated statements of financial
condition of First Kentucky Bancorp, Inc. and subsidiary as of September 30,
1993 and 1992, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended September
30, 1993. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Kentucky Bancorp, Inc. and subsidiary as of September 30, 1993 and 1992, and the
results of its operations and its cash flows for each of the three years in the
period ended September 30, 1993, in conformity with generally accepted
accounting principles.
WHELAN, DOERR, PIKE & PAWLEY, PSC
Elizabethtown, Kentucky
November 3, 1993
F-1
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------
1993 1992
---------------- ----------------
<S> <C> <C>
Cash:
Interest-bearing deposits................................................... $ 5,000,000 $ 10,500,000
Noninterest-bearing deposits................................................ 2,382,992 2,739,204
Investment securities (Market value, September 30, 1993 $17,133,000; September 15,569,313 19,467,767
30, 1992 $19,674,000) (Note 4)...............................................
Mortgage-backed securities (Market value, September 30, 1993 $71,393,000; 69,747,976 58,114,592
September 30, 1992 $60,365,000) (Note 4).....................................
Loans receivable, net (Note 5)................................................ 78,233,516 81,687,553
Office properties and equipment, net (Note 6)................................. 1,875,101 1,987,609
Real estate owned, net (Note 7)............................................... 267,572 553,209
Federal Home Loan Bank stock, at cost......................................... 1,363,700 1,178,100
Accrued interest receivable (Note 8).......................................... 928,189 1,393,740
Prepaid and other assets (Note 12)............................................ 312,992 413,479
---------------- ----------------
$ 175,681,351 $ 178,035,253
---------------- ----------------
---------------- ----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Customer deposits (Note 9).................................................. $ 161,374,848 $ 165,423,554
Note payable (Note 11)...................................................... 158,481 202,856
Advance payments by borrowers for taxes and insurance....................... 223,534 163,458
Income taxes (Note 12):
Current................................................................... -- 115,419
Other liabilities........................................................... 173,115 287,836
---------------- ----------------
Total liabilities....................................................... 161,929,978 166,193,123
---------------- ----------------
Commitments (Note 5)........................................................ -- --
Stockholders' equity (Notes 1, 10 and 11):
Serial preferred stock, 500,000 shares authorized and unissued............ -- --
Common stock, $.01 par value, 2,500,000 shares authorized; issued and 4,093 3,731
outstanding 1993 -- 409,342 shares; 1992 -- 373,117 shares...............
Additional paid-in capital................................................ 3,670,279 3,282,478
Employee Stock Ownership Plan shares purchased with debt.................. (158,481) (202,856)
Retained earnings, substantially restricted............................... 10,235,482 8,758,777
---------------- ----------------
Total stockholders' equity.............................................. 13,751,373 11,842,130
---------------- ----------------
$ 175,681,351 $ 178,035,253
---------------- ----------------
---------------- ----------------
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1993 1992 1991
-------------- -------------- --------------
<S> <C> <C> <C>
Interest income:
Loans.......................................................... $ 6,597,948 $ 8,107,403 $ 10,287,595
Investments and deposits....................................... 1,498,993 2,335,106 3,393,958
Mortgage-backed securities..................................... 4,174,508 3,685,778 1,259,010
-------------- -------------- --------------
12,271,449 14,128,287 14,940,563
Interest expense on customer deposits............................ 6,683,955 9,092,693 11,008,948
-------------- -------------- --------------
Net interest income before provision for loan losses............. 5,587,494 5,035,594 3,931,615
Provision for loan losses........................................ 122,000 253,000 264,000
-------------- -------------- --------------
Net interest income after provision for loan losses.............. 5,465,494 4,782,594 3,667,615
-------------- -------------- --------------
Other income:
Gain on sale of investments (Note 4)........................... -- 13,036 --
Service fees................................................... 383,529 449,435 346,197
Operation of real estate owned, net............................ (1,933) 66,390 62,671
Other.......................................................... 67,177 112,791 83,534
-------------- -------------- --------------
448,773 641,652 492,402
-------------- -------------- --------------
Other expenses:
Compensation and benefits (Note 11)............................ 1,657,118 1,553,037 1,400,527
Office occupancy, net.......................................... 293,680 302,072 311,964
Federal insurance premiums..................................... 335,500 364,500 352,500
Provision for loss on real estate owned........................ -- 50,000 20,000
Computer services.............................................. 244,978 223,180 218,497
Kentucky building and loan tax................................. 174,160 133,377 132,981
Other.......................................................... 616,204 602,112 563,333
-------------- -------------- --------------
3,321,640 3,228,278 2,999,802
-------------- -------------- --------------
Income before income taxes....................................... 2,592,627 2,195,968 1,160,215
-------------- -------------- --------------
Income taxes (credits) (Note 12):
Current........................................................ 839,955 828,576 442,798
Deferred....................................................... (3,871) (83,361) (9,194)
-------------- -------------- --------------
836,084 745,215 433,604
-------------- -------------- --------------
Net income....................................................... $ 1,756,543 $ 1,450,753 $ 726,611
-------------- -------------- --------------
-------------- -------------- --------------
Net income per share (Note 10)................................... $4.56 $4.00 $.58
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
EMPLOYEE
COMMON STOCK STOCK OWNERSHIP
-------------------- ADDITIONAL PLAN SHARES
NUMBER OF PAID-IN RETAINED PURCHASED WITH
SHARES AMOUNT CAPITAL EARNINGS DEBT TOTAL
--------- --------- ------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, October 1, 1990............ -- $ -- $ -- $ 6,581,413 $ -- $ 6,581,413
Proceeds from common stock offering,
net (Note 1)....................... 362,250 3,622 3,146,750 -- -- 3,150,372
Employee Stock Ownership Plan shares
purchased with debt (Note 11)...... -- -- -- -- (253,570) (253,570)
Net income.......................... -- -- -- 726,611 -- 726,611
--------- --------- ------------- -------------- --------------- --------------
Balance, September 30, 1991......... 362,250 3,622 3,146,750 7,308,024 (253,570) 10,204,826
Issuance of stock to Management
Recognition Plan Trust (Note 11)... 10,867 109 135,728 -- -- 135,837
Principal repayments on ESOP
obligation (Note 11)............... -- -- -- -- 50,714 50,714
Net income.......................... -- -- -- 1,450,753 -- 1,450,753
--------- --------- ------------- -------------- --------------- --------------
Balance, September 30, 1992......... 373,117 3,731 3,282,478 8,758,777 (202,856) 11,842,130
Exercise of stock options........... 36,225 362 361,888 -- -- 362,250
Tax benefit of exercising stock
options and ESOP dividends used to
retire debt........................ -- -- 25,913 -- -- 25,913
Principal repayments on ESOP
obligation (Note 11)............... -- -- -- -- 44,375 44,375
Cash dividends paid................. -- -- -- (279,838) -- (279,838)
Net income.......................... -- -- -- 1,756,543 -- 1,756,543
--------- --------- ------------- -------------- --------------- --------------
Balance, September 30, 1993......... 409,342 $ 4,093 $ 3,670,279 $ 10,235,482 $ (158,481) $ 13,751,373
--------- --------- ------------- -------------- --------------- --------------
--------- --------- ------------- -------------- --------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1993 1992 1991
-------------- -------------- --------------
<S> <C> <C> <C>
Operating Activities:
Net income..................................................... $ 1,756,543 $ 1,450,753 $ 726,611
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Provision for loan losses.................................... 122,000 253,000 264,000
Provision for loss on real estate owned...................... -- 50,000 20,000
Depreciation of office properties and equipment.............. 178,724 150,482 170,146
Depreciation of real estate owned............................ 7,256 21,759 21,759
Gain on sale of investments.................................. -- (13,036) --
Loss on sale of real estate, net............................. -- -- 4,314
Amortization of premiums and accretion of discounts on
investment securities and mortgage-backed securities, net... (626,969) 43,939 127,989
FHLB stock dividends......................................... (56,700) (52,800) (70,800)
Pension expense paid on ESOP debt............................ 25,357 27,163 --
Tax benefit of exercising stock options and ESOP dividends
used to retire debt......................................... 25,913 -- --
Change in assets and liabilities:
(Increase) decrease in accrued interest receivable........... 465,551 170,463 (152,146)
(Increase) decrease in prepaid and other assets.............. 104,358 (144,929) 40,209
Increase (decrease) in income taxes -- current............... (115,419) (64,388) 179,807
Decrease in income taxes -- deferred......................... (3,871) (83,361) (9,194)
Increase (decrease) in other liabilities..................... (114,721) (121,078) 87,526
-------------- -------------- --------------
Net cash provided by operating activities........................ 1,768,022 1,687,967 1,410,221
-------------- -------------- --------------
Investing Activities:
Proceeds from sale of investment securities.................... -- 11,863,750 --
Proceeds from maturities of investment securities.............. 5,035,000 5,594,000 10,694,000
Purchases of investment securities and mortgage-backed
securities.................................................... (29,663,074) (46,819,446) (33,310,317)
Net repayments of loans........................................ 3,029,898 16,160,816 8,944,297
Purchases of office properties and equipment................... (66,216) (90,169) (92,933)
Redemption (purchases) of FHLB stock........................... (128,900) (79,700) 123,700
Principal collected on mortgage-backed securities.............. 17,520,113 6,217,699 1,086,744
Sales of real estate owned..................................... 580,520 138,473 144,146
-------------- -------------- --------------
Net cash used in investing activities............................ (3,692,659) (7,014,577) (12,410,363)
-------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1993 1992 1991
-------------- -------------- --------------
Financing Activities:
<S> <C> <C> <C>
Net (decrease) increase in customer deposits................... $ (4,048,706) $ 954,521 $ 3,684,783
Net increase in advance payments by borrowers.................. 60,076 19,431 8,179
Proceeds from long-term borrowing.............................. -- -- 253,570
Proceeds from common stock offering, net of issue costs........ -- -- 3,150,372
Shares purchased by Employee Stock Ownership Plan.............. -- -- (253,570)
Proceeds from common stock issuance to MRP Trust............... -- 135,837 --
Proceeds from exercise of stock options........................ 362,250 -- --
Repayment of borrowed funds.................................... (25,357) (50,714) --
Dividends paid to shareholders and on ESOP debt................ (279,838) -- --
-------------- -------------- --------------
Net cash (used in) provided by financing activities.............. (3,931,575) 1,059,075 6,843,334
-------------- -------------- --------------
Net decrease in cash and cash equivalents........................ (5,856,212) (4,267,535) (4,156,808)
Cash and cash equivalents:
Beginning of year.............................................. 13,239,204 17,506,739 21,663,547
-------------- -------------- --------------
End of year.................................................... $ 7,382,992 $ 13,239,204 $ 17,506,739
-------------- -------------- --------------
-------------- -------------- --------------
Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest..................................................... $ 6,708,444 $ 9,134,160 $ 11,051,941
-------------- -------------- --------------
-------------- -------------- --------------
Income taxes................................................. $ 977,519 $ 892,065 $ 146,338
-------------- -------------- --------------
-------------- -------------- --------------
Supplemental Disclosure of Noncash Activities:
Transfer of loans to real estate owned......................... $ 295,384 $ 88,380 $ 323,907
-------------- -------------- --------------
-------------- -------------- --------------
Loans to finance sales of real estate owned.................... $ 35,934 $ 121,750 $ 242,056
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. FIRST KENTUCKY BANCORP, INC.
First Kentucky Bancorp, Inc. (the Company) is a Delaware corporation formed
at the direction of First Kentucky Federal Savings Bank (the Bank) to acquire
all the outstanding capital stock that the Bank issued upon conversion from a
federally chartered mutual savings bank to a federally chartered stock savings
bank; this conversion was effective June 18, 1991. As part of the conversion,
the Bank issued all of its common stock to the Company and, simultaneously, the
Company sold its common stock to certain depositors of the Bank. The Company
issued 362,250 shares of common stock for an aggregate price of $3,622,500 or
$3,150,372, net of conversion costs which were deducted from the proceeds. The
plan of conversion outlined that all but approximately 1% of the net proceeds
would be injected into the Bank in exchange for 100% of its stock and,
accordingly $3,100,000 was infused into the Bank.
Prior to the conversion, the Company had not transacted any material
business activities other than those associated with the issuance of stock.
Subsequent to the conversion, the Company's business activities have been
limited to owning the Bank.
2. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of the Company and its wholly-owned subsidiary, First Kentucky
Federal Savings Bank and its wholly-owned subsidiary, Home Service Corporation,
for all years presented. Intercompany accounts and transactions have been
eliminated in consolidation. Certain prior year accounts have been reclassified
to conform with 1993 classifications.
REAL ESTATE OWNED. Real estate properties acquired through foreclosure and
in settlement of loans are stated at the lower of cost or estimated net
realizable value at the date of foreclosure. Cost is the lesser of fair value or
the sum of the related loan balance and the costs of foreclosure. Estimated net
realizable value represents estimated sales price less direct selling expenses.
Costs relating to development and improvement of property are capitalized,
whereas costs relating to holding property are not capitalized and are charged
against operations in the current period. Any portion of interest costs relating
to development of real estate is capitalized. In addition, real estate owned
consists of in-substance foreclosures which based on current information and
events, it is probable that the Bank will be unable to collect all amounts due
according to the contractual terms of the loan agreement and foreclosure is
probable to provide for repayment of the loan.
OFFICE PROPERTIES AND EQUIPMENT. Office properties and equipment are stated
at cost less accumulated depreciation computed principally by the straight-line
method over the following estimated useful lives:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Land improvements.......................................................... 5 - 20
Buildings and improvements................................................. 5 - 50
Furniture, fixtures and equipment.......................................... 3 - 15
</TABLE>
LOANS RECEIVABLE. Loans receivable are stated at unpaid principal balances,
less the allowance for loan losses, deferred loan origination fees and unearned
discounts. Deferred loan origination fees are amortized using the level yield
method on a loan-by-loan basis over the lives of the underlying loans. Unearned
discounts on consumer loans are recognized over the lives of the loans using
methods that approximate the interest method. The allowance for loan losses is
increased by charges to income and decreased by charge-offs (net of recoveries).
Management's periodic evaluation of the adequacy of the allowance is based on
the Bank's past loan loss experience, known and inherent risks in the portfolio,
adverse situations that may affect the borrower's ability to repay, estimated
value of any underlying collateral, and current economic conditions.
F-7
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Uncollectible interest on loans that are contractually past due is charged
off or an allowance is established based on management's periodic evaluation.
The allowance is established by a charge to interest income equal to all
interest previously accrued, and income is subsequently recognized only to the
extent cash payments are received until, in management's judgment, the borrower
has the ability to make regular interest and principal payments, in which case
the loan is returned to accrual status.
The Bank's primary lending area is a region within Western Kentucky. The
economy within this region is based upon agriculture and coal industries. The
Bank's primary lending activity is the origination of residential real estate
loans secured by first mortgage for the purpose of acquisition or construction
of one-to-four family residential properties.
ALLOWANCE FOR LOSSES AND UNCOLLECTED INTEREST. The Bank provides valuation
allowances for estimated losses on loans, accrued interest and real estate owned
when a loss is both estimable and probable. Major loans, real estate, and major
lending areas are reviewed periodically to determine potential problems at an
early date. The Bank's experience has shown that foreclosures on loans result in
some losses. Therefore, in addition to allowances for specific loans, the Bank
makes a provision for losses on properties based in part on loss experience and
in part on prevailing market conditions. Additions to allowances are charged to
operations.
INVESTMENT SECURITIES. Securities are carried at amortized cost and are not
adjusted to the lower of cost or market because it is management's intention to
hold them to maturity. Amortization of premiums and accretion of discounts is
computed on a method which approximates the level yield method. Gains or losses
on the sale of investment securities are recognized in income at the time of
sale, with cost being determined by the specific identification method.
In May, 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 "ACCOUNTING FOR CERTAIN INVESTMENTS,
DEBT, AND EQUITY SECURITIES" (SFAS No. 115). The statement requires the
classification of investment securities into three categories: held-to-maturity,
available-for-sale, or trading, based on management's positive intent and
ability to hold such securities. The Bank intends to adopt SFAS No. 115 by
October 1, 1994, as required. The adoption of SFAS No. 115 would not have a
material effect on the financial statements at September 30, 1993.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities are carried at
unpaid principal balances adjusted for unamortized premiums and unearned
discounts as it is management's intent and ability to hold such investments to
maturity. Amortization of premiums and accretion of discounts is computed on a
method which approximates the level yield method. Such securities are primarily
Federal Home Loan Mortgage Corporation and Government National Mortgage
Association participations.
INCOME TAXES. Deferred income taxes are provided on differences between
income reported for financial reporting and income tax purposes as explained
more fully in Note 12.
3. STATEMENT OF CASH FLOWS
Companies are required to classify cash receipts and payments according to
whether they stem from operating, investing or financing activities. For
purposes of the statement of cash flows, the Bank considers all highly liquid
debt instruments purchased with a maturity of three months or less to be cash
equivalents. Cash and cash equivalents include cash on hand, amounts due from
banks and other short-term cash investments.
F-8
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENT SECURITIES
The carrying values and estimated market values of investments in debt
securities are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1993
-----------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED COST GAINS (LOSSES) MARKET VALUE
-------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
U.S. Treasury and Agency obligations................ $ 14,814,005 $ 1,544,995 $ -- $ 16,359,000
Obligations of states and political subdivisions.... 755,308 18,692 -- 774,000
-------------- ------------- ------------ --------------
15,569,313 1,563,687 -- 17,133,000
Mortgage-backed securities.......................... 69,747,976 1,650,614 (5,590) 71,393,000
-------------- ------------- ------------ --------------
$ 85,317,289 $ 3,214,301 $ (5,590) $ 88,526,000
-------------- ------------- ------------ --------------
-------------- ------------- ------------ --------------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1992
-----------------------------------------------------------
GROSS GROSS
UNREALIZED UNREALIZED ESTIMATED
AMORTIZED COST GAINS (LOSSES) MARKET VALUE
-------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
U.S. Treasury and Agency obligations................ $ 19,142,767 $ 445,200 $ (243,967) $ 19,344,000
Obligations of states and political
subdivisions....................................... 325,000 5,000 -- 330,000
-------------- ------------- ------------ --------------
19,467,767 450,200 (243,967) 19,674,000
Mortgage-backed securities.......................... 58,114,592 2,250,408 -- 60,365,000
-------------- ------------- ------------ --------------
$ 77,582,359 $ 2,700,608 $ (243,967) $ 80,039,000
-------------- ------------- ------------ --------------
-------------- ------------- ------------ --------------
</TABLE>
Proceeds from the sale of long-term U.S. Treasury bonds during the year
ended September 30, 1992, were $11,863,750; gross gain of $13,036 was recognized
for the same period.
The amortized cost and estimated market value of debt securities at
September 30, 1993, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED COST MARKET VALUE
-------------- --------------
<S> <C> <C>
Investment securities:
Due in one year or less........................................................ $ 90,000 $ 91,000
Due after one year through five years.......................................... 4,510,727 4,912,000
Due after five years through ten years......................................... 10,503,278 11,654,000
Due after ten years............................................................ 465,308 476,000
-------------- --------------
15,569,313 17,133,000
-------------- --------------
Mortgage-backed securities:
Due after one year through five years.......................................... 57,709,235 59,191,000
Due after five years through ten years......................................... 4,834,586 4,925,000
Due after ten years............................................................ 7,204,155 7,277,000
-------------- --------------
69,747,976 71,393,000
-------------- --------------
$ 85,317,289 $ 88,526,000
-------------- --------------
-------------- --------------
</TABLE>
F-9
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1993 1992
-------------- --------------
<S> <C> <C>
Loans secured by first mortgages on real estate:
One-to-four single family residential.......................................... $ 60,217,948 $ 63,924,931
Gross construction loans....................................................... 2,051,749 1,299,193
Other.......................................................................... 6,731,399 6,880,145
-------------- --------------
69,001,096 72,104,269
Less:
Undisbursed portion of construction loans...................................... 1,274,163 819,538
Net deferred loan origination fees............................................. 205,250 209,208
Loans-in-progress.............................................................. 13,436 10,369
Unamortized discounts on purchased loans....................................... 13,183 18,465
Allowance for loss on loans.................................................... 652,689 625,301
-------------- --------------
66,842,375 70,421,388
-------------- --------------
Consumer and other loans:
Secured by deposits............................................................ 2,522,022 2,326,951
Other consumer and commercial.................................................. 9,552,918 9,663,512
-------------- --------------
12,074,940 11,990,463
Less:
Net unamortized discounts on installment loans................................. 576,498 593,243
Allowance for loss on loans.................................................... 107,301 131,055
-------------- --------------
11,391,141 11,266,165
-------------- --------------
$ 78,233,516 $ 81,687,553
-------------- --------------
-------------- --------------
</TABLE>
A summary of the transactions in the allowance for loss on loans is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------
1993 1992 1991
------------ ----------- -----------
<S> <C> <C> <C>
Balance, beginning........................................................ $ 756,356 $ 527,035 $ 270,731
Provision for loan losses................................................. 122,000 253,000 264,000
Loans charged off......................................................... (159,906) (26,949) (29,671)
Recoveries................................................................ 1,540 3,270 21,975
Transfer from allowance for loss on real estate owned..................... 40,000 -- --
------------ ----------- -----------
Balance, ending........................................................... $ 759,990 $ 756,356 $ 527,035
------------ ----------- -----------
------------ ----------- -----------
</TABLE>
Nonperforming loans were $40,912 and $490,730 at September 30, 1993 and
1992, respectively. Interest income in the amount of $44,523 and $55,523,
respectively, would have been recorded on nonperforming loans if they had been
performing in accordance with their contractual terms, approximately $50,800 and
$37,200 was collected during fiscal year 1993 and 1992, respectively.
As of September 30, 1993, the Bank had $2,903,150 in outstanding commitments
to originate mortgage loans; of that amount, $557,250 are for fixed rate loans
with interest rates ranging from 7.75% to 8.625%.
The Bank was not servicing loans for others on any of the dates presented in
these financial statements and there is no intent by management to sell mortgage
loans in the secondary market.
F-10
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized by major classification as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1993 1992
------------- -------------
<S> <C> <C>
Land and land improvements................................................ $ 598,371 $ 598,371
Buildings and building improvements....................................... 2,113,219 2,146,826
Furniture, fixtures and equipment......................................... 758,934 1,006,843
------------- -------------
3,470,524 3,752,040
Less accumulated depreciation............................................. 1,595,423 1,764,431
------------- -------------
$ 1,875,101 $ 1,987,609
------------- -------------
------------- -------------
</TABLE>
7. REAL ESTATE OWNED
Real estate owned consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1993 1992
----------- -----------
<S> <C> <C>
Acquired in settlement of loans............................................... $ 366,982 $ 857,735
Deduct:
Accumulated depreciation.................................................... -- 127,165
Allowance for loss on real estate owned..................................... 99,410 177,361
----------- -----------
$ 267,572 $ 553,209
----------- -----------
----------- -----------
</TABLE>
A summary of the transactions in the allowance for loss on real estate owned
is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning............................................... $ 177,361 $ 170,478 $ 210,540
Provision for loss on real estate owned.......................... -- 50,000 20,000
Real estate charged off.......................................... (39,836) (64,164) (91,192)
Recoveries....................................................... 1,885 21,047 31,130
Transfer to allowance for losses on loans........................ (40,000) -- --
----------- ----------- -----------
Balance, ending.................................................. $ 99,410 $ 177,361 $ 170,478
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
8. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------
1993 1992
----------- -------------
<S> <C> <C>
Investment securities....................................................... $ 32,478 $ 153,295
Mortgage-backed securities.................................................. 420,487 696,244
Real estate loans........................................................... 255,826 309,008
Installment loans........................................................... 203,707 206,958
Other....................................................................... 15,691 28,235
----------- -------------
$ 928,189 $ 1,393,740
----------- -------------
----------- -------------
</TABLE>
F-11
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. CUSTOMER DEPOSITS ANALYSIS
Customer deposits at September 30, 1993 and 1992, are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------------------
1993 1992
---------------------- ----------------------
AMOUNT % AMOUNT %
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Passbook savings at 2.75% and 3.5%, respectively.......................... $ 28,138 17% $ 25,643 15%
----------- --- ----------- ---
NOW and Super NOW accounts at 2.00% - 2.5% and 3%, respectively........... 12,130 8% 11,373 7%
----------- --- ----------- ---
MMDA accounts at 2.75% and 3%, respectively............................... 17,660 11% 17,622 11%
----------- --- ----------- ---
Certificates of deposit:
2% - 2.99%.............................................................. 1,397 1% -- --
3% - 3.99%.............................................................. 46,664 29% 32,622 20%
4% - 4.99%.............................................................. 30,138 19% 28,046 17%
5% - 5.99%.............................................................. 7,004 4% 9,791 6%
6% - 6.99%.............................................................. 5,649 3% 11,534 7%
7% - 7.99%.............................................................. 2,975 2% 12,490 7%
8% - 8.99%.............................................................. 9,620 6% 16,303 10%
----------- --- ----------- ---
103,447 64% 110,786 67%
----------- --- ----------- ---
$ 161,375 100% $ 165,424 100%
----------- --- ----------- ---
----------- --- ----------- ---
</TABLE>
At September 30, 1993, scheduled maturities of certificates of deposit are
as follows:
<TABLE>
<CAPTION>
AMOUNT DUE
-------------------------------------------------------
UP TO 1 - 2 2 - 3 AFTER 3
RATE 1 YEAR YEARS YEARS YEARS TOTAL
- --------------------------------------------------------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
2 - 2.99%................................................ $ 1,397 $ -- $ -- $ -- $ 1,397
3 - 3.99%................................................ 42,109 4,555 -- -- 46,664
4 - 4.99%................................................ 11,626 10,625 3,890 3,997 30,138
5 - 5.99%................................................ 2,158 906 2,402 1,538 7,004
6 - 6.99%................................................ 4,293 793 563 -- 5,649
7 - 7.99%................................................ 303 2,273 367 32 2,975
8 - 8.99%................................................ 8,113 1,478 11 18 9,620
--------- --------- --------- --------- -----------
$ 69,999 $ 20,630 $ 7,233 $ 5,585 $ 103,447
--------- --------- --------- --------- -----------
--------- --------- --------- --------- -----------
</TABLE>
10. STOCKHOLDERS' EQUITY
REGULATORY CAPITAL REQUIREMENTS. Under the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA"), regulations for savings
institutions' minimum capital requirements which went into effect on December 7,
1989, require institutions to have a minimum regulatory tangible capital equal
to 1.5% of adjusted total assets, a minimum 3% leverage core capital ratio and
an 8.0% risk-based capital ratio.
F-12
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
The Bank, at September 30, 1993, meets all regulatory capital requirements.
The following is a reconciliation of the Bank's stockholders' equity to
regulatory capital:
<TABLE>
<CAPTION>
REGULATORY CAPITAL
---------------------------------
TANGIBLE CORE RISK-BASED
CAPITAL CAPITAL CAPITAL
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Stockholders' equity...................................... $ 12,804 $ 12,804 $ 12,804
Non-includable subsidiary................................. (33) (33) --
Additional capital items -- general loan loss reserves.... -- -- 668
--------- --------- -----------
Regulatory capital -- computed............................ 12,771 12,771 13,472
Minimum capital requirement............................... 2,634 5,267 5,368
--------- --------- -----------
Regulatory capital -- excess.............................. $ 10,137 $ 7,504 $ 8,104
--------- --------- -----------
--------- --------- -----------
</TABLE>
LIQUIDATION ACCOUNT. In connection with the Bank's conversion from mutual
to stock form of ownership during 1991, the Bank established a "liquidation
account" in the amount of $6,750,000 for the purpose of granting to eligible
savings account holders a priority in the event of future liquidation. Only in
such an event, an eligible account holder who continues to maintain a savings
account will be entitled to receive a distribution from the liquidation account.
The total amount of the liquidation account decreases in an amount
proportionately corresponding to decreases in the savings account balances of
the eligible account holders.
DIVIDEND RESTRICTIONS. The Bank may not declare or pay a cash dividend on
any of its capital stock if the effect thereof would cause the net worth of the
Bank to be reduced below the amount required for the liquidation account.
Additionally, federal regulations limit dividend and capital distributions
by the Bank to (a) the greater of 75% of net income for the previous four
quarters or (b) 100% of the Bank's net income to date during the calendar year
plus the amount that would reduce by one-half its surplus capital ratio at the
beginning of the calendar year. If the Bank's capital requirement falls below
its minimum capital requirement, the Bank may not pay dividends without
regulatory approval.
EARNINGS PER SHARE. Net income per share for fiscal years 1993 and 1992 is
computed on the basis of the weighted average number of shares outstanding.
Common stock equivalents have not been used in computing net income per share
because their effect is not material. Net income per share of common stock from
the date of conversion, June 18 to September 30, 1991, is computed by dividing
net income for the period by 362,250 shares, the number of shares of common
stock issued and outstanding for the period.
Pro forma net income per share of common stock is $2.40 per share for the
year ended September 30, 1991, and has been calculated as if the 362,250 common
shares were issued on October 1, 1990. Pro forma net income has been adjusted to
reflect investment of the stock proceeds for the period October 1, 1990, through
June 17, 1991, at 6.03 percent (the Bank's weighted average interest rate on
interest-earning assets for 1991, net of tax).
FEDERAL INCOME TAX BAD DEBT RESERVE. Retained earnings include
approximately $2,600,000 at September 30, 1993, for which no provision for
federal income taxes has been made. This amount represents allocations of income
to bad debt deductions for tax purposes only. If the amounts that
F-13
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
qualify as deductions for federal income tax purposes are later used for
purposes other than bad debt losses, including distributions in liquidation,
such distributions will be subject to federal income tax at the then current
corporate rate.
11. EMPLOYEE BENEFITS
PENSION PLANS. The Bank is a participant in the Financial Institutions
Retirement Fund, a multi-employer defined benefit pension plan covering
substantially all employees. Employees are eligible to participate after one
year of service and are 100 percent vested at the completion of five years of
participation in the plan. The Bank's share of accumulated plan benefits and net
assets available for benefits is not available. The plan was fully funded in
1993, 1992 and 1991, thus requiring no contributions. The Bank also participates
in the Financial Institutions Thrift Plan, a defined contribution plan covering
substantially all employees, qualifying under Section 401(k) of the Internal
Revenue Code. Under the terms of the plan, voluntary employee contributions are
matched by up to 3% of the employee base pay, and employees are immediately
vested. Employer contributions charged to operations were $35,650, $34,378 and
$31,503 during 1993, 1992, and 1991, respectively.
STOCK OPTION PLAN. In connection with the conversion to the stock form of
ownership, the Company's Board of Directors adopted the First Kentucky Bancorp,
Inc. 1991 Stock Option Plan, which was approved by the stockholders at the first
annual meeting. Pursuant to the plan, 36,225 shares of the Company's common
stock have been reserved for issuance to certain employees upon exercise of
options granted to them under the plan. The exercise price of the options is $10
per share. All options were exercised during 1993.
EMPLOYEE STOCK OWNERSHIP PLAN. The Company has established an Employee
Stock Ownership Plan (ESOP) to provide additional retirement benefits to its
employees. Generally, all employees are eligible to participate in the ESOP upon
completion of one year of service. Employees are 100 percent vested at the
completion of five years of vested service in the plan.
The ESOP borrowed $253,570 to purchase 25,357 shares of Company common
stock, or 7% of the original shares issued, pledging the stock as collateral for
the loan. Future contributions to retire the loan will be paid to the ESOP out
of current or retained earnings. The unpaid balance of the loan, representing
deferred employee benefits, has been recorded as a deduction from stockholders'
equity with a corresponding amount as a liability.
As the Bank makes annual contributions to the ESOP, these contributions plus
the dividends accumulated on the Bank stock held by the ESOP, are used to repay
the loan. As the loan is repaid, common stock is allocated to the participants.
The loan matures in the year 2001. Interest, payable quarterly at a rate of 7.0%
was $13,626, $17,745 and $7,322 for 1993, 1992 and 1991, respectively.
Contributions charged to operations during 1993, 1992 and 1991, including
interest, were $38,983, $43,102 and $32,679, respectively. Dividends paid on
shares held by the ESOP were $19,018 during 1993.
MANAGEMENT RECOGNITION PLAN. The Company has adopted the First Kentucky
Bancorp, Inc. Management Recognition Plan (MRP), which was approved by the
stockholders, to help retain its key employees. Under the plan, 10,867 shares
were issued to the MRP Trust and have been paid to the key employees.
Compensation expense in the amount of fair market value of the Company's common
stock at the date of the grant ($12.50 per share) has been recognized in the
financial statements.
DEFERRED COMPENSATION AGREEMENTS. The Bank has deferred compensation
agreements with certain directors which are funded currently through whole life
insurance contracts.
F-14
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. FEDERAL INCOME TAX
Under the Internal Revenue Code, the Bank is allowed a special bad debt
deduction related to additions to tax bad debt reserves established for the
purpose of absorbing losses. The applicable provisions of the law permit the
Bank to deduct from taxable income an allowance for bad debts based on the
greater of a percentage of taxable income before such deductions or actual loss
experience. Because the Bank does not intend to use the reserve for purposes
other than to absorb losses, deferred income taxes have not been provided.
Deferred income taxes (credits) result from timing differences in the
recognition of income and expenses for tax and financial reporting purposes.
Timing differences and the tax effect of each are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------
1993 1992 1991
---------- ---------- ---------
<S> <C> <C> <C>
Accelerated depreciation.................................. $ (10,800) $ 17 $ (7,542)
Deferred loss from hedging activities..................... -- (60,906) (2,466)
Deferral of loan origination fees......................... 6,929 (22,472) 814
---------- ---------- ---------
$ (3,871) $ (83,361) $ (9,194)
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
Taxes on income differs from statutory amounts which are computed by
applying the federal income tax rate of 34% for all periods presented as
follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Tax at statutory rate.................................. $ 881,493 $ 746,629 $ 394,473
Differences between tax and book provisions for loan
losses................................................ (26,412) 36,011 56,845
Tax-exempt interest and dividend income................ (26,262) (23,797) (29,951)
Differences between tax and book basis of assets
sold.................................................. -- -- 13,416
Other.................................................. 7,265 (13,628) (1,179)
----------- ----------- -----------
$ 836,084 $ 745,215 $ 433,604
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The Bank intends to adopt the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," as amended, (SFAS
No. 109) by October, 1993, as required. Under SFAS No. 109, accounting for
income taxes changes from the deferral method to the asset and liability method.
Under the asset and liability method, the deferred income tax asset or liability
is adjusted each period based on the application of currently enacted tax rates
and laws that are scheduled to be in effect in the periods the temporary
differences reverse.
Under the deferred method in effect until SFAS No. 109, deferred income
taxes are recognized for income and expense items that are reported in different
years for financial reporting purposes and income tax purposes using the tax
rate applicable to the year of the calculation. Under the deferred method,
deferred taxes are not adjusted for subsequent changes in tax rates.
This change in accounting for income taxes may be applied retroactively by
restating previously issued financial statements or it may be shown by reporting
the cumulative effect of the change in the year of initial application. The
effect of retroactive implementation to the Bank would increase (decrease) net
income by $(45,139), $10,446, and $46,835 in the years ended September 30, 1993,
F-15
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. FEDERAL INCOME TAX (CONTINUED)
1992, and 1991, respectively. Additionally, the adoption of SFAS No. 109 would
decrease retained earnings by $157,807 at September 30, 1993. The Bank intends
to adopt SFAS No. 109 on a prospective basis for the fiscal year ended September
30, 1994.
13. CONDENSED FINANCIAL INFORMATION
The following consolidating condensed financial statements summarize the
financial position and operation results of First Kentucky Bancorp, Inc. and its
subsidiary, First Kentucky Federal Savings Bank, and the Bank's wholly-owned
subsidiary, Home Service Corporation of Hartford.
CONSOLIDATING CONDENSED STATEMENTS OF FINANCIAL CONDITION
SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
CONSOLIDATED
FIRST FIRST CONSOLIDATED
KENTUCKY HOME KENTUCKY FIRST
FEDERAL SERVICE FEDERAL FIRST KENTUCKY
SAVINGS CORPORATION SAVINGS KENTUCKY BANCORP,
BANK OF HARTFORD ELIMINATIONS BANK BANCORP, INC. ELIMINATIONS INC.
-------- ----------- ------------ ------------ ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash, interest and $ 7,383 $ 34 $ (34) $ 7,383 $ 907 $ (907) $ 7,383
non-interest-bearing
deposits......................
Investment securities, at 15,569 -- -- 15,569 -- -- 15,569
cost..........................
Mortgage-backed securities, at 69,748 -- -- 69,748 -- -- 69,748
cost..........................
Loans receivable, net.......... 78,233 -- -- 78,233 -- -- 78,233
Office properties and 1,875 -- -- 1,875 -- -- 1,875
equipment.....................
Real estate owned, net......... 268 -- -- 268 -- -- 268
Federal Home Loan Bank stock... 1,364 -- -- 1,364 -- -- 1,364
Accrued interest receivable.... 928 -- -- 928 -- -- 928
Prepaid and other assets....... 313 -- (1) 312 48 (47) 313
Investment in subsidiary....... 33 -- (33) -- 12,804 (12,804) --
-------- ----- --- ------------ ------------- ------------ ------------
TOTAL ASSETS................. $175,714 $ 34 $ (68) $ 175,680 $ 13,759 $ (13,758) $ 175,681
-------- ----- --- ------------ ------------- ------------ ------------
-------- ----- --- ------------ ------------- ------------ ------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Customer deposits.............. $162,316 $ -- $ (34) $ 162,282 $ -- $ (907) $ 161,375
Note payable................... 158 -- -- 158 -- -- 158
Advances and other 436 1 (1) 436 8 (47) 397
liabilities...................
-------- ----- --- ------------ ------------- ------------ ------------
TOTAL LIABILITIES............ 162,910 1 (35) 162,876 8 (954) 161,930
Stockholders' equity........... 12,804 33 (33) 12,804 13,751 (12,804) 13,751
-------- ----- --- ------------ ------------- ------------ ------------
TOTAL LIABILITIES AND $175,714 $ 34 $ (68) $ 175,680 $ 13,759 $ (13,758) $ 175,681
STOCKHOLDERS' EQUITY........
-------- ----- --- ------------ ------------- ------------ ------------
-------- ----- --- ------------ ------------- ------------ ------------
</TABLE>
F-16
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. CONDENSED FINANCIAL INFORMATION (CONTINUED)
CONSOLIDATING CONDENSED STATEMENTS OF INCOME
YEAR ENDED SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
CONSOLIDATED
FIRST FIRST CONSOLIDATED
KENTUCKY HOME KENTUCKY FIRST
FEDERAL SERVICE FEDERAL FIRST KENTUCKY
SAVINGS CORPORATION SAVINGS KENTUCKY BANCORP,
BANK OF HARTFORD ELIMINATIONS BANK BANCORP, INC. ELIMINATIONS INC.
-------- ----------- ------------ ------------ ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income................ $12,271 $ 1 $ (1) $ 12,271 $ 15 $ (15) $ 12,271
Interest expense............... 6,700 -- (1) 6,699 -- (15) 6,684
-------- ----- --- ------------ ------------- ------------ ------------
Net interest income before 5,571 1 -- 5,572 15 -- 5,587
provision.....................
Provision for loan loss........ 122 -- -- 122 -- -- 122
Net interest income after 5,449 1 -- 5,450 15 -- 5,465
provision.....................
Equity in undistributed 2 -- (2) -- 1,786 (1,786) --
earnings of subsidiary........
Other income................... 442 7 -- 449 -- -- 449
Other expense.................. 3,259 5 -- 3,264 58 -- 3,322
-------- ----- --- ------------ ------------- ------------ ------------
Income before income tax....... 2,634 3 (2) 2,635 1,743 (1,786) 2,592
Income tax (benefit)........... 848 1 -- 849 (13) -- 836
-------- ----- --- ------------ ------------- ------------ ------------
NET INCOME..................... $ 1,786 $ 2 $ (2) $ 1,786 $ 1,756 $ (1,786) $ 1,756
-------- ----- --- ------------ ------------- ------------ ------------
-------- ----- --- ------------ ------------- ------------ ------------
</TABLE>
At September 30, 1993, the reconciliation of First Kentucky Federal Savings
Bank's regulatory capital as reported on the Office of Thrift Supervision (OTS)
regulatory report, to the capital as reflected in these financial statements is
as follows (in thousands):
<TABLE>
<S> <C>
Capital as reported to the OTS............................ $ 12,843
Audit adjustments:
In-substance foreclosure................................ (17)
Intercompany payables................................... (22)
---------
Capital per financial statements.......................... $ 12,804
---------
---------
</TABLE>
14. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY)
The following condensed statements summarize the financial position,
operating results and cash flows of First Kentucky Bancorp, Inc. (parent company
only).
F-17
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENTS OF FINANCIAL CONDITION
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------------
1993 1992
-------------- --------------
<S> <C> <C>
Cash on deposit with subsidiary bank............................................. $ 907,369 $ 152,408
Investment in subsidiary bank.................................................... 12,803,802 11,622,668
Other assets................................................................... 48,422 16,340
-------------- --------------
$ 13,759,593 $ 11,791,416
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable -- conversion expenses........................................ $ -- $ --
Accounts payable -- other...................................................... 8,220 --
-------------- --------------
8,220 --
Stockholders' equity:
Preferred stock................................................................ -- --
Common stock................................................................... 4,093 3,731
Additional paid-in capital..................................................... 3,670,279 3,282,478
Retained earnings.............................................................. 10,077,001 8,505,207
-------------- --------------
13,751,373 11,791,416
-------------- --------------
$ 13,759,593 $ 11,791,416
-------------- --------------
-------------- --------------
</TABLE>
F-18
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. CONDENSED FINANCIAL INFORMATION (PARENT COMPANY ONLY) (CONTINUED)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended September 30,
-----------------------------------------
1993 1992 1991
------------- ------------- -----------
<S> <C> <C> <C>
Cash dividends from subsidiary......................................... $ 700,000 $ -- $ --
Interest income........................................................ 15,176 -- 1,390
Management fees and other expenses..................................... (58,108) (27,845) --
Income tax benefit (expense)........................................... 13,429 9,504 (510)
------------- ------------- -----------
Income (loss) before equity in undistributed earnings of subsidiary.... 670,497 (18,341) 880
Equity in undistributed earnings (in excess of dividends distributed)
of subsidiary......................................................... 1,086,046 1,469,094 725,731
------------- ------------- -----------
Net income............................................................. $ 1,756,543 $ 1,450,753 $ 726,611
------------- ------------- -----------
------------- ------------- -----------
</TABLE>
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1993 1992 1991
-------------- -------------- --------------
<S> <C> <C> <C>
Operating Activities:
Net income...................................................... $ 1,756,543 $ 1,450,753 $ 726,611
Adjustments to reconcile net income to net cash provided by
operating activities:
Tax benefit of exercising stock options and dividends used to
pay ESOP debt................................................ 25,913 -- --
Increase in other assets...................................... (32,081) (16,340) --
Increase (decrease) in accounts payable....................... 8,220 (54,098) 54,098
Equity in undistributed net income of subsidiary.............. (1,786,046) (1,469,094) (725,731)
-------------- -------------- --------------
Net cash provided by (used in) operating activities............... (27,451) (88,779) 54,978
-------------- -------------- --------------
Investing Activities:
Dividends received from subsidiary.............................. 700,000 -- --
Purchase of First Kentucky Federal Savings Bank common stock.... -- -- (3,100,000)
-------------- -------------- --------------
Net cash provided by (used in) investing activities............... 700,000 -- (3,100,000)
-------------- -------------- --------------
Financing Activities:
Proceeds from stock options exercised........................... 362,250 -- --
Proceeds from issuance of stock, net of issue cost.............. -- -- 3,150,372
Proceeds from issuance of common stock to MRP Trust -- 135,837 --
Dividends paid.................................................. (279,838) -- --
-------------- -------------- --------------
Net cash provided by financing activities......................... 82,412 135,837 3,150,372
-------------- -------------- --------------
Net increase in cash.............................................. 754,961 47,058 105,350
Cash, beginning of year........................................... 152,408 105,350 --
-------------- -------------- --------------
Cash, end of year................................................. $ 907,369 $ 152,408 $ 105,350
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
F-19
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. FAIR VALUES OF FINANCIAL INSTRUMENTS
In December, 1991, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 107, "DISCLOSURES ABOUT FAIR VALUE OF
FINANCIAL INSTRUMENTS" (SFAS No. 107). The Statement requires disclosure of fair
value information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases
could not be realized in immediate settlement of the instrument. SFAS No. 107
excludes certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented
are not intended to represent the underlying value of the Bank.
The methods and assumptions used by the Bank in estimating its fair value
disclosures for financial instruments are presented below:
CASH AND INTEREST-BEARING DEPOSITS. The carrying amounts for cash and
interest-bearing deposits approximates their fair values.
INVESTMENT SECURITIES. Fair values for investment securities are based upon
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
LOANS, NET. For variable rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying amounts.
The fair values of other types of loans are estimated by discounting the future
cash flows using current interest rates at which similar loans would be made to
borrowers with similar credit quality and for the same remaining maturities.
DEPOSITS. The fair values for demand deposits, savings account and certain
money market deposits are the amounts payable on demand at the reporting date.
The carrying amounts for variable-rate, money market accounts and certificates
of deposit approximate their fair values at the reporting date. Fair values for
fixed-rate certificates of deposits are estimated using a discounted cash flow
calculation that applies interest rates currently being offered on certificates
to a schedule of aggregated expected monthly maturities on time deposits.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT. The fair values
of commitments to extend credit is estimated using fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the customer. For fixed-rate loan
commitments, fair value also considers the difference between current levels of
interest rates and the committed rates. The fair values of standby letters of
credit are based on fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligation with the
counter parties at the reporting date.
F-20
<PAGE>
FIRST KENTUCKY BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
The estimated fair values of the Bank's financial instruments at September
30, 1993, are as follows:
<TABLE>
<CAPTION>
Carrying Fair
Value Value
---------------- ----------------
<S> <C> <C>
Financial assets:
Cash and interest bearing deposits...................... $ 7,382,992 $ 7,382,992
Investment securities................................... 15,569,313 17,133,000
Mortgage-backed securities.............................. 69,747,976 71,393,000
Loans, net.............................................. 78,233,516 79,486,000
Financial liabilities:
Deposits................................................ 161,374,848 162,630,000
Unrecognized financial instruments:
Commitments to extend credit............................ -- 2,903,150
</TABLE>
16. SUBSEQUENT EVENTS
In October, 1993, the Company entered into a definitive agreement to be
acquired by Peoples First Corporation in Paducah, Kentucky. The merger, which
the Corporation expects to be completed in April, 1994, is subject to regulatory
approval.
F-21
<PAGE>
APPENDIX A
MERGER AGREEMENT AND PLAN OF REORGANIZATION
AMONG
PEOPLES FIRST CORPORATION,
PEOPLES FIRST ACQUISITION CORPORATION,
FIRST KENTUCKY BANCORP, INC.
AND FIRST KENTUCKY FEDERAL SAVINGS BANK
[REFERENCES HEREIN TO NUMBERS OF SHARES OF PFC COMMON STOCK
HAVE NOT BEEN ADJUSTED FOR A TWO-FOR-ONE STOCK SPLIT EFFECTED
IN THE FORM OF A 100% STOCK DIVIDEND ON JANUARY 4, 1994.]
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<C> <C> <S> <C>
SECTION 1 -- The Merger.............................................................................. 1
1.01 Plan of Merger.......................................................................... 1
1.02 Bancorp Capital Stock................................................................... 1
1.03 Bank Capital Stock...................................................................... 1
1.04 PFC Capital Stock....................................................................... 1
1.05 Subsidiary Capital Stock................................................................ 1
1.06 Merger Consideration.................................................................... 1
1.07 Surviving Corporation................................................................... 1
1.08 Reorganization.......................................................................... 1
1.09 Option Agreements....................................................................... 1
SECTION 2 -- The Closing and the Effective Time...................................................... 2
2.01 The Closing............................................................................. 2
2.02 The Effective Time...................................................................... 2
SECTION 3 -- Basic Terms of the Merger............................................................... 2
3.01 Plan of Merger.......................................................................... 2
3.02 Effect of Merger........................................................................ 2
3.03 Surviving Corporation -- Corporate Matters.............................................. 2
3.04 Conversion of Shares.................................................................... 3
3.05 Surrender of Certificates............................................................... 3
3.06 Reclassifications, etc.................................................................. 4
3.07 No Fractional Shares.................................................................... 4
SECTION 4 -- Representations and Warranties of Bancorp and the Bank.................................. 4
4.01 Organization and Qualification.......................................................... 4
4.02 Authorization........................................................................... 4
4.03 Subsidiaries............................................................................ 5
4.04 Capital Stock........................................................................... 5
4.05 Corporate Documents, Books, Records and Permits......................................... 6
4.06 Financial Statements.................................................................... 6
4.07 Regulatory Reports...................................................................... 7
4.08 Absence of Certain Changes or Events.................................................... 7
4.09 Taxes................................................................................... 8
4.10 Title to Assets......................................................................... 9
4.11 Environmental Hazards................................................................... 9
4.12 Litigation, Pending Proceedings and Compliance with Laws................................ 10
4.13 Regulatory Compliance................................................................... 10
4.14 Employee Relations...................................................................... 11
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
---------
<C> <C> <S> <C>
4.15 Employee Benefit Plans.................................................................. 11
4.16 Insurance Policies...................................................................... 13
4.17 Agreements.............................................................................. 13
4.18 Accounting Matters...................................................................... 14
4.19 Brokers' or Finders' Fees............................................................... 14
4.20 Potential Competing Interests........................................................... 14
4.21 Accuracy of Statements.................................................................. 14
SECTION 5 -- Representations and Warranties of PFC................................................... 14
5.01 Organization and Qualification.......................................................... 14
5.02 Authorization........................................................................... 15
5.03 Subsidiaries............................................................................ 15
5.04 Financial Statements.................................................................... 15
5.05 PFC Common Stock........................................................................ 16
5.06 Corporate Documents, Books, Records and Permits......................................... 16
5.07 Regulatory Reports...................................................................... 16
5.08 Absence of Certain Changes or Events.................................................... 16
5.09 Regulatory Compliance................................................................... 17
5.10 Environmental Matters................................................................... 17
5.11 Litigation, Pending Proceedings and Compliance with Laws................................ 17
5.12 Brokers' or Finders' Fees............................................................... 18
5.13 Accuracy of Statements.................................................................. 18
SECTION 6 -- Covenants and Conduct of the Parties.................................................... 18
6.01 Investigations.......................................................................... 18
6.02 Shareholder and Director Approvals...................................................... 19
6.03 Consents................................................................................ 19
6.04 Conduct of Business in the Ordinary Course.............................................. 19
6.05 Reserves................................................................................ 21
6.06 Preservation of Business and Investment Decisions....................................... 21
6.07 Notification of Material Changes and Litigation......................................... 21
6.08 Cooperation............................................................................. 22
6.09 Regulatory Filings...................................................................... 22
6.10 Bancorp Financial Statements............................................................ 22
6.11 PFC Financial Statements, SEC Reports and Amendments.................................... 22
6.12 Discussion with Other Purchasers........................................................ 22
6.13 Publicity............................................................................... 22
6.14 PFC Registration Statement.............................................................. 23
6.15 Restricted PFC Common Stock............................................................. 23
6.16 Bancorp Dividends....................................................................... 23
6.17 Tax-Free Reorganization Treatment....................................................... 23
6.18 D & O Insurance and Indemnification..................................................... 23
6.19 Forbearance of PFC...................................................................... 24
6.20 Employee Benefit Plans.................................................................. 25
SECTION 7 -- Conditions of Merger.................................................................... 26
7.01 Conditions to Obligations............................................................... 26
7.02 Conditions to Obligations of PFC........................................................ 28
7.03 Conditions to Obligations of Bancorp.................................................... 30
SECTION 8 -- Termination of Agreement................................................................ 31
SECTION 9 -- Miscellaneous........................................................................... 31
9.01 Deliveries and Notices.................................................................. 31
</TABLE>
(ii)
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<TABLE>
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<C> <C> <S> <C>
9.02 Waivers................................................................................. 32
9.03 Expenses................................................................................ 32
9.04 Headings, Counterparts, and Pronouns.................................................... 32
9.05 Annexes and Schedules................................................................... 32
9.06 Entire Agreement........................................................................ 32
9.07 Governing Law........................................................................... 32
9.08 PFC Directors........................................................................... 32
9.09 Directors and Executive Officers........................................................ 32
9.10 Disclosure and Termination Fee.......................................................... 33
ANNEXES
1.01 Plan and Agreement of Merger
1.09 Form of Option Agreement
6.15 Form of Letter Agreement with Bancorp Directors
7.02(g)(i) Form of Amended and Restated Kirtley Employment Agreement
7.02(g)(ii) Form of Amended and Restated Morrison Employment Agreement
</TABLE>
(iii)
<PAGE>
MERGER AGREEMENT AND PLAN OF REORGANIZATION
AMONG
PEOPLES FIRST CORPORATION,
PEOPLES FIRST ACQUISITION CORPORATION,
FIRST KENTUCKY BANCORP, INC. AND
FIRST KENTUCKY FEDERAL SAVINGS BANK
This is a Merger Agreement (this "Agreement") dated as of October 15, 1993,
among Peoples First Corporation ("PFC"), a Kentucky corporation, Peoples First
Acquisition Corporation ("Subsidiary"), a Kentucky corporation, First Kentucky
Bancorp, Inc. ("Bancorp"), a Delaware corporation and First Kentucky Federal
Savings Bank (the "Bank"), a federally chartered savings bank with its principal
office in Central City, Kentucky.
SECTION 1
THE MERGER
1.01 PLAN OF MERGER. Upon the terms and conditions set forth in this
Agreement and the Plan and Agreement of Merger in the form attached hereto as
Annex 1.01 (the "Plan of Merger"), Bancorp shall be merged (the "Merger") into
Subsidiary. The form of Plan of Merger is incorporated by this reference into
this Agreement and made a part of this Agreement.
1.02 BANCORP CAPITAL STOCK. The authorized capital stock of the Bancorp
consists solely of (a) 2,500,000 shares of common stock, of a par value of $0.01
per share ("Bancorp Common Stock"), of which 409,342 shares are issued and
outstanding and (b) 500,000 shares of serial preferred stock, of which no shares
are issued or outstanding.
1.03 BANK CAPITAL STOCK. The authorized capital stock of the Bank consists
solely of 5,000,000 shares of common stock, of a par value of $.01 per share
("Bank Common Stock"), of which 100,000 shares are issued and outstanding, and
1,000,000 shares of preferred stock of which no shares are outstanding.
1.04 PFC CAPITAL STOCK. The authorized capital stock of PFC as of the date
of this Agreement consists solely of 10,000,000 shares of common stock, without
par value (the "PFC Common Stock"), of which more than 465,000 shares are
unissued and available for issuance in the Merger.
1.05 SUBSIDIARY CAPITAL STOCK. The authorized capital stock of Subsidiary
consists solely of 2,000 shares of common stock without par value ("Subsidiary
Common Stock"), of which 1,000 shares are issued and outstanding and held by
PFC.
1.06 MERGER CONSIDERATION. At the Effective Time (as defined in Section
2.02) and subject to Section 3.07 of this Agreement, each share of Bancorp
Common Stock issued and outstanding, other than shares with respect to which the
holder has properly exercised the holder's appraisal rights under Section 262 of
the Delaware General Corporation Law (the "Appraisal Statute"), shall be
converted into 1.13597 shares (the "Merger Consideration") of PFC Common Stock.
1.07 SURVIVING CORPORATION. Subsidiary shall be the "Surviving
Corporation" of the Merger.
1.08 REORGANIZATION. The Board of Directors of each of PFC, Subsidiary,
Bancorp and the Bank has approved this Agreement and the Plan of Merger as a
plan of reorganization within the provisions of the Internal Revenue Code of
1986, as amended, (the "IRC") SectionSection368(a)(1)(A) and (a)(2)(D).
1.09 OPTION AGREEMENTS. PFC and the Bancorp have entered into an option
agreement dated as of the date hereof (the "Option Agreement") providing for the
purchase by PFC of Bancorp Common Stock in certain circumstances. A copy of the
Option Agreement is attached as Annex 1.09 to this Agreement.
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SECTION 2
THE CLOSING AND THE EFFECTIVE TIME
2.01 THE CLOSING. A "Closing" shall take place at the offices of Brown,
Todd & Heyburn, 3200 Capital Holding Center, Louisville, Kentucky, at a time and
date reasonably designated by PFC, which time and date shall not be later than
10 business days after the first day on which all of the conditions set forth in
Section 7.01 of the Agreement are satisfied or waived in writing or at such
other time and date as Bancorp and PFC may agree to in writing (the "Closing
Date"). At the Closing, (a) PFC, the Subsidiary, Bancorp, and the Bank shall
each provide to the other such proof or indication of satisfaction of the
conditions set forth in Section 7 as the other may have reasonably requested;
(b) the certificates, letters, and opinions required by Section 7 shall be
delivered; (c) Subsidiary shall execute Articles of Merger appropriate for
filing with the Secretary of State of the Commonwealth of Kentucky; (d)
Subsidiary shall execute a Certificate of Merger appropriate for filing with the
Delaware Secretary of State; and (e) PFC, Subsidiary, Bancorp, and the Bank
shall execute and deliver to the others all other instruments and assurances,
and do all things, reasonably necessary and proper to effect the Merger and
other transactions contemplated hereby.
2.02 THE EFFECTIVE TIME. PFC shall deliver the Articles of Merger to the
Secretary of State of the Commonwealth of Kentucky and the Certificate of Merger
to the Secretary of State of Delaware for filing as promptly as possible
following the Closing. The Merger shall be effective at 11:59:59 P.M.,
Louisville, Kentucky, time on the date Articles of Merger and Certificate of
Merger are filed with the Secretary of State of the Commonwealth of Kentucky and
the Secretary of State of Delaware, respectively (the "Effective Time").
SECTION 3
BASIC TERMS OF THE MERGER
3.01 PLAN OF MERGER. Upon the terms and conditions set forth in this
Agreement and the Plan of Merger and in accordance with Kentucky and Delaware
law, Bancorp shall merge into and with Subsidiary under the laws of Kentucky and
Delaware.
3.02 EFFECT OF MERGER. From and after the Effective Time:
(a) Bancorp shall, as provided, in Chapters 271B of the Kentucky Revised
Statutes and Section 252 of the Delaware General Corporation Law, be merged
into and continued in Subsidiary, which at all times after the Effective
Time shall be referred to as the "Surviving Corporation" and the separate
existence of Bancorp shall cease;
(b) The title to all real estate and other property owned by each
corporation party to the Merger shall be vested in the Surviving Corporation
without reversion or impairment;
(c) The Surviving Corporation shall have all liabilities of each
corporation which is a party to the Merger; and
(d) A proceeding pending against Bancorp may be continued as if the
Merger did not occur or the Surviving Corporation may be substituted in the
proceeding for Bancorp.
3.03 SURVIVING CORPORATION -- CORPORATE MATTERS. From and after the
Effective Time, until changed or amended in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, or otherwise in
accordance with law:
(a) The name of the Surviving Corporation shall be "Peoples First
Acquisition Corporation";
(b) The Articles of Incorporation of the Surviving Corporation shall be
the Articles of Incorporation of Subsidiary;
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(c) The Bylaws of the Surviving Corporation shall be the Bylaws of
Subsidiary in effect immediately prior to the Effective Time;
(d) The members of the Board of Directors of the Surviving Corporation
shall be the members of the Board of Directors of Subsidiary immediately
prior to the Effective Time; and
(e) The officers of the Surviving Corporation shall be the officers of
Subsidiary immediately prior to the Effective Time.
3.04 CONVERSION OF SHARES.
(a) At the Effective Time, except for shares (the "Dissenting Shares") with
respect to which the holder has properly exercised the holder's appraisal rights
under the Appraisal Statute and subject to Section 3.07 of this Agreement, each
share of Bancorp Common Stock shall, ipso facto, and without any action on the
part of the holder thereof, become and be converted into 1.13597 shares of PFC
Common Stock; and all outstanding certificates representing shares of Bancorp
Common Stock shall represent, instead of shares of Bancorp Common Stock, shares
of PFC Common Stock equal to the Merger Consideration.
(b) At the Effective Time, all shares of Subsidiary Common Stock issued and
outstanding immediately before the Effective Time shall be converted into the
same number of shares of the Surviving Corporation's common capital stock
("Surviving Corporation Common Stock").
(c) Following the Effective Time, the Surviving Corporation shall have 1,000
shares of Surviving Corporation Common Stock issued and outstanding, all of
which shall be held by PFC.
(d) Each share of PFC Common Stock issued and outstanding immediately before
the Effective Time shall remain unchanged by the Merger.
3.05 SURRENDER OF CERTIFICATES.
(a) As of the Effective Time, PFC shall deposit, or shall cause to be
deposited, with The Peoples First National Bank and Trust Company, Paducah,
Kentucky (the "Exchange Agent"), for the benefit of the holders of shares of
Bancorp Common Stock, for exchange in accordance with this Section 3.05, through
the Exchange Agent, (i) certificates representing the shares of PFC Common Stock
issuable pursuant to Section 1.06 in exchange for outstanding shares of Bancorp
Common Stock, excluding any fractional share interest to which a Bancorp
shareholder might otherwise be entitled, and (ii) the cash amount due Bancorp
shareholders in lieu of any fractional share interest as provided for in Section
3.07 of this Agreement.
(b) As soon as reasonably practicable (but not more than five business days)
after the Effective Time, the Exchange Agent shall mail to each holder of record
of a certificate(s) that immediately prior to the Effective Time represented
outstanding shares of Bancorp Common Stock ("Bancorp Certificates") that were
converted into shares of PFC Common Stock pursuant to Section 1.06, (i) a letter
of transmittal in the customary form and (ii) instructions for use in effecting
the surrender of the Bancorp Certificates in exchange for certificates
representing shares of PFC Common Stock. Upon surrender of a Bancorp Certificate
for cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, and such other required documents, the holder of the Bancorp
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of PFC Common Stock that such holder
has the right to receive in respect of the Bancorp Certificate surrendered
pursuant to the provisions of this Section 3.05 (after taking into account all
shares of Bancorp Common Stock then held by such holder) and cash in lieu of any
fractional share interest as provided for in Section 3.07 of this Agreement.
(c) Whenever PFC declares a dividend or other distribution, in cash, stock
or other property, on the PFC Common Stock after the Effective Time, the
declaration shall provide for the dividend or distribution on all shares of PFC
Common Stock issued and outstanding, including those with respect to which no
certificate has been delivered hereunder; however, no disbursement of such
dividend or
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distribution shall be required to be made until the shareholder entitled to such
dividend or distribution has delivered such shareholder's Bancorp Certificates
in accordance with subsection 3.05(b) of this Agreement regarding the Bancorp
Certificate(s) representing such shares. Upon such compliance or as soon as
practicable thereafter, each such shareholder shall be entitled to receive from
PFC an amount equal to all dividends and distributions (without interest thereon
and less the amount of taxes, if any, which have been imposed or paid thereon or
withheld therefrom) on the shares represented thereby.
3.06 RECLASSIFICATIONS, ETC. If, prior to the Effective Time, PFC declares
a stock dividend on or subdivides, splits up, reclassifies or combines PFC
Common Stock, or declares a dividend, or makes a distribution, on PFC Common
Stock of any security convertible into its common stock, then appropriate
adjustment shall be made in the Merger Consideration to take into account the
dividend, subdivision, split-up, reclassification or combination.
3.07 NO FRACTIONAL SHARES. No certificate or scrip of any kind shall be
issued by PFC to any former Bancorp shareholder in respect of any fractional
interest in PFC Common Stock resulting from the Merger. No holder of Bancorp
Common Stock shall have any rights in respect of a fractional interest in PFC
Common Stock arising out of the Merger, except to receive a cash payment equal
to such fraction multiplied by the average of the per share closing prices of
PFC Common Stock as reported by NASDAQ for the 15 trading days immediately next
preceding the Closing Date (the "PFC Trading Price").
SECTION 4
REPRESENTATIONS AND WARRANTIES OF BANCORP AND THE BANK
Except as set forth in the Disclosure Schedule previously delivered by
Bancorp and the Bank to PFC, Bancorp and the Bank jointly and severally
represent and warrant to PFC as follows:
4.01 ORGANIZATION AND QUALIFICATION. The Bank is a federally chartered
savings bank, duly organized, validly existing and in good standing under the
laws of the United States. Bancorp is a Delaware corporation, duly organized,
validly existing and in good standing under the laws of Delaware. Bancorp is
duly authorized to conduct business as a foreign corporation, and is in good
standing, under the laws of the Commonwealth of Kentucky. The Bank and Bancorp
have all requisite corporate power and authority to own and lease their property
and to conduct their businesses as they are now being conducted. Neither the
character of the property owned or leased by Bancorp or the Bank, nor the nature
of the activities conducted by Bancorp or the Bank makes necessary qualification
by Bancorp or the Bank as a foreign association in any jurisdiction (other than
Bancorp's qualification in Kentucky). The Bank is a member in good standing of
the Federal Home Loan Bank of Cincinnati (the "FHLB") and all eligible accounts
of deposit in the Bank are insured by the Savings Association Insurance Fund
("SAIF"), as administered by the Federal Deposit Insurance Corporation ("FDIC"),
to the fullest extent permitted by law. Bancorp is a duly registered Savings and
Loan Holding Company, and in good standing under the Home Owners' Loan Act.
4.02 AUTHORIZATION. Bancorp and the Bank have the full right, corporate
power and authority to enter into, execute, deliver and perform, subject to
approval by Bancorp's shareholders, its obligations under this Agreement. Except
for the adoption by the shareholders of Bancorp, the execution, delivery and
performance of this Agreement by Bancorp and the Bank has been duly authorized
and approved by all requisite corporate action. The Board of Directors of
Bancorp has unanimously approved this Agreement, the Plan of Merger and the
Option Agreement and such approval is sufficient to satisfy the director
approval thresholds set forth in Articles XIV and XV of Bancorp's Certificate of
Incorporation, thus causing the Merger to be permissible under Article XIV of
the Bancorp's Certificate of Incorporation and the required level of shareholder
approval under Article XV to be no more than the vote of the holders of a
majority of the issued and outstanding shares of Bancorp Common Stock. This
Agreement constitutes a valid and legally binding obligation of Bancorp and the
Bank. Neither Bancorp nor the Bank has a legal obligation, absolute or
contingent, to any
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other individual, firm, partnership, corporation or other business organization
("Person") (i) to sell any substantial part of its assets, or to sell any of its
assets, except in the ordinary course of business; (ii) to effect any merger,
consolidation or other reorganization; (iii) to enter into any agreement with
respect thereto or (iv) to take any other similar action inconsistent with the
transactions contemplated by this Agreement. Neither the execution, delivery, or
performance of this Agreement, nor the consummation of the transactions
contemplated hereby will: (a) violate, conflict with, or result in a breach of
any provision of the Charter or Certificate of Incorporation, as appropriate, or
the Bylaws of Bancorp or the Bank; or (b) (i) materially violate, conflict with,
or result in a material breach of any provision of, (ii) constitute a material
default (or an event which, with notice or lapse of time or both, would
constitute a material default) under, (iii) result in the termination of or
accelerate the performance required by, or (iv) result in the creation of any
lien, security interest, charge or encumbrance upon any of the material
properties or material assets of Bancorp or the Bank under any of the terms,
conditions or provisions of any material note, bond, mortgage, indenture, deed
of trust, lease, license, agreement or other instrument or obligation which
binds Bancorp or the Bank or any material assets of Bancorp or the Bank which
violation, conflict, breach, default, termination or acceleration of
performance, lien, security interest, charge or encumbrance would have a
material adverse effect on Bancorp and the Bank, taken as a whole; or (c)
subject to receipt of governmental approvals required to consummate the
transactions contemplated by this Agreement, violate any order, writ,
injunction, decree, statute, rule or regulation of any governmental body
applicable to Bancorp or the Bank or any assets of Bancorp or the Bank, the
violation of which is, either separately or in the aggregate, material to the
financial condition or properties of Bancorp or the Bank.
4.03 SUBSIDIARIES. Other than Bancorp's interest in the Bank and indirect
interest in Home Service Corporation, there is no Person in which Bancorp or the
Bank has an interest greater than or equal to five percent of the equity or
voting securities of any class of such entity. The Bank is a wholly owned
subsidiary of Bancorp.
4.04 CAPITAL STOCK. All of the statements concerning the capital stock of
Bancorp and the Bank set forth in Sections 1.02 and 1.03 are true. All of the
outstanding capital stock of Bancorp and the Bank has been validly issued, fully
paid and is nonassessable. None of the outstanding shares of Bancorp Common
Stock have been issued in violation of the preemptive rights of any person.
Bancorp owns, legally and beneficially, all issued and outstanding shares of
capital stock of the Bank; such stock is registered in the name of Bancorp, and
Bancorp has, and at the Effective Time shall have, good and marketable title to
such stock, free and clear of all pledges, liens, charges, encumbrances,
security interests, claims, undertakings, rights of first refusal, options or
other restrictions of any nature whatsoever. Other than the Stock Option Plan,
the Bank's Management Recognition Plan (the "Management Recognition Plan"), the
Option Agreement and this Agreement, there are no outstanding options, warrants,
contracts, or commitments to which Bancorp or the Bank are parties entitling any
Person to purchase or otherwise acquire from Bancorp or the Bank any shares of
Bancorp Common Stock or common capital stock of the Bank or any securities
convertible into or exchangeable for any of shares of Bancorp Common Stock or
common capital stock of the Bank. Except with respect to the Option Plan and the
Option Agreement, neither Bancorp nor the Bank has any obligation of any nature
whatsoever with respect to any unissued shares or shares which have been
acquired, redeemed or converted. All options subject to issuance under the Stock
Option Plan have been issued, and all Bancorp Common Stock allocable under the
Management Recognition Plan has been allocated. Neither Bancorp nor the Bank has
any outstanding contractual obligation to repurchase, redeem or otherwise
acquire any of their outstanding shares. A current, complete and accurate list
of the shareholders of Bancorp indicating the name, address (city and state
only) and number of shares held of record for each shareholder will be delivered
to PFC no later than October 22, 1993. Since September 30, 1992, neither Bancorp
nor the Bank has:
(a) directly or indirectly redeemed, purchased or otherwise acquired any
of its shares;
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(b) declared, set aside or paid any dividend or other distribution in
respect of any of its shares except for the dividend paid in January 1993
and the dividends contemplated in Section 6.16 of this Agreement; or
(c) issued or granted any right or option (other than this Agreement,
the Option Agreement, the Stock Option Plan and the Management Recognition
Plan to purchase or otherwise acquire any of their shares.
4.05 CORPORATE DOCUMENTS, BOOKS, RECORDS AND PERMITS. Bancorp has
delivered to PFC true and complete copies of its Certificate of Incorporation
and the Charter of the Bank (certified as of a recent date by the Delaware
Secretary of State or the OTS, as appropriate), and of its Bylaws and the Bylaws
of the Bank, as amended (certified as of the date hereof by the Secretary of
Bancorp and the Bank, as appropriate). All of the foregoing and all of the
corporate minutes and stock transfer records of the Bank are current, complete
and correct in all material respects. Each of Bancorp and the Bank possesses all
licenses, franchises, approvals, certificates, permits and other governmental
authorizations necessary for the continued conduct of its business without
material interference or interruption. Section 4.05 of the Disclosure Schedule
sets forth a list and summary description of each such material license,
franchise, approval, certificate, permit and authorization.
4.06 FINANCIAL STATEMENTS. Bancorp has delivered to PFC true and complete
copies of (i) the audited statement of financial condition and the related
statements of income, retained earnings and cash flows of the Bank for the year
ended September 30, 1990 (the "1990 Bank Financial Statements"); (ii) the
audited statement of financial condition and the related statements of income,
retained earnings and cash flows of Bancorp for the year ended September 30,
1991 (the "1991 Bancorp Financial Statements"); and (iii) the audited
consolidated balance sheet and the related consolidated statements of income,
stockholders' equity and cash flows of Bancorp for the year ended September 30,
1992 (the "1992 Bancorp Financial Statements"). The 1990 Bank Financial
Statements have been audited by Cornman, Bryan & Watts, PSC, certified public
accountants. The 1991 and 1992 Bancorp Financial Statements have been audited by
Whelan, Johnson, Doerr, Pike & Pawley, PSC, certified public accountants.
Bancorp has delivered, or for periods not yet complete as of the date of this
Agreement, shall deliver in accordance with Section 6.10, for the monthly and
quarterly periods ending during the period beginning on October 1, 1992, and
ending on the last day of the month next preceding the month in which the
Effective Time occurs, true and complete copies of the quarterly and monthly
unaudited balance sheets and related statements of income, stockholders' equity
and cash flows of Bancorp and the Bank (collectively, the "Bancorp Unaudited
Financial Statements"). In accordance with Section 6.10, Bancorp shall deliver
to PFC, as soon as they are available, true and complete copies of the audited
consolidated balance sheet and the related consolidated statements of income,
stockholders' equity and cash flows for the year ending September 30, 1993 (the
"1993 Bancorp Financial Statements"). The 1991, 1992, and 1993 Bancorp Financial
Statements, and the Bancorp Unaudited Financial Statements (collectively, the
"Bancorp and Bank Financial Statements") have been or, as the context requires,
shall have been prepared in conformity with generally accepted accounting
principles applied on a basis consistent with prior years. The Bancorp Financial
Statements present, or, as the context requires, shall present, fairly the
financial position of the Bank and Bancorp as of their respective dates and the
results of the operations of the Bank and Bancorp for the respective periods
covered thereby in conformity with generally accepted accounting principles
applied on a consistent basis; in compliance as to form in all material respects
with the applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act") and the applicable published rules and regulations of the
Securities and Exchange Commission (the "SEC") thereunder. All loans, discounts
and financing leases reflected on Bancorp Financial Statements have been, or, as
the context requires, shall have been (a) made for good, valuable and adequate
consideration in the ordinary course of business of the Bank, (b) evidenced by
notes or other evidences of indebtedness which are, to the best knowledge of the
Bank, true, genuine and what they purport to be, and (c) adequately reserved
against in an amount sufficient in the reasonable opinion of management to
provide for all losses reasonably anticipated in the ordinary course of business
as of the date
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thereof based on information available as of their respective dates under
generally accepted accounting principles. Neither Bancorp nor the Bank has or
will have, nor are any of their assets subject to, nor will any of their assets
be subject to, any liability, commitment, indebtedness or obligation (of any
kind whatsoever, whether absolute, accrued, contingent, matured or unmatured)
which (a) is material and not reflected and adequately reserved against in the
1992 Bancorp Financial Statements, or (b) has been or shall be incurred
subsequent to the date of the 1992 Bancorp Financial Statements other than those
incurred in the ordinary course of business and not in violation of any
provision of this Agreement.
4.07 REGULATORY REPORTS. Except to the extent prohibited by law, Bancorp
has delivered to PFC true and complete copies of all financial and/or condition
reports ("OTS Reports") of the Bank as filed with the OTS (a) for each year-end
since December 31, 1990, (b) for each calendar quarter since December 31, 1992,
and (c) reports, applications and other documents which either the Bank or
Bancorp has filed with the OTS, FDIC, FHLB, the Federal Home Loan Bank Board,
the Federal Savings and Loan Insurance Corporation, the Board of Governors of
the Federal Reserve System (the "Federal Reserve"), the SEC and/or the Kentucky
Department of Financial Institutions (the "KDFI") since December 31, 1990.
4.08 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in Section
4.08 of the Disclosure Schedule, since September 30, 1992, there have been no
events or conditions of any character (whether actual or threatened) pertaining
to the financial condition, businesses or assets of Bancorp or the Bank,
separately or in the aggregate, that have materially adversely affected, or can
reasonably be expected to affect materially and adversely, Bancorp and the
Bank's financial condition, businesses or assets taken as a whole, or to cause
either of their businesses taken as a whole to be carried on materially less
profitably than prior to this Agreement (other than events or conditions
generally applicable to thrift institutions and thrift institution holding
companies including changes in laws, accounting practices and economic
conditions). Except as set forth in Section 4.08 of the Disclosure Schedule,
since September 30, 1992, neither Bancorp nor the Bank has:
(a) borrowed any money, incurred any liability or obligation, or lent
any money or pledged any of its credit in connection with any aspect of any
of its business other than in the ordinary course of business;
(b) mortgaged or otherwise subjected to any liens, encumbrances or other
liabilities any of its assets or business, other than in the ordinary course
of business;
(c) sold, assigned or transferred any of its assets or business other
than in the ordinary course of business;
(d) suffered any damage, destruction or loss, whether or not covered by
insurance, materially adversely affecting the financial condition, business
or assets of Bancorp and the Bank taken as a whole;
(e) made or suffered any amendments, termination of or default under any
contract, agreement, license or other instrument which materially adversely
affects the financial condition, business or assets of Bancorp and the Bank
taken as a whole;
(f) received notice or had knowledge that any material labor trouble
exists among any of its employees or that any group, organization or union
has tried to organize any of its employees;
(g) received notice or had knowledge that any of its substantial credit
or deposit customers has terminated or intends to terminate its
relationship, which termination would have a materially adverse effect on
the earnings of Bancorp and the Bank taken as a whole;
(h) received any notice asserting or threatening to assert that either
is in material violation of any statute, law, regulation or order applicable
to the business or assets of either of them, which violation would have a
materially adverse effect on the financial condition of Bancorp and the Bank
taken as a whole, if true;
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(i) failed to operate its business in the ordinary course so as to
preserve the business organization intact, and to preserve the goodwill of
its customers and others with whom it has business relations;
(j) incurred any material extraordinary losses or, except in accordance
with customary banking or mortgage servicing practices, waived any material
rights in connection with any aspect of its business, whether or not in the
ordinary course of business;
(k) cancelled any material debts owed to either of them; or any material
claims, or paid any noncurrent, material obligations or liabilities;
(l) to the date hereof, except for capital expenditures for computer
equipment totalling no more than $70,000, made any capital expenditure or
capital additions or betterments, including any such expenditure, addition
or betterment effected through a capital lease, exceeding $25,000;
(m) to the date hereof, paid or agreed to pay, conditionally or
otherwise, any bonus, extra compensation, pension or severance pay to any of
its present or former (i) directors, (ii) officers, or (iii) employees who
are being compensated on an annual basis at a rate exceeding $20,000 per
year; or increased by an amount in excess of ten percent any of their
compensation (including salaries, fees, bonuses, profit sharing, incentive,
pension, retirement or other similar payments);
(n) to the date hereof, renewed, amended, become bound by or entered
into any agreement, contract, commitment or transaction other than in the
ordinary course of business;
(o) changed any accounting practice followed or employed in preparing
the Bancorp and Bank Financial Statements other than as required by
generally accepted accounting principles and noted in the Bancorp and Bank
Financial Statements;
(p) to the date hereof, made any loans, given any discounts or entered
into any financing leases which have not been (i) made for good, valuable
and adequate consideration in the ordinary course of business, (ii)
evidenced by notes or other forms of indebtedness which are true, genuine
and what they purport to be, and (iii) in the aggregate together with the
loan portfolio of Bancorp and the Bank, adequately reserved against, in
accordance with generally accepted accounting principles, in an aggregate
amount sufficient in the opinion of management to provide for all
charge-offs reasonably anticipated in the ordinary course of business; or
(q) entered into any agreement, contract or commitment applicable as of
the date hereof to do any of the foregoing.
4.09 TAXES. Bancorp and the Bank (i) have timely filed all federal, state,
foreign and local income, franchise, excise, sales, intangibles, real and
personal property, employment and other tax returns, tax information returns and
reports required to be filed; (ii) have paid, or made adequate provision in the
opinion of management for the payment of, all taxes, interest payments and
penalties (whether or not reflected in returns as filed) due and payable (and/or
accruable for all periods ending on or before the date of this Agreement) to any
city, county, state, foreign country, the United States or any other taxing
authority; and (iii) are not delinquent in the payment of any tax or
governmental charge of any nature. The federal income tax returns of Bancorp and
the Bank have been examined by and settled with the Internal Revenue Service, or
the statute of limitations with respect to such years has expired for all years
through September 30, 1989, and no audit, examination or investigation is
presently being conducted or, to Bancorp's or the Bank's knowledge, is
threatened by any taxing authority. No unpaid tax deficiencies or additional
liabilities of any sort have been proposed by any governmental representative
with respect to Bancorp or the Bank. No agreements for the extension of time for
the assessment of any amounts of tax have been entered into by or on behalf of
Bancorp or the Bank. Bancorp and the Bank have withheld (and timely paid to the
appropriate governmental entity) proper and accurate amounts from their
employees for all periods in material compliance with all tax withholding
provisions (including, without limitation, income, social security and
employment tax
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withholding for all forms of compensation) of applicable federal, state, foreign
and local laws. Bancorp and the Bank have delivered to PFC true and correct
copies of all federal and state income tax returns filed by any of them for all
tax periods commencing after September 30, 1990.
4.10 TITLE TO ASSETS. On September 30, 1992, Bancorp and the Bank had and,
except with respect to assets disposed of for adequate consideration in the
ordinary course of business since September 30, 1992, now have, good and
marketable title to all properties and assets reflected on the 1992 Bancorp
Financial Statements, free and clear of all mortgages, liens, pledges,
easements, restrictions, encroachments, governmental regulations, security
interests, charges or encumbrances of any nature, except as disclosed in the
1992 Bancorp Financial Statements and for:
(a) the mortgages and encumbrances which secure indebtedness which is
properly reflected on the Bancorp Financial Statements;
(b) liens for taxes accrued but not yet payable;
(c) liens arising as a matter of law in the ordinary course of business
as to which there is no known default; and
(d) such imperfections of title and encumbrances, if any, as do not
materially detract from the value or interfere with the present use or sale
of any of their properties and assets.
Section 4.10 of the Disclosure Schedule lists all leases, other than
"financing leases," of personal property to which Bancorp and/or the Bank is a
party. Bancorp has delivered to PFC true and correct copies of all leases
referred to in such Section 4.10, together with all amendments and modifications
thereof. With respect to each lease of personal property to which Bancorp and/or
the Bank is a party, except for leases in which either Bancorp or the Bank is
lessor entered into as a "financing lease,":
(a) such lease is in full force and effect in accordance with its terms;
(b) all rents and additional rents due to date have been paid;
(c) the lessee under each of the leases has been in peaceable possession
since the commencement of the original term of the lease; and
(d) no event of default, or event, occurrence, condition or act, which
with the giving of notice, the lapse of time or the happening of any further
event, occurrence, condition or act would become a material default under
such lease, exists.
With respect to any real property owned in fee by Bancorp or the Bank, which
real property is set forth on Schedule 4.10 to this Agreement, Bancorp and the
Bank further represent and warrant to PFC as follows:
(a) all work to be performed by Bancorp or the Bank with respect to all
improvements to the property owned by either of them has been fully
completed and paid for by them;
(b) all permits and certificates with respect to construction of
improvements on the property owned by Bancorp or the Bank have been obtained
and the property has been properly zoned for use and occupancy as a banking
or other business facility; and
(c) all improvements to the property have been made in accordance with
plans and specifications approved by Bancorp or the Bank, as appropriate,
copies of which will be delivered to PFC upon request.
4.11 ENVIRONMENTAL HAZARDS. Neither Bancorp nor the Bank has (i) used,
stored, manufactured, or suffered to exist (collectively, "Utilized") any
hazardous or toxic substance, material or constituent (collectively, a
"Hazardous Substance") within the meaning of any applicable federal, state or
local law or regulation pertaining to environmental or chemical hazards or
pollution (collectively, the "Environmental Laws"), including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., and any
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regulations promulgated thereunder, on, in or under any of its property, whether
currently or previously owned or leased, or (ii) transported or disposed or
caused or permitted any Person to transport or dispose, of any Hazardous
Substance other than in accordance with all Environmental Laws and other than at
the locations identified in Section 4.11 of the Disclosure Schedule. During the
period Bancorp or the Bank have owned or leased any of their properties, no
Hazardous Substances have been Utilized on, in or under any of Bancorp's or the
Bank's property. Neither Bancorp nor the Bank is subject to any asserted or, to
their knowledge, unasserted liabilities, nor are any of the properties of
Bancorp or the Bank, subject to any asserted or, to their knowledge, unasserted
lien, under any of the Environmental Laws. Neither Bancorp nor the Bank has ever
violated any of the Environmental Laws, and each of them is presently in full
compliance with all Environmental Laws. Without limiting the generality of the
foregoing, no asbestos, PCBs or other Hazardous Substance or any petroleum
product or constituents thereof is present on, in or under any of the property
of Bancorp or the Bank. Neither Bancorp nor the Bank has permitted any property
currently or previously owned or leased by either of them to be used as a
landfill or dump site. There are no underground storage tanks or underground
pipelines containing or storing Hazardous Substances or petroleum products
located on any property owned or leased by Bancorp or the Bank.
4.12 LITIGATION, PENDING PROCEEDINGS AND COMPLIANCE WITH LAWS. For
purposes of this Agreement, "Claims" shall mean all material claims of any kind
or actions, suits, proceedings, arbitrations or investigations asserted by or
against either Bancorp or the Bank, whether actual or threatened, against or
affecting Bancorp Common Stock, the common capital stock of the Bank or Bank's
business, prospects, conditions (financial or otherwise) or assets or against
any officer, director or employee of the Bank (where such Claims against any
officer, director or employee of Bancorp or the Bank arise or might arise in
connection with actions taken or omitted or alleged to have been taken or
omitted by such officer, director or employee in his or her capacity as an
officer, director or employee). Section 4.12 of the Disclosure Schedule sets
forth all Claims, including a summary of the basis and background of all Claims.
There are no Claims (a) which would prevent the performance of this Agreement or
any of the transactions contemplated hereby or declare the same unlawful or
cause the rescission thereof, (b) which would prevent the transfer of good and
marketable title of Bancorp Common Stock free and clear of all encumbrances, or
(c) which would materially and adversely affect or impair the business or
condition, financial or otherwise, or the earnings of Bancorp and the Bank taken
as a whole. Bancorp and the Bank have complied with and are not in any default
in any material respect under (and have not been charged with, nor are
threatened with or under investigation with respect to, any charge concerning
any material violation of any provision of) any material federal, state or local
law, regulation, ordinance, rule or order (whether executive, judicial,
legislative or administrative) or any order, writ, injunction or decree of any
court, agency or instrumentality. There are no material uncured violations or
violations with respect to which material refunds or restitution may be required
cited in any report concerning Bancorp or the Bank as a result of examination by
any regulatory authority.
4.13 REGULATORY COMPLIANCE. Neither Bancorp nor the Bank has ever been a
party to (a) any enforcement action instituted by, or (b) any memorandum of
understanding or cease and desist order with, any federal or state regulatory
agency, and no such action, memorandum or order has been threatened, and neither
Bancorp nor the Bank has received any report of examination from any federal or
state regulatory agency which requires that Bancorp or the Bank address any
material problem or take any material action which has not already been
addressed or taken in a manner satisfactory to the regulatory agency.
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4.14 EMPLOYEE RELATIONS. Neither Bancorp nor the Bank has ever entered
into any collective bargaining contract or agreement with any labor union or
other collective bargaining group. There are no pending or threatened charges of
any Unfair Labor Practice (as that term is defined in the National Labor
Relations Act, as amended) with respect to Bancorp or the Bank, and neither
Bancorp nor the Bank has been contacted by any union or other representative of
any of their employees. No group, organization or union has tried to organize
any of the employees of Bancorp or the Bank. During the last five years, labor
relations with the employees of Bancorp and the Bank have been satisfactory.
There have been no strikes, work stoppages or job actions. Bancorp and the Bank
are in compliance with all federal and state laws governing employment and
employment practices, terms and conditions of employment and wages and hours.
4.15 EMPLOYEE BENEFIT PLANS.
(a) Section 4.15 of the Disclosure Schedule sets forth a true and complete
list of all employee benefit plans, policies (whether oral or written), or
arrangements of each of Bancorp and the Bank applicable to their employees or
former employees, including, without limitation, wage continuation and bonus,
pension, profit sharing or thrift plans, life, medical hospitalization,
disability, or other insurance programs, and severance, vacation and sick leave
policies. The only employee pension benefit plans (for purposes of this section
4.15 only, the "Plans") maintained with respect to the employees of Bancorp and
the Bank are the Financial Institutions Retirement Fund (the "Pension Plan"),
the Financial Institutions Thrift Plan (the "Thrift Plan"), and the First
Kentucky Federal Savings Employee Stock Ownership Plan (the "ESOP"). All Plans
are qualified under IRC Section401(a), and the related trusts are exempt from
tax under IRC Section501 and the ESOP qualifies as such under IRC Section4975.
No fact exists which would adversely affect the qualified status of the Plans.
(b) True and complete copies of all employee benefit plans, related trust
agreements, any filings with or communications to or from the IRS, the United
States Department of Labor or the Pension Benefit Guaranty Corporation with
respect to such plans or trust agreements over the last three plan years have
been delivered to PFC by Bancorp. With respect to the ESOP, PFC has also been
delivered copies of: (1) the independent appraisal report determining the value
of Bancorp Common Stock purchased by the ESOP, dated as of the date such stock
was purchased, and any subsequently issued reports; (2) all loan documents
related to the debt incurred by the ESOP and a record of all payments of
principal and interest paid on such loan and the amount of Bancorp Common Stock
released from pledge due to such payments; and (3) allocation reports showing
the participants to whom released Bancorp Common Stock was allocated. With
respect to the Pension Plan, PFC has been delivered copies of the last three
years' actuarial reports. With respect to the Thrift Plan, Bancorp has delivered
to PFC copies of the last three years' allocation and 401(k) testing reports.
(c) All other salary and fringe benefit programs of Bancorp and the Bank,
whether or not coming within the definition of an employee benefit plan under
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), are
also set forth on Schedule 4.15, including, but not limited to, stock-based
compensation programs, incentive bonus programs, annual salary and bonus
policies, car allowances and other fringe benefits and perquisites given to
officers, directors and employees.
(d) Neither Bancorp nor the Bank has, with respect to the Plans, nor to the
best of their knowledge has any administrator of the Plans or of the related
trusts or the trustees thereof, engaged in a prohibited transaction which would
subject Bancorp or the Bank, the Plans or any administrator, trustee or party
dealing with the Plans or the related trusts, to a material tax or penalty on
prohibited transactions imposed by ERISA or IRC Section 4975.
(e) No employee pension benefit plan maintained for the employees of
Bancorp and/or the Bank or any of the related trusts thereto have been
terminated. The Pension Plan does not have an accumulated funding deficiency (as
defined in Section 302 of ERISA and IRC Section412), whether or not waived. No
material liability to the Pension Benefit Guaranty Corporation has been, or is
expected by Bancorp to be, incurred with respect to the Pension Plan, and there
has been no reportable event (as described in Section 4043(b) of ERISA) and no
event or condition has occurred which presents a
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material risk of termination of the Pension Plan by the Pension Benefit Guaranty
Corporation. The value of all non-forfeitable benefits under the Pension Plan
does not exceed the current value of assets of the Pension Plan allocable to
such non-forfeitable benefits. The present value of all accrued benefits,
whether non-forfeitable or not, under the Pension Plan (as a plan subject to
Title IV of ERISA) do not exceed the value of the assets of the Pension Plan
allocable to such accrued benefits.
(f) Bancorp and the Bank have fully complied with the notice and
continuation coverage requirements of Sections 601 through 608 of ERISA, Section
4980B of the IRC, and the proposed regulations thereunder.
(g) Neither the Plans nor the related trusts are multiemployer plans, as
defined in Section 4001(a)(3) of ERISA, and neither Bancorp, the Bank nor any
member of Bancorp's controlled group is now, nor has ever been a party to, or
subject to, any collective bargaining agreement pursuant to which either
Bancorp, the Bank or a member of Bancorp's controlled group is or will become
obligated to contribute to a multiemployer plan.
(h) All reports, statements, returns and other information required to be
furnished or filed with respect to any of the employee benefit plans relating to
the employees of either of the Bancorp or the Bank have been furnished or filed,
or both, in accordance with Sections 101 through 105 of ERISA, and Sections 6057
through 6059 of the IRC, and they are true, correct and complete in all material
respects. Records with respect to all employee benefit plans applicable to any
of Bancorp's or the Bank's employees have been maintained in material compliance
with Section 107 of ERISA. Neither Bancorp, the Bank nor, to the best of their
knowledge, any other fiduciary (as defined in Section 3 of ERISA) with respect
to any of the employee benefit plans of Bancorp or the Bank applicable to any
employees of either of them has any material liability for any breach of any
fiduciary duties under Sections 404, 405, 406 or 409 of ERISA. Each of the
employee benefit plans of Bancorp or the Bank applicable to the employees of
either of them has, since adoption, been executed, managed and administered in
material compliance with the applicable provisions of ERISA, the IRC and all
other applicable laws. There are no threatened or pending claims against the
employee benefit plans of Bancorp or the Bank applicable to the employees of
either of them or, to the best of their knowledge, their fiduciaries, by any
participant, beneficiary or government agency.
(i) Bancorp's and the Bank's aggregate contribution and recorded expense in
respect of the fiscal year ended September 30, 1992, under the Plans is
accurately reflected on the 1992 Bancorp Financial Statements. No contribution
to the Pension Plan will be required to meet the minimum funding standards for
the fiscal year ending September 30, 1993 and none is expected to be required
for the fiscal year ending September 30, 1994.
(j) As used in this Agreement, the terms "employee benefit plans" and
"employee pension benefit plans" shall have the respective meanings assigned to
such terms in Section 3 of ERISA.
(k) Except as set forth on Section 4.15 of the Disclosure Schedule, neither
Bancorp or the Bank has provided nor currently provides any retiree welfare
benefits to its employees other than benefits under the Consolidated Omnibus
Budget Reconciliation Act of 1985.
(l) Neither Bancorp nor the Bank is now liable, nor has either Bancorp or
the Bank potential liability under Sections 4063 or 4064 of ERISA; nor can
Bancorp or the Bank, whether by reason of the transaction contemplated by this
Agreement or otherwise, be treated as a withdrawing substantial employer under a
plan to which more than one employer makes contributions by application of
Section 4062(f) of ERISA. Neither Bancorp nor the Bank is now, nor will either
Bancorp or the Bank on the Closing Date be, by virtue of any action heretofore
taken or to be taken prior to the Closing Date, subject to a requirement to
provide security under Section 401(a)(29) of the Code, nor shall any asset of
Bancorp or the Bank be subject to any lien by reason of the provisions of
Section 412(n) of the Code.
(m) None of the employee benefit plans other than employee pension benefit
plans are self-funded or to any extent self-insured by Bancorp or the Bank.
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(n) The actuarial present value of all accrued deferred compensation
entitlements of employees and former employees of Bancorp and the Bank (and
their respective beneficiaries) other than entitlements accrued pursuant to
funded retirement plans subject to the provisions of IRC Section 412 are fully
reflected on the Bancorp and Bank Financial Statements.
4.16 INSURANCE POLICIES. Bancorp and the Bank maintain insurance policies
and bonds in force in such amounts and against such liabilities and hazards as
customarily are maintained by similar businesses of comparable size. Neither
Bancorp nor the Bank is liable for any material, retroactive premium
adjustments. All policies are valid, enforceable and in full force and effect,
and neither Bancorp nor the Bank has received any notice of premium increases or
cancellations. Neither Bancorp nor the Bank knows of any grounds for or any
consideration of any such premium increase or cancellation notice or other
indication of premium increases or cancellations, with respect to any of their
insurance policies or bonds. All notices of cancellation received by either
Bancorp or the Bank and all claims made by Bancorp or the Bank under their
respective insurance policies and bonds since December 31, 1990, or made prior
thereto but remaining unresolved, are described on Section 4.16 of the
Disclosure Schedule. Since December 31, 1990, neither Bancorp nor the Bank has
failed to make a timely claim or file a timely notice with respect to any matter
giving rise to a material claim or potential material claim under their
insurance policies and bonds.
4.17 AGREEMENTS. Except as set forth in Section 4.17 of the Disclosure
Schedule, as of the date of this Agreement, neither Bancorp nor the Bank is a
party to:
(a) any collective bargaining agreement; any employment agreement,
contract, or commitment; or any bonus plan or commission;
(b) any loan or other agreement pursuant to which Bancorp or the Bank
has borrowed money or any obligation of guaranty or indemnification arising
from any agreement, contract or commitment which involves, singularly or in
the aggregate, a potential material liability, except letters of credit
entered into in the ordinary course of business;
(c) any agreement, contract or commitment which is either outside of the
ordinary course of business or which is or may be materially adverse to the
business, financial condition or earnings of Bancorp and the Bank taken as a
whole;
(d) any agreement, contract or commitment containing any covenant
materially limiting the freedom of either Bancorp or the Bank to engage in
any line of business in any geographic area or to compete with any Person;
(e) any agreement, contract, or commitment relating to capital
expenditures and involving future payments which, together with future
payments under all other agreements, contracts or commitments relating to
the same capital project, exceed $25,000;
(f) any agreement, contract or commitment relating to the acquisition of
substantially all of the assets, shares or capital stock of any business
enterprise, except agreements, contracts or commitments in which assets,
shares or capital stock are security for a loan or similar obligation
created in the ordinary course of business;
(g) any agreement, contract or commitment (other than for 1 to 4 family
residential loans made in the ordinary course of business), which involves
payments, consideration or obligations in the aggregate of $5,000 or more
per agreement, contract or commitment, which (i) will not be performed
within 30 days or less, or (ii) cannot be terminated within 30 days or less
without payment of a penalty of more than $1,000.
Neither Bancorp nor the Bank has breached, nor is there any pending or
threatened claim that either Bancorp or the Bank has materially breached any
of the terms or conditions of (a) any agreement, contract or commitment set
forth in any of the Schedules delivered to PFC pursuant to this Agreement or
(b) any other agreement, contract or commitment, the breach of which
singularly or in the aggregate could result in the imposition of damages in
a material amount.
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4.18 ACCOUNTING MATTERS. Neither Bancorp nor the Bank has through the date
hereof taken or agreed to take any action that would prevent PFC from accounting
for the transaction to be effected by the Merger as a "pooling of interests."
4.19 BROKERS' OR FINDERS' FEES. No agent, broker or other Person acting on
behalf of Bancorp or the Bank or under either of their authority is or shall be
entitled to any commission, broker's or finder's fee from Bancorp or the Bank in
connection with any of the transactions contemplated by this Agreement. No
agent, broker or other Person acting on behalf of Bancorp or the Bank or under
either of their authority is or shall be entitled to any commission, broker's or
finder's fee from PFC in connection with any of the transactions contemplated by
this Agreement.
4.20 POTENTIAL COMPETING INTERESTS. None of the greater than 5%
shareholders of Bancorp, nor any director, officer or employee of either Bancorp
or the Bank, nor any member of any such person's family, have any direct or
indirect (5% or more) interest in any Person which competes or conflicts with,
or is engaged in any business of the kind being conducted by, either Bancorp or
the Bank or which does business or engages in commerce with, or provides goods
or services to, either the Bank or the Subsidiary. Neither Bancorp nor the Bank
uses any real or personal property in which any greater than 5% shareholder of
Bancorp or any director, officer or employee of either Bancorp or the Bank, or
any member of any such person's family, have a direct or indirect (5% or more)
interest.
4.21 ACCURACY OF STATEMENTS.
(a) Neither this Agreement, the Disclosure Schedule, nor any annex,
schedule or document delivered as or in connection with an annex or schedule
furnished or to be furnished by Bancorp or the Bank to PFC in connection with
this Agreement or any of the transactions contemplated hereby contains or shall
contain an untrue statement of a material fact or omits or shall omit to state a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading.
(b) None of the information supplied by Bancorp or the Bank for inclusion
in (i) the registration statement on Form S-4 to be filed with the SEC by PFC in
connection with the issuance of shares of PFC Common Stock in the Merger (the
"S-4") will, at the time the S-4 is filed with the SEC and at the time it
becomes effective under the Securities Act of 1933, as amended (the "Securities
Act"), contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Proxy Statement will, at the date of
mailing to stockholders of Bancorp and at the time of the meeting of the
stockholders of Bancorp to be held in connection with the Merger, contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. The Proxy Statement (except for such
portions thereof that relate only to PFC) will comply as to form in all material
respects with the provisions of the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder (the "Exchange Act").
SECTION 5
REPRESENTATIONS AND WARRANTIES OF PFC
Except as set forth in the PFC Disclosure Schedule previously delivered by
PFC to Bancorp, PFC represents and warrants to Bancorp as follows:
5.01 ORGANIZATION AND QUALIFICATION. PFC and Subsidiary are Kentucky
corporations duly organized and validly existing under the laws of the
Commonwealth of Kentucky, have paid all fees due and owing to the Office of the
Kentucky Secretary of State, have delivered to that office their most recent
annual report as required by the Kentucky Business Corporation Act, and have not
filed articles of dissolution with the Office of the Kentucky Secretary of
State. PFC and the Subsidiary have
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all requisite corporate power and authority to own and lease their property and
to carry on their businesses as they are now being conducted. PFC is duly
registered as a bank holding company under the Bank Holding Company Act of 1956,
as amended.
5.02 AUTHORIZATION. PFC and the Subsidiary have the full right, corporate
power and authority to enter into, execute, deliver and perform their
obligations under this Agreement. The execution, delivery and performance of
this Agreement by PFC and the Subsidiary have been duly authorized and approved
by all requisite corporate action, and, except for approval by PFC as
Subsidiary's sole shareholder, no other corporate acts or proceedings on the
part of PFC or Subsidiary are necessary to authorize this Agreement or the
transactions contemplated hereby. This Agreement constitutes the valid and
legally binding obligation of PFC and the Subsidiary. Neither the execution,
delivery, or performance of this Agreement, nor the consummation of the
transactions contemplated hereby will: (a) violate, conflict with, or result in
a breach of any provision of the Articles of Incorporation or the Bylaws of
either PFC or Subsidiary; (b)(i) materially violate, conflict with, or result in
a breach of any provision of, (ii) constitute a material default (or an event
which, with notice or lapse of time or both, would constitute a material
default) under, (iii) result in the termination of or accelerate the performance
required by, or (iv) result in the creation of any lien, security interest,
charge or encumbrance upon any of the material properties or material assets of
PFC or the Subsidiary under any of the terms, conditions or provisions of any
material note, bond, mortgage, indenture, deed of trust, lease, license,
agreement or other instrument or obligation which binds PFC or the Subsidiary or
any material assets of PFC or the Subsidiary, which violation, conflict, breach,
default, termination or acceleration of performance, lien, security interest,
charge or encumbrance would have a material adverse effect on PFC and its
subsidiaries, taken as a whole; or (c) subject to the receipt of governmental
approvals required to consummate the transactions contemplated by this
Agreement, violate any order, writ, injunction, decree, statute, rule or
regulation of any governmental body applicable to PFC or Subsidiary. PFC is not
aware of any reason why all consents and approvals shall not be procured from
regulatory agencies having jurisdiction over the transactions contemplated by
this Agreement as shall be necessary for consummation of the transactions
contemplated by this Agreement.
5.03 SUBSIDIARIES. PFC owns legally and beneficially, all issued and
outstanding shares of The Peoples First National Bank and Trust Company of
Paducah, Bank of Murray, Salem Bank, Inc., First National Bank of LaCenter and
First Liberty Bank of Calvert City (the "Bank Subsidiaries"); such stock is
registered in the name of PFC, and, except as provided on the PFC Disclosure
Schedule, PFC has good and marketable title to such stock, free and clear of all
pledges, liens, charges, encumbrances, security interests, claims, undertakings,
rights of first refusal, options or other restrictions of any nature whatsoever.
All eligible deposit accounts in the Bank Subsidiaries are insured by the Bank
Insurance Fund ("BIF") administered by the FDIC to the fullest extent permitted
by law.
5.04 FINANCIAL STATEMENTS. PFC has delivered to Bancorp true and complete
copies of (i) the audited consolidated balance sheet, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows of PFC for the year ended December 31, 1990 (the "1990 PFC Financial
Statements"), (ii) the audited consolidated balance sheet, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows of PFC for the year ended December 31, 1991 (the "1991 PFC Financial
Statements"), (iii) the audited consolidated balance sheet and the related
consolidated statements of income, changes in stockholders equity and cash flows
for PFC for the year ended December 31, 1992 (the "1992 PFC Financial
Statements"), all of which have been audited by KPMG Peat Marwick, certified
public accountants. PFC shall deliver to Bancorp, in accordance with Section
6.11, true and complete copies of the unaudited consolidated balance sheets and
the related statements of income and changes in stockholders' equity of PFC for
the quarterly periods beginning on March 31, 1993 and ending on the last day of
the quarter next preceding the quarter in which the Closing occurs (the
"Unaudited PFC Financial Statements") and the monthly financial statements of
PFC prepared in the usual course of PFC's business for the months beginning
August 31, 1993 and ending on the last day of the month next preceding the month
in which the Closing occurs (the "PFC Monthly Financial Statements"). In
accordance with Section
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6.11, PFC shall deliver to Bancorp, as soon as they are available, the audited
consolidated balance sheet and the related consolidated statements of income,
changes in stockholders' equity and cash flows of PFC for the year ending
December 31, 1993 (the "1993 PFC Financial Statements"). The 1990, 1991 and 1992
PFC Financial Statements and the PFC Unaudited Financial Statements dated as of
March 31, 1993 and June 30, 1993 (the "PFC Financial Statements") have been, and
the 1993 PFC Financial Statements will be, prepared in conformity with generally
accepted accounting principles applied on a basis consistent with prior periods,
and present or, as the context requires, shall present, fairly the financial
position of PFC as of their respective dates and the results of PFC's operations
for the respective periods covered thereby in conformity with generally accepted
accounting principles applied on a consistent basis, excluding normal year end
adjustments, if any, and comply as to form in all material respects with the
applicable requirements of the Securities Act and the applicable published rules
and regulations of the SEC thereunder.
5.05 PFC COMMON STOCK. All of the statements concerning the PFC Common
Stock set forth in Section 1.04 of this Agreement are true. All of the
outstanding shares of PFC Common Stock have been validly issued, fully paid and
are nonassessable. None of the outstanding shares of PFC Common Stock have been
issued in violation of the preemptive rights of any person. Neither PFC nor the
Bank Subsidiaries has any outstanding contractual obligation to repurchase,
redeem or otherwise acquire any of their outstanding shares. All shares of PFC
Common Stock to be issued in the Merger shall, when issued, be (a) validly
issued, fully paid and nonassessable and will have the same rights as each share
of PFC Common Stock currently outstanding; (b) issued pursuant to an effective
registration statement (the "Registration Statement") filed under the Securities
Act; and (c) authorized for listing on the NASDAQ National Market System.
5.06 CORPORATE DOCUMENTS, BOOKS, RECORDS AND PERMITS. PFC has delivered to
Bancorp true and complete copies of the Articles of Incorporation (certified as
of a recent date by the Kentucky Secretary of State) and Bylaws (certified as of
a recent date by a corporate secretary) of PFC and Subsidiary, and PFC shall
deliver pursuant to Section 6.11 true and complete copies of any Articles of
Incorporation or bylaw amendments so certified. All of the foregoing and all of
the corporate minutes and records of PFC and the Bank Subsidiaries are current,
complete and correct in all material respects. PFC and the Bank Subsidiaries
possess all licenses, franchises, approvals, certificates, permits and other
governmental authorizations necessary for continued conduct of their business
without material interference or interruption.
5.07 REGULATORY REPORTS. PFC has delivered to Bancorp true and complete
copies of all reports which PFC has made to or filed with the SEC and with the
Federal Reserve since December 31, 1991. PFC has been subject to the
requirements of Section 12 of the Exchange Act and has filed all material
required to be filed pursuant to Section 13, 14 or 15(d) thereof for a period of
at least 36 calendar months and has filed in a timely manner all reports
required to be filed during the last 12 calendar and any portion of the calendar
month preceding the date of this Agreement. As of their respective filing dates,
PFC's Annual Reports on form 10-K for the fiscal years ended December 31, 1991
and 1992 and its quarterly reports on Form 10-Q for the quarters ended March 31
and June 30, 1992 and its proxy statement dated March 15, 1993, filed with the
SEC pursuant to the Exchange Act (such filings being collectively referred to
herein as the "PFC Filings") complied in all material respects with the
regulations of the SEC, and none of the PFC Filings as of their respective
dates, taken as a whole, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein not misleading.
5.08 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1992, there
have been no events or conditions of any character (whether actual, threatened,
or contemplated) pertaining to the financial condition, business or assets of
PFC, taken as a whole, that have materially adversely affected, or can
reasonably be expected to affect materially and adversely, the financial
condition, business or assets of PFC.
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5.09 REGULATORY COMPLIANCE. None of PFC or its Bank Subsidiaries are
currently or have, since 1990, been a party to any enforcement action instituted
by, or any memorandum of understanding, formal agreement, or cease and desist
order with, any federal or state regulatory agency, and no such action,
memorandum, agreement or order has been threatened against PFC or any of its
Subsidiaries. None of its Subsidiaries have received any report of examination
from any federal or state regulatory agency which requires PFC or any Subsidiary
to address any significant problem or take any significant action which has not
already been addressed or taken in a manner satisfactory to the regulatory
agency.
5.10 ENVIRONMENTAL MATTERS. Neither PFC nor the Bank Subsidiaries have (i)
used, stored, manufactured, or suffered to exist (collectively, "Utilized") any
hazardous or toxic substance, material or constituent (collectively, a
"Hazardous Substance") within the meaning of any applicable federal, state or
local law or regulation pertaining to environmental or chemical hazards or
pollution (collectively, the "Environmental Laws"), including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended, 42 U.S.C. Section9601 et seq., and any regulations
promulgated thereunder on, in or under any of its property, whether currently or
previously owned or leased, or (ii) transported or disposed or caused or
permitted any Person to transport or dispose, of any Hazardous Substance other
than in accordance with all Environmental Laws. During the period PFC or the
Bank Subsidiaries have owned or leased any of their properties, no Hazardous
Substances have been Utilized on, in or under any of PFC's or the Bank
Subsidiaries property. Neither PFC nor the Bank Subsidiaries are subject to any
asserted or, to their knowledge, unasserted liabilities, nor are any of their
properties subject to any asserted or, to their knowledge, unasserted lien,
under any of the Environmental Laws. Neither PFC nor the Bank Subsidiaries have
ever violated any of the Environmental Laws, and each of them is presently in
full compliance with all Environmental Laws. Without limiting the generality of
the foregoing, no asbestos, PCBs or other Hazardous Substance or any petroleum
product or constituents thereof is present on, in or under any of the property
of PFC or the Bank Subsidiaries. Neither PFC nor the Bank Subsidiaries have
permitted any property currently or previously owned or leased by either of them
to be used as a landfill or dump site. There are no underground storage tanks or
underground pipelines containing or storing Hazardous Substances or petroleum
products located on any property owned or leased by PFC or the Bank
Subsidiaries.
5.11 LITIGATION, PENDING PROCEEDINGS AND COMPLIANCE WITH LAWS. There are
no material claims of any kind or actions, suits, proceedings, arbitration or
investigations asserted by or against either PFC or the Bank Subsidiaries,
whether actual or threatened, against or affecting PFC Common Stock, the common
capital stock of the Bank Subsidiaries or PFC or the Bank Subsidiaries'
businesses, prospects, conditions (financial or otherwise) or assets or against
any officer, director or employee of PFC or any of the Bank Subsidiaries (where
such claims against any officer, director or employee of PFC or the Bank
Subsidiaries arise or might arise in connection with actions taken or omitted or
alleged to have been taken or omitted by such officer, director or employee in
his or her capacity as an officer, director or employee) (a) which would prevent
the performance of this Agreement or any of the transactions contemplated hereby
or declare the same unlawful or cause the rescission thereof, (b) which would
prevent the transfer of good and marketable title of the PFC Common Stock to be
issued in the Merger free and clear of all encumbrances, or (c) which would
materially and adversely affect or impair the business or condition, financial
or otherwise, or the earnings of PFC and the Bank Subsidiaries taken as a whole.
PFC and the Bank Subsidiaries have complied with and are not in any default in
any material respect under (and have not been charged with, nor are threatened
with or under investigation with respect to, any charge concerning any material
violation of any provision of) any material federal, state or local law,
regulation, ordinance, rule or order (whether executive, judicial, legislative
or administrative) or any order, writ, injunction or decree of any court, agency
or instrumentality. There are no material uncured violations or violations with
respect to which material refunds or restitution may be required cited in any
report concerning PFC or the Bank Subsidiaries as a result of examination by any
regulatory authority.
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5.12 BROKERS' OR FINDERS' FEES. No agent, broker or other Person acting on
behalf of PFC or under its authority is or shall be entitled to any commission,
broker's or finder's fee from Bancorp or the Bank in connection with any of the
transactions contemplated by this Agreement.
5.13 ACCURACY OF STATEMENTS.
(a) Neither this Agreement, the Disclosure Schedule, nor any annex,
schedule or document delivered as or in connection with an annex or schedule
furnished or to be furnished by PFC or Subsidiary to Bancorp in connection with
this Agreement or any of the transactions contemplated hereby contains or shall
contain an untrue statement of a material fact or omits or shall omit to state a
material fact necessary to make the statements contained herein or therein, in
light of the circumstances in which they are made, not misleading.
(b) None of the information supplied by PFC or the Subsidiary for inclusion
or incorporation by reference in (i) the S-4 will, at the time the S-4 is filed
with the SEC and at the time it becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and (ii) the Proxy Statement will, at the date of mailing to
stockholders of Bancorp and at the time of the meeting of the stockholders of
Bancorp to be held in connection with the Merger, contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The S-4 (except for such portions thereof that relate only
to Bancorp and the Bank) will comply as to form in all material respects with
the provisions of the Exchange Act and the rules and regulations thereunder.
SECTION 6
COVENANTS AND CONDUCT OF THE PARTIES
Each of the parties to this Agreement shall comply with their respective
covenants in this Section 6 from the date hereof through the Closing Date:
6.01 INVESTIGATIONS. Each of PFC and Bancorp and the Bank shall give the
other and their employees, accountants, attorneys and other authorized
representatives full access during all reasonable times to all their premises,
properties, books and records (including without limitation, all corporate
minutes and stock transfer records), and furnish each other with such financial
and operating data, analyses and other information of any kind respecting their
business and properties as PFC or Bancorp shall from time to time request. Any
investigation shall be conducted in a manner which does not unreasonably
interfere with the operation of their business. In the event of termination of
this Agreement, Bancorp and PFC shall, upon request, each return to the other
all documents, work papers and other material (and all copies thereof) obtained
from the other and its subsidiaries in connection with the transaction
contemplated hereby. Each shall use its best efforts to cause its employees,
accountants, attorneys and other authorized representatives, to hold in strict
confidence all data and information obtained by it from the other (unless such
data or information is or becomes readily ascertainable from public or published
information or trade sources); and each shall not, and each shall use its best
efforts to ensure that such employees, accountants, attorneys and other
authorized representatives do not, disclose such information to others;
provided, that PFC may file or otherwise submit such data and information to any
regulatory authority in connection with obtaining regulatory approval to
facilitate or consummate the transactions contemplated by this Agreement without
any liability to Bancorp or the Bank from PFC or Subsidiary. PFC (i) shall hold
in strict confidence the information concerning Bancorp shareholders delivered
by Bancorp pursuant to Section 4.04 of this Agreement, (ii) shall not use such
information for any purpose other than in connection with the transactions
contemplated by this Agreement and in no event, without the express written
consent of Bancorp, to communicate with Bancorp shareholders, (iii) shall make
no copies of such information, and (iv), if this Agreement is terminated, shall
return such information to
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Bancorp within two business days of such termination. PFC, through its internal
audit department, and/or designated certified public accountants, may perform a
preacquisition audit or audits of Bancorp and the Bank.
6.02 SHAREHOLDER AND DIRECTOR APPROVALS.
(a) The Board of Directors of Bancorp has unanimously approved and
determined advisable and shall submit to Bancorp's shareholder(s) for adoption
this Agreement and the Plan of Merger at a meeting of shareholders duly called
for those purposes by Bancorp's Board of Directors. The meeting of shareholders
of Bancorp shall take place on a date at least twenty-one business days
following the mailing of a notice of such meeting accompanied by a definitive
prospectus-proxy statement as contained in the Registration Statement. The
notice and prospectus-proxy statement distributed in connection with the
shareholder approval and adoption of this Agreement and the Plan of Merger shall
comply with Bancorp's Certificate of Incorporation and Bylaws and with all
applicable corporate and securities laws. Unless inconsistent with its fiduciary
responsibilities, and subject to receipt of an opinion from Capital Resources,
Inc. dated on or immediately prior to the date of mailing of such notice and
prospectus-proxy statement and not subsequently withdrawn prior to the date of
such meeting to the effect that the terms of the Merger are fair to the
shareholders of Bancorp from a financial point of view, the Board of Directors
of Bancorp shall recommend to the shareholders of Bancorp that all such
shareholders vote for approval and adoption of this Agreement and the Plan of
Merger, and each Bancorp Director shall use his best efforts to obtain such
shareholder approval.
(b) The Board of Directors of Subsidiary has unanimously approved this
Agreement and Plan of Merger. On or before the Closing Date, PFC, as sole
shareholder of Subsidiary, shall adopt and approve this Agreement and the Plan
of Merger. Bancorp shall conduct such meeting as soon as reasonably practicable.
6.03 CONSENTS. Bancorp and PFC shall each use its best efforts to procure
upon reasonable terms and conditions all consents and approvals, completion of
all filings, all registrations and certificates, and satisfaction of all other
requirements prescribed by law which are necessary for the consummation of the
Merger.
6.04 CONDUCT OF BUSINESS IN THE ORDINARY COURSE. Bancorp and the Bank
shall conduct their business only in the ordinary course. By way of
amplification and not limitation, except as otherwise provided herein, neither
the Bank nor Bancorp shall without the prior written consent of PFC, which
consent shall not be unreasonably withheld:
(a) except in accordance with the Stock Option Plan or Management
Recognition Plan, issue or cause to be issued any shares of capital stock or
any options, warrants, or other rights to subscribe for or purchase any
shares of capital stock or any securities convertible into or exchangeable
for shares of capital stock of Bancorp or the Bank;
(b) except to the extent permitted by Section 6.16, declare, set aside,
or pay any dividend or distribution (whether in cash, shares or otherwise)
with respect to the shares of capital stock of Bancorp or the Bank;
(c) except for dividends permitted by paragraph (b) and Section 6.16,
directors' fees at their current level or pursuant to the requirements of
existing employment agreements, make any payment to any of the shareholders
of the Bank or to any of Bancorp's or the Bank's officers or directors,
whether pursuant to a management agreement, consolidated tax return
agreement, lease or otherwise;
(d) directly or indirectly redeem, purchase, or otherwise acquire any
shares or capital stock;
(e) effect a split, reverse split, reclassification, or other change of
any shares of capital stock, or other reorganization or recapitalization;
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(f) except for amendments to the Certificate of Incorporation or Bylaws
of Bancorp for the purpose of facilitating the transactions contemplated
hereunder, amend the Charter or Certificate of Incorporation, as
appropriate, or Bylaws of Bancorp or the Bank;
(g) except in the ordinary course of business, consistent with past
practice and upon prior consultation with PFC, increase the compensation
payable or to become payable to any of their directors, officers or
employees (including any salary, bonus, insurance, pension, or other benefit
plan, payment or arrangement made to, for or with any of such officers or
employees) regardless of whether such increase was authorized prior to the
execution of this Agreement;
(h) except in the ordinary course of business, borrow or agree to borrow
any amount of funds or incur any obligation or liability, or directly or
indirectly guarantee or agree to guarantee any obligations of others except
letters of credit entered into in the ordinary course of business;
(i) except with respect to (a) any agreement, contract or commitment
that (when taken together with any other agreements, contracts or
commitments from the same vendor or its affiliates) involves less than
$10,000, or (b) the making of a loan or a commitment therefor, enter into
any agreement, contract or commitment, which, if entered into before the
date of this Agreement, would be required to be listed in a schedule
delivered to PFC pursuant to the terms of, or in connection with, this
Agreement, or which would modify, amend or terminate any agreement required
to be listed in any such schedules;
(j) except in the ordinary course of business, place or suffer to exist
on any of the assets or properties of Bancorp or the Bank any mortgage,
pledge, lien, charge, or other encumbrance;
(k) cancel, unless paid in full, any material indebtedness owing to
Bancorp or the Bank or any claims which Bancorp or the Bank may possess, or
waive any material rights of substantial value or discharge or satisfy any
material noncurrent liabilities;
(l) sell or otherwise dispose of a substantial part of any of Bancorp's
or the Bank's assets, or sell or agree to sell any of their assets except in
the ordinary course of business;
(m) commit any act or omit to do any act which would cause a material
breach of any material agreement, contract or commitment which is listed in
a schedule delivered to PFC pursuant to the terms of, or in connection with,
this Agreement, or which would have an adverse effect on the business,
financial condition, or earnings of Bancorp and the Bank taken as a whole;
(n) violate any law, statute, rule, governmental regulation, order, or
undertaking which violation might have an adverse effect on the business,
financial condition, or earnings of the Bancorp or the Bank;
(o) fail to maintain Bancorp's or the Bank's books, accounts and records
in the usual manner on a basis consistent with that heretofore employed
except for changes required by generally accepted accounting principles or
by the OTS, FDIC or any other state or federal agency having jurisdiction
over Bancorp or the Bank;
(p) fail to charge off Bancorp's or the Bank's books loan or other
losses in accordance with generally accepted accounting principles and the
pertinent regulations and policies of the OTS, FDIC and other savings bank
regulatory authorities with jurisdiction concerning the write-off of loans
and other losses;
(q) fail to pay, or to make adequate provisions for the payment of, all
taxes (current or deferred), interest payments and penalties (whether or not
reflected in any returns as filed) due and payable (and/or accruable for all
periods prior to the Closing Date, including that portion of their fiscal
year prior to and including the Closing Date) to any city, county, state,
foreign country, the United States, or any other taxing authority;
(r) except in the ordinary course of business and subject to Section
6.06 of this Agreement, sell or dispose of any bonds, shares of capital
stock or other investment securities;
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(s) establish, or apply for permission to establish, any banking or
business office facility not in use on the date of this Agreement;
(t) issue any letters of credit other than in the ordinary course of
business or voluntarily increase in a material amount any contingent
liabilities whether under letters of credit or otherwise; or
(u) make any loans, give any discounts or enter into any financing
leases which are not (i) made for good, valuable and adequate consideration
in the ordinary course of business, (ii) evidenced by notes or other forms
of indebtedness which are true, genuine and what they purport to be, and
(iii) in the aggregate together with the loan portfolio of Bancorp and the
Bank, adequately reserved against, in accordance with generally accepted
accounting principles, in an amount, in the aggregate, sufficient in the
opinion of management to provide for all charge-offs reasonably anticipated
in the ordinary course of business.
6.05 RESERVES. The Bancorp Unaudited Financial Statements shall reflect a
monthly charge-off, based on a review of the current status of the loan
portfolio, in accordance with generally accepted accounting principles and the
pertinent regulations and policies of the OTS, FDIC and other regulatory
authorities concerning the write-off of loans. Immediately prior to the
Effective Time, and upon receipt by Bancorp of a written certificate from PFC
waiving its right to terminate this Agreement for failure of any condition
herein (other than this Section 6.05), Bancorp shall establish such additional
provisions for loan and real estate owned losses as may be necessary in the sole
determination of PFC to conform Bancorp's and the Bank's loan and real estate
owned allowance practices and methods to those of PFC (as such practices and
methods are to be applied to the Bank from and after the Effective Time).
6.06 PRESERVATION OF BUSINESS AND INVESTMENT DECISIONS. Bancorp and the
Bank shall use their best efforts to preserve the possession and control of all
of their respective assets, to preserve the goodwill of their respective
customers and others with whom they have business relations, and to do nothing
knowingly to impair the ability to keep and preserve its respective businesses
existing on the date of this Agreement. Without in any way limiting the
foregoing, neither Bancorp nor the Bank shall make any significant investment
decision, including, without limitation, engaging in any interest rate swaps,
futures or options transactions, or purchases or sales of any marketable
securities other than overnight Federal Reserve Funds, U.S. Treasury securities
or securities of U.S. government agencies of a term of one year or less, without
first consulting with the Treasurer of PFC or his designee.
6.07 NOTIFICATION OF MATERIAL CHANGES AND LITIGATION. Bancorp shall
provide PFC with prompt written notice, accompanied by a detailed description
and analysis, (a) of any material adverse change (as defined in Section 7.02(c))
or, to the best of their knowledge, potentially material adverse change in the
condition, earnings or businesses (other than matters affecting thrifts or
thrift holding companies generally) of Bancorp or the Bank, (b) of any event or
condition of any character (whether actual or threatened) materially and
adversely affecting or that has a substantial possibility of materially and
adversely affecting, any of their financial conditions, earnings, businesses or
assets, and (c) of all claims, regulatory proceedings and litigation (whether
actual or threatened and whether or not material) against or possibly involving
Bancorp or the Bank or (where such actual or threatened claims, regulatory
proceedings or litigation arise in connection with actions taken or alleged to
be taken by any officer, employee or director in his or her capacity as an
officer, employee or director) any officer, employee or director of Bancorp or
the Bank. Such adverse or potentially adverse material changes or such claims,
proceedings or litigation shall include, without limitation, any adverse or
potentially adverse material change in or any litigation arising in connection
with any item or matter reported on any schedule, annex or document delivered by
Bancorp or the Bank to PFC in connection with this Agreement.
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6.08 COOPERATION. Bancorp and PFC shall each cooperate, and Bancorp and
PFC shall cause their subsidiary(ies) to cooperate, fully, completely and
promptly with the other in connection with satisfying all conditions set forth
in this Agreement and effecting the transactions contemplated by this Agreement.
6.09 REGULATORY FILINGS. Each party will cooperate with the other in the
preparation and filing of and will use its best efforts to prepare and file
within 30 days of the date hereof, all applications and other documents required
to be filed to obtain the regulatory approvals and consents required from the
Federal Reserve, OTS, FDIC and any other applicable state or federal authority
for the consummation of the Merger. Prior to filing any such application, each
party shall provide the other with the opportunity to review and comment on such
application or other document. Except to the extent prohibited by law, from the
date of this Agreement until the Closing Date, Bancorp and the Bank shall
deliver to PFC contemporaneously with their filing a copy of all applications,
reports and other documents hereafter filed with the SEC, the Federal Trade
Commission, the United States Department of Justice, the Federal Reserve, the
KDFI, the FDIC, the OTS, the FHLB, or the Kentucky or Delaware Secretary of
State, and all "comment" letters and other correspondence from any of the
foregoing regulatory agencies in connection with such filings promptly after
receipt thereof. Except to the extent prohibited by law, from the date of this
Agreement until the Closing Date, PFC shall deliver to the Bank
contemporaneously with their filing a copy of any nonconfidential portions,
together with any portion containing financial information concerning Bancorp
and the Bancorp, of all applications, reports and other documents hereafter
filed by PFC in connection with the Merger with the SEC, the Federal Trade
Commission, the United States Department of Justice, the Federal Reserve, the
KDFI, the FDIC, the OTS, the FHLB, or the Office of the Kentucky Secretary of
State, and any nonconfidential portions, together with any portion containing
financial information concerning Bancorp and the Bank, of all "comment" letters
and other correspondence from any of the foregoing regulatory agencies in
connection with such filings promptly after receipt thereof.
6.10 BANCORP FINANCIAL STATEMENTS. Bancorp shall deliver to PFC as soon as
they become available but in any event promptly, the Bancorp Unaudited Financial
Statements and the 1993 Bancorp Financial Statements.
6.11 PFC FINANCIAL STATEMENTS, SEC REPORTS AND AMENDMENTS. PFC shall
deliver to Bancorp as soon as they become available but in any event promptly,
the Unaudited PFC Financial Statements and the 1993 PFC Financial Statements.
PFC shall deliver to Bancorp, promptly after filing, a copy of all applications,
reports and other documents filed by PFC with the SEC. PFC shall also deliver to
Bancorp as soon as they become available copies of any amendments to PFC's
Articles of Incorporation and Bylaws.
6.12 DISCUSSION WITH OTHER PURCHASERS. Except to the extent the
fulfillment of the Bancorp Directors' fiduciary duties clearly requires such
action, Bancorp, the Bank, and the Bancorp Directors shall and shall cause
Bancorp's and the Bank's executive officers not, to solicit, authorize the
solicitation of, or enter into any discussions with any third party (a "Third
Party"), (a) to purchase any shares of the capital common stock or any option or
warrant to purchase shares of the capital common stock of Bancorp or the Bank or
any securities convertible into the capital common stock of Bancorp or the Bank
or any other equity security of either of them; (b) to make a tender or exchange
offer for any shares of the capital common stock of Bancorp or the Bank or any
other equity security of Bancorp or the Bank, (c) to purchase, lease or
otherwise acquire all or a substantial portion of the assets of Bancorp or the
Bank; or (d) to merge, consolidate or otherwise combine with Bancorp or the Bank
(a "Third Party Sale").
6.13 PUBLICITY. Except as required by legal process or by operation of
applicable law or as provided below, neither Bancorp, the Bank nor PFC shall
disclose or publish, and each of Bancorp, the Bank and PFC shall use their best
efforts to cause their officers and employees and the officers and employees of
their affiliates to not disclose or publish, any information concerning this
Agreement or
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the transactions contemplated by this Agreement. Only Bancorp and PFC may make
public announcements regarding this Agreement and the transactions contemplated
herein and each shall have an opportunity to review any public announcement
prior to its release by the other.
6.14 PFC REGISTRATION STATEMENT. PFC shall prepare and file the
Registration Statement under the Securities Exchange Act of 1934, as amended,
for the purpose of registering the shares of PFC Common Stock to be issued in
the Merger. PFC shall use all reasonable efforts to cause the Registration
Statement to become effective as soon as appropriate and possible. The Bank,
Bancorp and each Bancorp Director shall promptly furnish PFC with all such data,
information and analyses relating to him, it or its shareholders as PFC may
reasonably request for the purpose of including such data, information and
analyses in the Registration Statement.
6.15 RESTRICTED PFC COMMON STOCK. The Bancorp Disclosure Schedule sets
forth a complete list (the "Bancorp Affiliate Schedule") of all Persons who are,
or immediately prior to the Effective Time will be, Bancorp Affiliates. For
purposes of this Agreement, "Bancorp Affiliates" means each Person who, should
he, she or it resell PFC Common Stock acquired by him, her or it in connection
with the Merger, would be subject to the requirements of paragraphs (c) and (d)
of Rule 145 under the Securities Act and the SEC's rules, regulations and
policies or generally accepted accounting principles permitting
pooling-of-interests accounting treatment of the Merger by PFC. Bancorp shall
use its best efforts to deliver to PFC at the Closing an agreement from each
Person named on the Bancorp Affiliates Schedule, in the form attached hereto as
Annex 6.15. As soon as practicable after the Closing Date, PFC shall publish
financial results for its first fiscal quarter covering at least 30 days of
post-merger operations. PFC shall during the period Bancorp Affiliates hold PFC
Common Stock so restricted comply with the requirements of Rule 144(c) under the
Securities Act to allow such shares of PFC Common Stock held by the Bancorp
Affiliates to be transferrable by the Bancorp Affiliates in compliance with
paragraphs (c), (e), (f) and (g) of Rule 144. At the end of the three-year
holding period within Rule 144(k), or at the end of two years as determined in
accordance with Rule 144(d) if the Bancorp Affiliate is not an affiliate of PFC
and PFC meets the requirements of Rule 144(c), PFC shall remove from share
certificates the legend referenced above if requested by a Bancorp Affiliate or
remove such legend prior thereto if the Bancorp Affiliate shall deliver to PFC
an opinion of securities counsel acceptable to PFC that such legend can be
removed.
6.16 BANCORP DIVIDENDS.
(a) For the fiscal year ended September 30, 1993, Bancorp may declare in
the aggregate no more than $373,000 in dividends, which amount excludes the
dividend for the fiscal year ended September 30, 1992 paid in January 1993.
(b) Beginning on October 1, 1993 and until the Closing Date, Bancorp may
declare a dividend for each cash dividend declared by PFC (a "PFC Dividend").
The amount of such dividends per share of Bancorp Common Stock shall be the
amount of the PFC Dividend which would be payable on the number of shares of PFC
Common Stock into which each share of Bancorp Common Stock is to be converted in
the Merger. The record and payment dates of such dividends shall be no earlier
than the record and payment dates of the PFC Dividend.
6.17 TAX-FREE REORGANIZATION TREATMENT. Neither PFC nor Bancorp or the
Bank shall take or cause to be taken any action, whether before or after the
Effective Time, that would disqualify the Merger as a "reorganization" within
the meaning of Section 368(a) of the IRC.
6.18 D & O INSURANCE AND INDEMNIFICATION. From and after the Effective
Time, PFC shall cause all directors and officers of Bancorp and the Bank to be
covered by PFC's directors and officers liability insurance policy on a basis at
least equal to the coverage currently provided to the directors and officers of
PFC and its subsidiaries. PFC and the Bank covenant and agree that, to the
extent provided below, PFC or the Bank shall indemnify any person who on or
before the Effective Time was a director, officer or employee of Bancorp or the
Bank against any losses, claims, damages, liabilities, expenses (including
attorneys fees and expenses), judgments, fines and amounts paid in settlement in
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connection with any threatened or actual claim, action, suit, proceeding or
investigation (whether asserted or arising before or after the Effective Time)
(i) arising out of or based in part upon any act or failure to act (other than
acts involving fraud, intentional or willful misconduct or bad faith) of such
director, officer or employee before the Effective Time; (ii) arising out of the
fact that such person is or was a director, officer or employee of Bancorp or
the Bank; or (iii) arising out of this Agreement, the Plan of Merger or the
Option Agreement or any of the transactions contemplated thereby or hereby
(collectively, the "Liabilities"). For a period of six years with respect to
taxes and for a period of three years with respect to other matters, the current
and former directors, officers and employees of Bancorp or the Bank shall be
indemnified with respect to a Liability to the extent such indemnification is
permissible under applicable state or federal law in effect as of the date
hereof or as amended applicable to a time before the Effective Time, and the
right to indemnification with respect to any matter asserted or made within the
applicable period shall continue until final disposition of the matter. PFC or
the Bank shall pay expenses in advance of the final disposition of any such
action or proceeding to each person entitled to indemnification hereunder to the
full extent permitted by applicable state or federal law upon receipt of any
undertaking required by applicable law. Any person entitled to indemnification
hereunder wishing to claim indemnification pursuant hereto shall notify PFC or
the Bank within a reasonable time of learning of any matter to which
indemnification applies and shall deliver to PFC or the Bank the undertaking, if
any, required by applicable law. Nothing in this section shall limit PFC's or
the Bank's authority to indemnify directors, officers or employees of Bancorp or
the Bank under applicable law, and after the Effective Time the directors,
officers and employees of the Bank shall have the same indemnification rights as
are provided to the other directors, officers or employees of PFC's Bank
Subsidiaries. PFC covenants and agrees not to assert any claim, action or suit
against any directors, officers or employees of Bancorp and the Bank for acts or
failures to act of such director, officer or employee taking place prior to the
Effective Time, except that the preceding shall not apply to acts involving
fraud, intentional or willful misconduct or bad faith.
6.19 FORBEARANCE OF PFC. Except with the prior written consent of Bancorp
between the date hereof and the Effective Time, which shall not be unreasonably
withheld, neither PFC nor any PFC Subsidiary shall:
(a) except for an amendment to PFC's Articles of Incorporation set forth
on the PFC Disclosure Schedule, authorize or create: (i) any class of
capital stock which ranks prior to the PFC Common Stock in respect of
dividend payments or of distributions or payments upon any liquidation of
PFC or which has per share voting rights greater than PFC Common Stock; (ii)
any share of capital stock other than shares of PFC Common Stock reserved
for issuance as reflected under Section 1.04 hereof or in connection with
subsequent negotiations in respect of mergers or other business combinations
wherein, if concluded and consummated, PFC would be the surviving
corporation, or shares to be issued with respect to stock splits or stock
dividends subsequently declared and distributed on a basis consistent with
past practices and its current policy subject to the antidilutive
adjustments to be made as contemplated under Section 3.06 hereof; or (iii)
amend its Articles of Incorporation or bylaws or issue securities on terms
or with voting rights so as to adversely affect the rights of the Bancorp
shareholders as if they had been holders of PFC Common Stock as of the date
hereof;
(b) except to the extent necessary to comply with their fiduciary of
legal obligations as advised by counsel to the board of directors of PFC,
enter into any agreement, understanding or commitment, written or oral, with
any other party which is inconsistent in any material respect with the
undertakings, commitments and obligations of PFC arising under this
Agreement and the Plan of Merger;
(c) except as may be necessary to comply with their legal obligations as
advised by counsel to the board of directors of PFC, as relates to PFC and
any PFC Subsidiary (other than a subsidiary organized merely to facilitate
an acquisition by PFC), enter into a merger or other business
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combination transaction with any other corporation or person in which the
PFC, or any PFC Subsidiary, as the case may be, who is a party thereto,
would not be the surviving or continuing entity after the consummation
thereof; or
(d) sell or lease or any material portion of the assets and business of
PFC or any PFC Subsidiary, except where any such sale or lease will not
materially and adversely affect their respective businesses or operations.
6.20 EMPLOYEE BENEFIT PLANS.
(a) At, or as soon as administratively feasible after (in which event the
benefits of Bancorp and the Bank shall remain in effect until the PFC benefits
apply), the Effective Time, employees and officers of the Bank shall be provided
with benefits not otherwise specifically addressed in this Section, comparable
to those PFC generally provides to employees and officers of similarly situated
PFC affiliates from time to time, including, but not limited to, life, medical
and hospitalization and disability insurance and sick pay, personal leave and
severance benefits, on a non-discriminatory and substantially similar basis. For
purposes of providing such benefits to employees and officers of the Bank after
the Effective Time, PFC shall credit such employees and officers for years of
service at the Bank prior to the Effective Time for purposes of eligibility and
benefit amounts or privileges paid or provided.
(b) Within a reasonable time after the Effective Time, taking into account
the probability that the Financial Institutions Retirement Fund, the Internal
Revenue Service, and the Department of Labor will all need to be involved or
consulted in the process, the Bank will withdraw from the Financial Institutions
Retirement Fund. If the assets of that Plan attributable to the Bank's
participating exceed the amount necessary to provide current accrued benefits
under that Plan, any such excess will be used to increase benefits under the
Plan for the Bank's employees, as determined by the Bank with the consent of PFC
(which consent shall not be unreasonably withheld) and, to the extent permitted
by the Plan and applicable law, to satisfy plan administrative expenses.
(c) Within a reasonable time after the Effective Time, taking into account
the probability that the Financial Institutions Thrift Plan and the Internal
Revenue Service will need to be involved or consulted, the Bank will withdraw
from the Financial Institutions Thrift Plan. Prior to such withdrawal, PFC will
evaluate whether the PFC 401(k) Plan could be treated as a successor plan to
that Plan, and, if so and if treatment as such would not cause significant
increased administrative burden for the PFC 401(k) Plan, Bank employees may
choose whether to have their Financial Institutions Thrift Plan accounts
transferred to the PFC 401(k) Plan.
(d) PFC and Bancorp acknowledge that the ESOP has unallocated assets with a
fair market value exceeding the outstanding balance of the loan secured by those
assets. Without changing the existing vesting and allocation provisions in the
ESOP (or in any of PFC's qualified plans), the parties intend that current and
future employees of the Bank will benefit from this investment. Therefore, after
the Effective Time and until all unallocated shares now held by the ESOP are
released from collateral pledge and allocated to Bank employees ("100%
Allocation Date"), the ESOP will be continued for the benefit of current and
future employees of the Bank eligible to participate therein in accordance with
the ESOP's terms, provided that a separate plan is legally permissible under the
IRC and the rules promulgated thereunder without causing disqualification of
that Plan or any other plan maintained by PFC or its affiliates, when such plans
are operated in accordance with their terms. If before the 100% Allocation Date,
it becomes legally impermissible under the IRC and the rules promulgated
thereunder to maintain the ESOP as a separate plan, the ESOP shall be merged
with the PFC Employee Stock Ownership Plan, and thereafter, to the extent
legally permissible under IRC qualification requirements, the assets now held by
the ESOP shall continue to be allocated only to current and future Bank
employees, until the 100% Allocation Date. For purposes of this Section 6.20(d),
"Bank" includes Bank and its successors. In no event will any Bank employee or
officer be personally responsible for satisfying loans incurred by the ESOP
except to the extent that officer or employee provided an individual guarantee
for that loan.
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(e) Subject to subsections (b) through (d) above, PFC will permit Bank
employees to commence participation in the PFC 401(k) Plan at the time their
participation in the Financial Institutions Thrift Plan ceases and to commence
participation in the PFC Employee Stock Ownership Plan at the time their
participation in the Bank's Employee Stock Ownership Plan ceases. For purposes
of eligibility and vesting in PFC's 401(k) and Employee Stock Ownership Plans,
the Bank's employees active at the time participation begins will be given
credit for past service with the Bank.
(f) The Committee (as defined in the Stock Option Plan) shall not, in
connection with this Agreement, exercise its discretion pursuant to section 9 of
that plan to pay cash in exchange for the surrender of options. Within a
reasonable period of time after the Effective Time, the Bank shall amend the
Stock Option Plan to eliminate this discretion. The Bank shall not make any
further grants of incentive compensation under the Management Recognition Plan
and shall, within a reasonable period of time after the Effective Time, amend
that Plan to prohibit future grants of incentive stock compensation,
(g) With respect to options granted as of the date of this Agreement
pursuant to the Stock Option Plan and related agreements, such options, to the
extent not exercised prior to the Closing, shall be converted into options to
purchase PFC Common Stock at a ratio of 1.13597 shares of PFC Common Stock per
share of Bancorp Common Stock with an exercise price of $8.76 per share of PFC
Common Stock. PFC shall take all corporate action necessary to reserve for
issuance a sufficient number of shares of PFC Common Stock for delivery upon
exercise of options assumed by it in accordance with this Section 9.10(c). As
soon as practicable after the Effective Time, PFC shall file a registration
statement on Form S-3 or Form S-8, as the case may be, or another appropriate
form with respect to the shares of PFC Common Stock subject to such options and
shall use its best efforts to maintain the effectiveness of such registration
statement or registration statements (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such options remain
outstanding. With respect to shares of Bancorp Common Stock granted to a trustee
under the Management Recognition Plan, such shares under the Management
Recognition Plan shall be converted into shares of PFC Common Stock at a ratio
of 1.13597 shares of PFC Common Stock for each share of Bancorp Common Stock.
SECTION 7
CONDITIONS OF MERGER
7.01 CONDITIONS TO OBLIGATIONS. The obligations of Bancorp and PFC to
consummate the Merger shall be subject to the satisfaction of the following
conditions on or before the Closing Date:
(a) SHAREHOLDER APPROVAL. This Agreement and the Plan of Merger shall
have been adopted and approved by the shareholders of both Bancorp and
Subsidiary.
(b) REGULATORY APPROVAL. PFC, Bancorp, and Subsidiary shall have
obtained all appropriate orders, consents, approvals and clearances in
form and substance determined in good faith to be reasonably satisfactory to
all of them, from the OTS, the Federal Reserve, the Department of Justice,
the Federal Trade Commission (under the Hart-Scott-Rodino Act, if applicable
or otherwise) and all other regulatory agencies and other governmental
authorities whose order, consent, approval, absence of disapproval, or
clearance is required by law for the consummation of the transactions
contemplated by this Agreement, and the terms of all requisite orders,
consents, approvals and clearances shall permit the effectuation of the
Merger.
(c) NO PROCEEDINGS.
(i) (A) No action or proceeding shall have been instituted before a
court or other governmental body by any governmental agency or public
authority or other Person to restrain or prohibit the transactions
contemplated by this Agreement or to obtain damages or other relief in
connection with the execution of this Agreement or the consummation of
the transactions contemplated hereby; and
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(B) No governmental agency shall have notified any of PFC,
Subsidiary, Bancorp or the Bank to the effect that consummation of the
transactions contemplated by this Agreement would constitute a violation
of any law and that it intends to commence proceedings to restrain
consummation of the Merger;
(ii) Provided, however, that (a) the occurrence of an event described
in clause (i)(A) or (i)(B) of this subsection shall not be deemed to
create a failure of a condition pursuant to this Section 7.01, unless the
Board of Directors of Bancorp or PFC shall have determined, and given
written notice to the other of its determination that the occurrence of
the event makes consummation of the Merger unwise in its opinion, and (b)
if any action or proceeding described in clause (i)(A) of this subsection
has been concluded, with an outcome which would not result in damages,
restrain, prohibit or declare illegal the consummation of the
transactions contemplated by this Agreement, then the action or
proceeding shall not be deemed to create a failure of a condition
pursuant to this subsection 7.01(c).
(d) REGISTRATION OF PFC COMMON STOCK; NASDAQ. The Registration
Statement shall have become effective under the Securities Act and not be
the subject of any "stop order" or threatened "stop order." PFC shall have
received all state securities or "Blue Sky" permits or other authorizations,
or confirmations as to the availability of an exemption from registration
requirements as may be necessary for consummation of the Merger and no
proceedings shall be pending or to the knowledge of PFC threatened by any
state securities or "Blue Sky" administration to suspend the effectiveness
of any state permit or authorization. The shares of PFC Common Stock to be
issued in the Merger shall have been authorized for listing on the NASDAQ
National Market System.
(e) TAX OPINION. Bancorp and PFC shall have received an opinion (the
"Tax Opinion") from Brown, Todd & Heyburn, reasonably satisfactory to the
Bank and PFC, which opinion shall not have been modified and shall have
remained in full force and effect stating that:
(i) The Merger shall qualify as a tax-free reorganization under
Section 368(a) of the Internal Revenue Code;
(ii) No gain or loss will be recognized by any Bancorp shareholder
upon the receipt of PFC Common Stock (except for Bancorp shareholders who
exercise and perfect dissenters' rights of appraisal or in connection
with the receipt of cash in lieu of fractional shares of PFC Common
Stock);
(iii) The basis of PFC Common Stock received by Bancorp shareholders
will be the same as the basis of Bancorp Common Stock surrendered in
exchange therefor (subject to any adjustments required as the result of
receipt of cash in lieu of fractional shares of PFC Common Stock);
(iv) The holding period of the PFC Common Stock received by a Bancorp
shareholder receiving PFC Common Stock will include the period during
which the Bancorp Common Stock surrendered in exchange therefor was held;
(v) Cash received by a Bancorp shareholder in lieu of a fractional
share interest of PFC Common Stock will be treated as having been
received as a distribution in full payment in exchange for the fractional
share interest of PFC Common Stock which he would otherwise be entitled
to receive and will qualify as capital gain or loss; and
(vi) Holders of incentive and non-incentive options to purchase
Bancorp Common Stock issued pursuant to the Bancorp 1991 Stock Option
Plan will recognize no gain or loss as a result of such stock options
becoming options to acquire PFC Common Stock under Section 9.11 hereof.
(f) FAIRNESS OPINION. Bancorp shall have received an opinion from
Capital Resources, Inc., dated as of a date no later than the date of the
proxy statement-prospectus mailed to
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Bancorp shareholders in connection with the Merger and not subsequently
withdrawn prior to the vote of Bancorp shareholders on the Plan of Merger,
to the effect that the Merger is fair to Bancorp's shareholders from a
financial point of view.
(g) POOLING LETTER. PFC shall have received at least two days prior to
the Closing Date a letter, in form and substance reasonably satisfactory
to PFC, from KPMG Peat Marwick to the effect that the Merger will meet the
criteria for the pooling-of-interests method of accounting under generally
accepted accounting principles.
7.02 CONDITIONS TO OBLIGATIONS OF PFC. The obligations of PFC and
Subsidiary to effect the Merger shall be subject to the satisfaction of the
following conditions, in addition to those set forth in Section 7.01, on or
before the Closing Date:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of Bancorp and the Bank herein contained shall be true in all
material respects as stated herein, both when made and with the same effect
as though made again as of the Closing Date except to the extent of changes
permitted by the terms of this Agreement or except for breaches of
representations or warranties which would not have a material adverse effect
on the business, financial condition or operations of Bancorp and the Bank
taken as a whole. Bancorp, the Bank, and the Bancorp Directors shall have
performed all obligations and complied with all covenants required by this
Agreement to be performed or complied with by each of them prior to the
Closing Date or except for failures to perform or comply which would not
have a material adverse effect on the business, financial condition or
operations of Bancorp and the Bank taken as a whole. In addition, Bancorp
shall have delivered to PFC its certificate dated as of the Closing Date and
signed by its President and by its Secretary, to the effect that, except as
disclosed in the certificate, they do not know of any failure or material
breach of any representation, warranty, or covenant made by Bancorp, the
Bank or the Bancorp Directors or of any conditions to PFC's obligations to
effect the Merger.
(b) PREDOMINANT SHAREHOLDER APPROVAL. The holders of no more than nine
percent (9.00%) of the total number of outstanding shares of Bancorp
Common Stock shall have perfected or purportedly perfected their appraisal
rights under the Appraisal Statute with respect to their shares in
connection with the shareholders' approval and adoption of the transactions
contemplated by this Agreement.
(c) NO MATERIAL ADVERSE CHANGE. Except for (i) changes resulting from
general economic conditions (including but not limited to changes in
interest rates), (ii) permissible changes in accounting practices, (iii)
changes in laws, or (iv) changes which are generally applicable to the
savings and loan business, such as changes in interest rates, monetary
policies, housing demand, real estate values and lending demand, there shall
not have occurred any material adverse change since September 30, 1992, in
the financial condition, business, assets, or results of operations of
Bancorp or the Bank.
(d) LETTER OF WHELAN, JOHNSON, DOERR, PIKE & PAWLEY, PSC. PFC shall
have been furnished with a letter from Whelan, Johnson, Doerr, Pike &
Pawley, PSC, certified public accountants, dated the Closing Date, in form
and substance satisfactory to PFC to the effect that:
(i) it is a firm of independent public accountants with respect to
Bancorp within the meaning of the Securities Act and the rules and
regulations of the SEC thereunder;
(ii) it has made available to PFC or other designated representatives
of PFC all of its work papers with respect to Bancorp and the Bank;
(iii) in its opinion the 1993 Bancorp Financial Statements examined by
it and delivered to PFC (A) comply as to form in all material respects
with the applicable requirements of the Securities Act and the applicable
published rules and regulations of the SEC thereunder, and
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(B) present fairly the financial position of Bancorp and the Bank and the
results of their operations for the period covered in conformity with
generally accepted accounting principles applied on a consistent basis;
and
(iv) the amount of any unpaid and of any accrued but unbilled fees for
auditing, tax or accounting services rendered by it to Bancorp or the
Bank shall be as set forth therein and previously disclosed to PFC; and
(e) OPINION OF COUNSEL FOR BANCORP AND THE BANK. PFC shall have
received from Housley Goldberg & Kantarian, P.C., special counsel to
Bancorp and the Bank, or from other counsel to Bancorp or the Bank
reasonably satisfactory to PFC, an opinion, dated as of the Closing Date, in
form and substance reasonably satisfactory to PFC, and to the following
effect:
(i) The Bank is a federally chartered savings bank, duly organized,
validly existing and in good standing under the laws of the United
States. Bancorp is a corporation duly organized, validly existing and in
good standing under the laws of Delaware;
(ii) The Bank is a member in good standing of the FHLB, all eligible
accounts of deposit in the Bank are insured by the SAIF, as administered
by the FDIC, to the fullest extent permitted by law and Bancorp is a duly
and validly registered savings and loan holding company under the Home
Owners' Loan Act;
(iii) Each of Bancorp and the Bank have all requisite corporate power
to own and lease its property and to carry on the business currently
being carried on by it;
(iv) The authorized capital stock of each of Bancorp and the Bank are
as set forth in Sections 1.02 and 1.03 of this Agreement and the shares
described therein as issued and outstanding have been duly authorized,
are validly issued and outstanding, and are fully paid and nonassessable;
(v) This Agreement has been duly executed and delivered by Bancorp
and the Bank and is the valid and binding obligation of Bancorp and the
Bank enforceable in accordance with its terms. All corporate action
required of the Board of Directors and shareholders of Bancorp and the
Bank, and all action required under Bancorp's and the Bank's Charter and
Bylaws, to authorize the transactions contemplated by this Agreement have
been taken, and Bancorp and the Bank have the corporate power to effect
the Merger provided for in this Agreement and the Plan of Merger.
(vi) The Board of Directors and shareholders of Bancorp and the Bank
have taken all action required by law, and the Bank's Charter and Bylaws
in connection with the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated herein.
(vii) Except as disclosed in schedules delivered by Bancorp and the
Bank to PFC in connection with this Agreement, to the best knowledge of
such counsel after due inquiry, neither Bancorp nor the Bank is a party
to any pending legal or administrative action or other proceeding which
if adversely decided or concluded would likely materially and adversely
affect or impair the business or condition, financial or otherwise, or
the earnings, of Bancorp or the Bank;
(viii) The amount of any unpaid and of any accrued but unbilled fees
for legal services rendered by legal counsel is as set forth therein.
(f) STATUTORY REQUIREMENTS. All statutory requirements for the valid
consummation by PFC and the Subsidiary of the transactions contemplated
by this Agreement shall have been fulfilled; all authorizations, consents
and approvals of all federal, state, local and foreign governmental agencies
and authorities required to be obtained in order to permit consummation by
PFC and Subsidiary of the transactions contemplated by this Agreement and to
permit the business presently carried on by Bancorp and the Bank to continue
unimpaired in all material respects immediately following the Effective Time
shall have been obtained.
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(g) EMPLOYMENT AGREEMENTS. The employment agreements entered into
between each of Dennis W. Kirtley, President and Chief Executive Officer
and David R. Morrison, Executive Vice President and Chief Financial Officer
and the Bank, both dated June 18, 1991, shall have been amended and restated
in the form of the employment agreements attached as Annexes 7.02(g)(i) and
(g)(ii), respectively.
(h) ENVIRONMENTAL MATTERS. Notwithstanding any representations or
warranties of Bancorp or the Bank or any liability or unasserted
liability under the Environmental Laws listed on the Disclosure Schedule,
neither Bancorp nor the Bank, nor any of their assets shall be subject to
any liability under the Environmental Laws that would have a material
adverse effect on the financial condition of Bancorp and the Bank taken as a
whole.
7.03 CONDITIONS TO OBLIGATIONS OF BANCORP. The obligations of Bancorp to
effect the Merger shall be subject to the satisfaction of the following
conditions, in addition to those set forth in Section 7.01, on or before the
Closing Date:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties of PFC and Subsidiary herein contained shall be true in all
material respects as stated herein, both when made and with the same effect
as though made again as of the Closing Date except to the extent of changes
permitted by the terms of this Agreement or except for breaches of
representations or warranties which would not have a material adverse effect
on the business, financial condition or operations of PFC and the Bank
Subsidiaries taken as a whole. PFC and Subsidiary shall have performed all
obligations and complied with all covenants required by this Agreement to be
performed or complied with by PFC and Subsidiary prior to the Closing Date
or except for failures to perform or comply which would not have a material
adverse effect on the business, financial condition or operations of PFC and
the Bank Subsidiaries taken as a whole. In addition, PFC shall have
delivered to Bancorp its certificate dated as of the Closing Date and signed
by its Chief Executive Officer and by its Treasurer, to the effect that,
except as disclosed in the certificate, they do not know of any failure or
material breach of any representation, warranty, or covenant made by PFC or
Subsidiary or of any conditions to Bancorp's obligation to effect the
Merger.
(b) OPINION OF COUNSEL FOR PFC. Bancorp shall have received from Brown,
Todd & Heyburn of Louisville, Kentucky, counsel for PFC and Subsidiary,
an opinion, dated as of the Closing Date, in form and substance reasonably
satisfactory to Bancorp to the following effect:
(i) PFC and Subsidiary are both Kentucky corporations duly organized
and validly existing under the laws of the Commonwealth of Kentucky. PFC
is duly registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended;
(ii) Each of the Bank Subsidiaries are duly organized, validly
existing and in good standing under the laws of the Commonwealth of
Kentucky or the laws of the United States as the case may be. All
eligible deposit accounts of the Bank Subsidiaries are insured by the
Bank Insurance Fund as administrated by the FDIC, to the fullest extent
permitted by law.
(iii) PFC and the Bank Subsidiaries have the corporate power to carry
on the business being carried on by them;
(iv) The shares of PFC Common Stock to be issued in the Merger shall,
when issued, (a) be validly issued, fully paid and nonassessable; and (b)
issued pursuant to the Registration Statement, which shall not be the
subject of any "stop order" or threatened "stop order."
(v) This Agreement has been duly executed and delivered by PFC and
Subsidiary and is a valid and binding obligation of PFC and Subsidiary;
all corporate action required of the Board of Directors of PFC and
Subsidiary and of the sole shareholder of Subsidiary, and required under
their Articles of Incorporation and Bylaws, to authorize the Merger have
been taken; and PFC and the Subsidiary have the corporate power to effect
the Merger provided for in this Agreement and the Plan of Merger.
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(c) NO MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change since December 31, 1992, in the financial
condition, business, assets or results of operations of PFC.
(d) STATUTORY REQUIREMENTS. All statutory requirements for the valid
consummation by Bancorp and the Bank of the transactions contemplated by
this Agreement shall have been fulfilled; all authorizations, consents and
approvals of all federal, state, local, and foreign governmental agencies
and authorities required to be obtained in order to permit consummation by
Bancorp and the Bank of the transactions contemplated by this Agreement
shall have been obtained.
SECTION 8
TERMINATION OF AGREEMENT
(a) This Agreement may be terminated at any time before the Effective Time:
(i) MUTUAL CONSENT. By PFC and Bancorp, if for any reason consummation
of the transactions contemplated by this Agreement is inadvisable in the
opinions of both PFC and Bancorp.
(ii) CONDITIONS TO PFC'S OBLIGATIONS NOT MET. By PFC, upon written
notice to Bancorp, if any of the conditions set forth in Sections 7.01 or
7.02 shall have not been satisfied or cannot be fully satisfied within the
earlier of (i) 20 days of receipt of such notice or (ii) 5 days prior to the
Effective Time or is not waived at such time as such condition can no longer
be satisfied.
(iii) CONDITIONS TO BANCORP OR THE BANK OBLIGATIONS NOT MET. By
Bancorp, upon written notice to PFC, if any of the conditions set forth
in Sections 7.01 or 7.03 shall not have been fully satisfied or cannot be
fully satisfied within the earlier or (i) 20 days of receipt of such notice
of (ii) 5 days prior to the Effective Time or is not waived at such time as
such condition can no longer be satisfied;
(iv) TERMINATION DATE. By either PFC or Bancorp if, without fault of
the terminating party, the Merger shall not have been consummated by
August 31, 1994.
(b) Upon rightful termination of this Agreement by either PFC or Bancorp
pursuant to this Section 8, except for Sections 4.19, 5.09, 6.01, 6.12, 9.03 and
9.12, which shall survive in perpetuity, this Agreement shall be void and of no
further effect, and there shall be no liability by reason of this Agreement, or
the termination thereof on the part of PFC, Subsidiary, the Bank or Bancorp or
the respective directors, officers, employees, agents or shareholders of either
of them.
SECTION 9
MISCELLANEOUS
9.01 DELIVERIES AND NOTICES. Any deliveries, notices or other
communications required or permitted hereunder shall be deemed to have been duly
made or given (i) if delivered in person, or (ii) if sent by registered mail,
return receipt requested, postage prepaid, and addressed as follows:
(a) If to Bancorp:
First Kentucky Bancorp, Inc.
214 N. First Street
P.O. Box 110
Central City, Kentucky 42330-0110
Attn: Dennis W. Kirtley, President
with a copy to:
Housley Goldberg & Kantarian, P.C.
Suite 700
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1220 19th Street, N.W.
Washington, D.C. 20036
Attn: Leonard S. Volin
(b) If to PFC:
Peoples First Corporation
100 South Fourth Street
Paducah, Kentucky 42001
Attn: Aubrey W. Lippert, President
with copy to:
Brown, Todd & Heyburn
3200 Capital Holding Center
Louisville, Kentucky 40202-3363
Attn: R. James Straus
or if sent to such substituted address as Bancorp or PFC has given to the other
in writing.
9.02 WAIVERS. No waivers or failure to insist upon strict compliance with
any obligation, covenant, agreement or condition of this Agreement shall operate
as a waiver of, or an estoppel with respect to, any subsequent or other failure.
9.03 EXPENSES. Except as otherwise provided below, each party shall assume
and pay its own legal, accounting and other expenses incurred in connection with
the transactions contemplated by this Agreement. PFC shall bear the expenses of
registering the shares of PFC Common Stock to be issued in the Merger and
applying for regulatory approval for the Merger. The expense of printing and
mailing the prospectus/proxy statement shall be borne equally. Bancorp shall
cause its attorneys and accountants to bill it on a monthly basis for all fees
and expenses incurred and shall promptly accrue and pay such bills.
9.04 HEADINGS, COUNTERPARTS, AND PRONOUNS. The headings in this Agreement
have been included solely for ease of reference and shall not be considered in
the interpretation or construction of this Agreement. This Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument. Wherever
from the context it appears appropriate, pronouns stated in the masculine,
feminine or neuter in this Agreement shall include the masculine, feminine and
neuter.
9.05 ANNEXES AND SCHEDULES. The annexes and schedules to this Agreement
are incorporated herein by this reference and expressly made a part hereof.
9.06 ENTIRE AGREEMENT. All prior negotiations and agreements, by and
between PFC and Bancorp are superseded by this Agreement, and there are no
representations, warranties, understandings or agreements between the parties
other than those expressly set forth herein or in an annex or schedule delivered
or to be delivered in connection herewith.
9.07 GOVERNING LAW. This Agreement shall be governed by, and construed and
interpreted in accordance with, the laws of the Commonwealth of Kentucky.
9.08 PFC DIRECTORS. At the first meeting of PFC's Board of Directors after
the Effective Time, PFC's Board of Directors shall be increased by two and
Dennis W. Kirtley and one other member of the Bank's Board of Directors,
mutually agreeable to Bancorp and PFC, shall be elected to PFC's Board of
Directors.
9.09 DIRECTORS AND EXECUTIVE OFFICERS. The Bank Directors and the
executive officers of the Bank are willing to continue to serve following the
Merger in the same capacities as they currently serve the Bank.
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9.10 DISCLOSURE AND TERMINATION FEE. To the extent Bancorp or the Bank or
any executive officer of Bancorp or the Bank or any Bancorp or Bank Director is
approached by any Third Party with respect to any of the transactions referenced
in subsections (a)-(d) of Section 6.12 of this Agreement or to the extent
Bancorp or the Bank Directors' fiduciary duties clearly require the Bank
Directors to enter into discussions with a Third Party regarding the foregoing
("Required Discussions"), Bancorp and the Bank shall disclose to PFC immediately
that it, its executive officers of Bancorp or the Bancorp Directors were
contacted or have entered into discussions and the continuing details related
thereto. In the event that, as a result of a breach of Section 6.12 of this
Agreement or Required Discussions, at any time prior to June 1, 1994, the Bank
enters into any agreement or understanding to participating in a Third Party
Sale, then the Bank shall promptly pay PFC a termination fee of $250,000.00.
IN WITNESS WHEREOF, Bancorp, the Bank, PFC and the Subsidiary have executed
and delivered multiple originals of this Agreement as of the date set forth in
the preamble hereto.
<TABLE>
<S> <C>
PEOPLES FIRST CORPORATION FIRST KENTUCKY BANCORP, INC.
By /s/ AUBREY W. LIPPERT By /s/ DENNIS W. KIRTLEY
---------------------------------------- ------------------------------------------
Aubrey W. Lippert, PRESIDENT Dennis W. Kirtley, PRESIDENT
Attested by /s/ A. HOWARD ARANT Attested by /s/ JOANN WHITAKER
-------------------------------- ------------------------------------------
A. Howard Arant, SECRETARY JoAnn Whitaker, SECRETARY
PEOPLES FIRST ACQUISITION FIRST KENTUCKY FEDERAL SAVINGS
CORPORATION BANK
By /s/ AUBREY W. LIPPERT By /s/ DENNIS W. KIRTLEY
---------------------------------------- ------------------------------------------
Aubrey W. Lippert, PRESIDENT Dennis W. Kirtley, PRESIDENT
Attested by /s/ A. HOWARD ARANT Attested by /s/ JOANN WHITAKER
-------------------------------- ------------------------------------------
A. Howard Arant, SECRETARY JoAnn Whitaker, SECRETARY
</TABLE>
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APPENDIX B
PLAN AND AGREEMENT OF MERGER
[REFERENCES HEREIN TO NUMBERS OF SHARES OF PFC COMMON STOCK
HAVE NOT BEEN ADJUSTED TO REFLECT A TWO-FOR-ONE STOCK SPLIT EFFECTED
IN THE FORM OF A 100% STOCK DIVIDEND ON JANUARY 4, 1994.]
This is a Plan and Agreement of Merger dated as of October 15, 1993 (the
"Plan"), between First Kentucky Bancorp, Inc. ("Bancorp") and Peoples First
Acquisition Corporation ("Subsidiary"), and joined in by Peoples First
Corporation ("PFC"). This Plan is entered into pursuant to a Merger Agreement
and Plan of Reorganization dated October 15, 1993 (the "Merger Agreement"),
among PFC, Subsidiary, Bancorp, and First Kentucky Federal Savings Bank (the
"Bank").
1. BANCORP. Bancorp is a corporation duly organized under the laws of the
State of Delaware. Bancorp's principal office is located in Central City,
Muhlenburg County, Kentucky. Bancorp is a duly registered savings and loan
holding company in good standing under the Home Owners' Loan Act. The authorized
capital stock of the Bancorp consists solely of (a) 2,500,000 shares of common
stock, of a par value of $0.01 per share ("Bancorp Common Stock"), of which
409,342 shares are issued and outstanding and (b) 500,000 shares of serial
preferred stock, of which no shares are issued or outstanding.
2. SUBSIDIARY. Subsidiary is a corporation duly organized under the laws
of the Commonwealth of Kentucky and has its principal office in Paducah,
McCracken County, Kentucky. The authorized capital stock of Subsidiary consists
solely of 2,000 shares of common stock without par value ("Subsidiary Common
Stock"), of which 1,000 shares are issued and outstanding and held by PFC.
3. PFC. PFC is a corporation duly organized under the laws of the
Commonwealth of Kentucky and has its principal office in Paducah, McCracken
County, Kentucky. PFC is a duly registered bank holding company under the Bank
Holding Company Act of 1956, as amended. The authorized capital stock of PFC as
of the date of this Agreement consists solely of 10,000,000 shares of common
stock, without par value (the "PFC Common Stock"), of which more than 465,000
shares are unissued and available for issuance in the Merger.
4. MERGER. Upon the terms and conditions set forth in this Plan of Merger,
Bancorp shall be merged into Subsidiary (the "Merger") pursuant to the
provisions of, and with the effect provided in, the Kentucky Business
Corporation Act and the Delaware General Corporation Law ("DGCL"). Subsidiary
shall be the "Surviving Corporation" of the Merger.
5. THE EFFECTIVE TIME. PFC shall deliver the Articles of Merger to the
Secretary of State of the Commonwealth of Kentucky and the Certificate of Merger
to the Secretary of State of Delaware for filing as promptly as possible
following the Closing. The Merger shall be effective at 11:59:59 P.M.,
Louisville, Kentucky, time on the date Articles of Merger and a Certificate of
Merger are filed with the Secretary of State of the Commonwealth of Kentucky and
the Secretary of State of Delaware, respectively (the "Effective Time").
6. MERGER CONSIDERATION. At the Effective Time (as defined in Section 5)
and subject to Section 12 of this Plan of Merger, each share of Bancorp Common
Stock issued and outstanding, other than
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shares with respect to which the holder has properly exercised the holder's
appraisal rights under Section 262 of the DGCL, shall be converted into 1.13597
shares (the "Merger Consideration") of PFC Common Stock.
7. EFFECT OF MERGER. From and after the Effective Time:
(a) Bancorp shall, as provided, in Chapter 271B of the Kentucky Revised
Statutes and Section 252 of the DGCL, be merged into and continued in
Subsidiary, which at all times after the Effective Time shall be referred to
as the "Surviving Corporation" and the separate existence of Bancorp shall
cease;
(b) The title to all real estate and other property owned by each
corporation party to the Merger shall be vested in the Surviving Corporation
without reversion or impairment;
(c) The Surviving Corporation shall have all liabilities of each
corporation which is a party to the Merger; and
(d) A proceeding pending against Bancorp may be continued as if the
Merger did not occur or the Surviving Corporation may be substituted in the
proceeding for Bancorp.
8. SURVIVING CORPORATION -- CORPORATE MATTERS. From and after the
Effective Time, until changed or amended in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation, or otherwise in
accordance with law:
(a) The name of the Surviving Corporation shall be "Peoples First
Acquisition Corporation";
(b) The Articles of Incorporation of the Surviving Corporation shall be
the Articles of Incorporation of Subsidiary;
(c) The Bylaws of the Surviving Corporation shall be the Bylaws of
Subsidiary in effect immediately prior to the Effective Time;
(d) The members of the Board of Directors of the Surviving Corporation
shall be the members of the Board of Directors of Subsidiary immediately
prior to the Effective Time; and
(e) The officers of the Surviving Corporation shall be the officers of
Subsidiary immediately prior to the Effective Time.
9. CONVERSION OF SHARES.
(a) At the Effective Time, except for shares (the "Dissenting Shares") with
respect to which the holder has properly exercised the holder's appraisal rights
under Section 262 of the DGCL and subject to Section 12 of this Plan, each share
of Bancorp Common Stock shall, IPSO FACTO, and without any action on the part of
the holder thereof, become and be converted into 1.13597 shares of PFC Common
Stock; and all outstanding certificates representing shares of Bancorp Common
Stock shall represent, instead of shares of Bancorp Common Stock, shares of PFC
Common Stock equal to the Merger Consideration.
(b) At the Effective Time, all shares of Subsidiary Common Stock issued and
outstanding immediately before the Effective Time shall be converted into the
same number of shares of the Surviving Corporation's common capital stock
("Surviving Corporation Common Stock").
(c) Following the Effective Time, the Surviving Corporation shall have
1,000 shares of Surviving Corporation Common Stock issued and outstanding, all
of which shall be held by PFC.
(d) Each share of PFC Common Stock issued and outstanding immediately
before the Effective Time shall remain unchanged by the Merger.
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10. SURRENDER OF CERTIFICATES.
(a) As of the Effective Time, PFC shall deposit, or shall cause to be
deposited, with The Peoples First National Bank and Trust Company, Paducah,
Kentucky (the "Exchange Agent"), for the benefit of the holders of shares of
Bancorp Common Stock, for exchange in accordance with this Section 10, through
the Exchange Agent, (i) certificates representing the shares of PFC Common Stock
issuable pursuant to Section 6 in exchange for outstanding shares of Bancorp
Common Stock, excluding any fractional share interest to which a Bancorp
shareholder might otherwise be entitled, and (ii) the cash amount due Bancorp
shareholders in lieu of any fractional share interest as provided for in Section
12 of this Plan.
(b) As soon as reasonably practicable (but not more than five business
days) after the Effective Time, the Exchange Agent shall mail to each holder of
record of a certificate(s) that immediately prior to the Effective Time
represented outstanding shares of Bancorp Common Stock ("Bancorp Certificates")
that were converted into shares of PFC Common Stock pursuant to Section 6, (i) a
letter of transmittal in the customary form and (ii) instructions for use in
effecting the surrender of the Bancorp Certificates in exchange for certificates
representing shares of PFC Common Stock. Upon surrender of a Bancorp Certificate
for cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, and such other required documents, the holder of the Bancorp
Certificate shall be entitled to receive in exchange therefor a certificate
representing that number of whole shares of PFC Common Stock that such holder
has the right to receive in respect of the Bancorp Certificate surrendered
pursuant to the provisions of this Section 10 (after taking into account all
shares of Bancorp Common Stock then held by such holder) and cash in lieu of any
fractional share interest as provided for in Section 12 of this Agreement.
(c) Whenever PFC declares a dividend or other distribution, in cash, stock
or other property, on the PFC Common Stock after the Effective Time, the
declaration shall provide for the dividend or distribution on all shares of PFC
Common Stock issued and outstanding, including those with respect to which no
certificate has been delivered hereunder; however, no disbursement of such
dividend or distribution shall be required to be made until the shareholder
entitled to such dividend or distribution has delivered such shareholder's
Bancorp Certificates in accordance with subsection 10(b) of this Plan regarding
the Bancorp Certificate(s) representing such shares. Upon such compliance or as
soon as practicable thereafter, each such shareholder shall be entitled to
receive from PFC an amount equal to all dividends and distributions (without
interest thereon and less the amount of taxes, if any, which have been imposed
or paid thereon or withheld therefrom) on the shares represented thereby.
11. RECLASSIFICATIONS, ETC. If, prior to the Effective Time, PFC declares
a stock dividend on or subdivides, splits up, reclassifies or combines PFC
Common Stock, or declares a dividend, or makes a distribution, on PFC Common
Stock of any security convertible into PFC Common Stock, then appropriate
adjustment shall be made in the Merger Consideration to take into account the
dividend, subdivision, split-up, reclassification or combination.
12. NO FRACTIONAL SHARES. No certificate or scrip of any kind shall be
issued by PFC to any former Bancorp shareholder in respect of any fractional
interest in PFC Common Stock resulting from the Merger. No holder of Bancorp
Common Stock shall have any rights in respect of a fractional interest in PFC
Common Stock arising out of the Merger, except to receive a cash payment equal
to such fraction multiplied by the average of the per share closing prices of
PFC Common Stock as reported by NASDAQ for the 15 trading days immediately next
preceding the Closing Date (the "PFC Trading Price").
13. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PFC, BANCORP AND THE
SUBSIDIARY. All of the representations, warranties and covenants of PFC and the
Subsidiary to Bancorp and of Bancorp to PFC and the Subsidiary set forth in the
Merger Agreement, as updated as provided in Section 7.03 and 7.02, respectively,
of the Merger Agreement, are restated as of the date hereof and are incorporated
herein by reference.
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14. APPROVALS. The Plan shall be submitted to the shareholders of Bancorp
and the Subsidiary for approval (a) with respect to Bancorp at a regular or
special meeting to be called and held in accordance with applicable provisions
of law and the Certificate of Incorporation and Bylaws of Bancorp, and (b) with
respect to the Subsidiary, by unanimous written consent of its sole shareholder.
Unless inconsistent with its fiduciary responsibilities, the Board of Directors
of each of Bancorp and the Subsidiary shall recommend the Plan of Merger to its
shareholders. Bancorp and the Subsidiary shall proceed expeditiously and
cooperate fully in the procurement of any other consents and approvals, the
taking of any other action, and the satisfaction of all other requirements
prescribed by law or otherwise necessary for consummation of the Merger on the
terms provided by this Plan and the Merger Agreement.
15. PFC REGISTRATION STATEMENT AND PROSPECTUS-PROXY STATEMENT. As promptly
as practicable after the date hereof and the furnishing by Bancorp of all
information regarding Bancorp required to be reflected therein, PFC shall
prepare and file with the Securities and Exchange Commission a registration
statement in accordance with the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder (the "Registration Statement") for
the purpose of registering the PFC Common Stock to be issued to the Bancorp
shareholders in the Merger. PFC shall use all reasonable efforts to cause the
Registration Statement to become effective as soon as appropriate and possible
after the date it is filed with the SEC. Bancorp and each member of the Board of
Directors of Bancorp shall promptly furnish PFC with all such data, information
and analysis relating to Bancorp, its shareholders or its directors as PFC may
reasonably request for the purpose of including such data, information and
analysis in the Registration Statement.
16. CONDITIONS TO OBLIGATIONS OF BANCORP. The obligations of Bancorp to
consummate the Merger shall be subject to the satisfaction of the conditions set
forth in Section 7.01 and 7.02 of the Merger Agreement on or before the
Effective Time.
17. CONDITIONS TO OBLIGATIONS OF PFC AND THE SUBSIDIARY. The obligations
of PFC and the Subsidiary to consummate the Merger shall be subject to the
satisfaction of the conditions set forth in Sections 7.01 and 7.01 of the Merger
Agreement on or before the Effective Time.
18. TERMINATION.
(a) This Plan shall automatically terminate, without any action on the part
of any party, if and when the Merger Agreement is properly terminated.
(b) Upon termination of this Plan, by the rightful termination of the
Merger Agreement, this Plan shall be void, and of no further effect, and there
shall be no liability by reason of this Plan, or the termination thereof on the
party of Bancorp, the Subsidiary, PFC or the respective directors, officers,
employees, agents or shareholders of any of them.
19. REORGANIZATION. The Board of Directors of each of PFC, Subsidiary,
Bancorp and the Bank has approved the Merger Agreement and this Plan as a plan
of reorganization within the provisions of the Internal Revenue Code of 1986, as
amended, SectionSection368(a)(1)(A) and (a)(2)(D).
20. HEADINGS, COUNTERPARTS AND PRONOUNS. The headings in this Plan have
been inserted solely for ease of reference and shall not be considered in the
interpretation or construction of this Plan. This Plan may be executed in any
number of counterparts, each of which shall be an original, but such
counterparts shall together constitute one and the same instrument. Wherever
from the context it appears appropriate, pronouns, in any variation thereof,
stated in this Plan shall include the masculine, feminine or neuter.
21. WAIVERS. No waivers of failure to insist upon strict compliance with
any obligation, covenant, agreement or condition of this Plan shall operate as a
waiver of, or an estoppel with respect to, any subsequent or other failure.
22. MERGER AGREEMENT. This Plan is entered into in accordance with and for
the purpose of facilitating the consummation of the transactions contemplated by
the Merger Agreement.
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23. GOVERNING LAW. This Plan shall be governed by, and construed and
interpreted in accordance with, the laws of Kentucky and Delaware.
IN WITNESS WHEREOF, Bancorp and the Subsidiary have caused this Plan to be
executed by their duly authorized officers as of the date first above written.
FIRST KENTUCKY BANCORP, INC.
By ___________________________________
Dennis W. Kirtley, President
And by _______________________________
JoAnn Whitaker, Secretary
PEOPLES FIRST ACQUISITION
CORPORATION
______________________________________
Aubrey W. Lippert, President
And by _______________________________
A. Howard Arant, Secretary
Peoples First Corporation hereby joins in the foregoing Plan, undertakes
that it will be bound thereby, and undertakes that it will do an perform all the
acts and things therein referred to or provided to be done by it.
IN WITNESS WHEREOF, Peoples First Corporation has caused this Plan to be
executed by its duly authorized officers as of the date first above written.
PEOPLES FIRST CORPORATION
By ___________________________________
Aubrey W. Lippert, President
And by _______________________________
A. Howard Arant, Secretary
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APPENDIX C
FAIRNESS OPINION OF
CAPITAL RESOURCES GROUP, INC.
January 27, 1994
Board of Directors
First Kentucky Bancorp, Inc.
214 North First Street
Central City, KY 42330
Dear Board Members:
You have requested our opinion as to the fairness from a financial point of
view to the holders of shares of common stock of First Kentucky Bancorp, Inc.
("First Kentucky" or the "Company") of the proposed consideration to be paid to
the shareholders of First Kentucky by Peoples First Corporation ("Peoples
First"). This current opinion serves as an update of our original Fairness
Opinion dated October 15, 1993.
Capital Resources Group, Inc. ("Capital Resources") is an investment banking
firm that, as part of our specialization in financial institutions, is regularly
engaged in the financial valuations and analyses of business enterprises and
securities in connection with mergers and acquisitions, valuations for
mutual-to-stock conversions of thrifts, initial and secondary offerings,
divestiture and other corporate purposes. Senior members of Capital Resources
have extensive experience in such matters. We believe that, except for the fee
we will receive for our opinion, we are independent of the Company.
FINANCIAL TERMS OF THE OFFER
We understand that, pursuant to a Merger Agreement and Plan of
Reorganization ("Agreement"), and based on discussions with the Company's
management and counsel, Peoples First has agreed to acquire all of the issued
and outstanding shares of common stock of First Kentucky pursuant to which each
share of First Kentucky's outstanding stock will be converted into 2.27194
shares (the "Merger Consideration") of Peoples First common stock
("Transaction"). Based on Peoples First's average closing trading price during a
recent 30-day period as quoted on NASDAQ, of $24.87 per share, this translates
into an offer price of $56.50 per share for First Kentucky's common stock. If
Peoples First effects a stock dividend, reclassification, subdivision, split-up,
combination or similar transaction prior to the effective time of the
Transaction, then the appropriate adjustment will be made in the Merger
Consideration.
It is intended that no gain or loss will be recognized by any First Kentucky
stockholder for tax purposes, except in connection with the receipt of cash in
lieu of a fractional share of Peoples First common stock, upon the exchange of
First Kentucky common stock for Peoples First common stock.
Also, for the fiscal year ended September 30, 1993, First Kentucky may
declare in the aggregate no more than $373,000 in dividends, which amount
excludes the dividend for the fiscal year ended September 30, 1992 paid in
January 1993. Beginning on October 1, 1993 and until the closing date of the
Transaction, First Kentucky may declare a cash dividend for each cash dividend
declared by Peoples First. The amount of such dividends per share of First
Kentucky common stock shall be the amount of the Peoples First dividend which
would be payable on the number of shares of Peoples First common stock into
which each share of First Kentucky common stock is to be converted in the
Transaction.
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Pursuant to the Transaction, First Kentucky will be merged into a wholly
owned subsidiary of Peoples First. Also, as a result of the Transaction, it is
expected that First Kentucky Federal Savings Bank, the wholly owned operating
subsidiary of First Kentucky, will exist as a separate operating subsidiary of
Peoples First.
MATERIALS REVIEWED
In the course of rendering our opinions we have, among other things:
(1) Reviewed the terms of the offer and discussed the offer with management
and the Board of Directors, and First Kentucky's legal counsel, Housley
Goldberg and Kantarian, P.C.;
(2) Reviewed the following financial data:
- the audited financial statements of First Kentucky for the
fiscal years ended September 30, 1988 through September 30, 1993
and unaudited financial statements for the nine months ended June
30, 1993,
- the Office of Thrift Supervision ("OTS") quarterly Thrift
Financial Reports covering the period through September 30, 1993,
the latest available period,
- First Kentucky's latest available asset/liability reports,
- other miscellaneous internally-generated management information
reports for recent periods,
- First Kentucky's most recent business plan and budget report;
(3) Reviewed First Kentucky's Annual Report to shareholders and Report on
Form 10-K through fiscal 1993 which provides a discussion of the
Company's business and operations and reviews various financial data and
trends;
(4) Discussed with executive management of First Kentucky, the business,
operations, recent financial condition and operating results and future
prospects of the Company;
(5) Compared First Kentucky's financial condition and operating results to
those of similarly-sized thrift companies operating in Kentucky and the
U.S.;
(6) Compared First Kentucky's financial condition and operating performance
to the published financial statements and market price data of
publicly-traded thrifts in general, and publicly-traded thrifts in First
Kentucky's region of the U.S. specifically;
(7) Reviewed the relevant market information regarding the shares of common
stock of the Company including trading activity and volume;
(8) Performed such other financial analyses and investigations as we deemed
necessary, including a comparative financial analysis and review of the
financial terms of other pending and completed acquisitions of companies
we consider to be generally similar to the Company;
(9) Examined First Kentucky's economic operating environment and the
competitive environment of the Company's market area;
(10) Reviewed available financial reports and financial data for Peoples
First, including annual reports, Form 10-K reports, quarterly reports,
Form 10-Q reports, other published financial data and other internal and
regulatory financial reports provided by management of Peoples First;
reviewed Peoples First's banking office network; and reviewed the
pricing trends of Peoples First's common stock; and
(11) Visited Peoples First's headquarters and administrative offices and
conducted interviews with management including a discussion of Peoples
First's business and prospects.
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In arriving at our opinion, we have relied upon the accuracy and
completeness of the information provided to us by the various parties mentioned
above, upon public information and upon representations and warranties in the
Agreement, and have not conducted any independent investigations to verify any
such information or performed any independent appraisal of First Kentucky's or
Peoples First's assets.
This fairness opinion is supported by the detailed information and analysis
contained in the Evaluation and Analysis Reports dated October 15, 1993 and
January 27, 1994 ("Reports"), which have been produced by Capital Resources and
delivered to First Kentucky. We have relied on the Reports of purposes of
rendering this current fairness opinion. The Reports contain a business
description and financial analysis of First Kentucky, an analysis of current
economic conditions in the Company's primary market area (economic analysis is
provided in October 15 Report only), and a financial and market pricing
comparison with a selected group of thrift institutions which completed merger
and acquisition transactions or are currently subject to pending transactions.
OPINION
Based on the foregoing and on our general knowledge of and experience in the
valuation of businesses and securities, we continue to be of the opinion that,
as of January 27, 1994, the consideration proposed by Peoples First for shares
of common stock of the Company is fair to the shareholders of the Company from a
financial point of view.
Respectfully submitted,
CAPITAL RESOURCES GROUP, INC.
David P. Rochester
Chairman and Chief Executive Officer
Michael B. Seiler
Senior Vice President
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APPENDIX D
PROVISIONS OF DELAWARE LAW CONCERNING
APPRAISAL RIGHTS OF DISSENTING STOCKHOLDERS
Section 262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of
this State who holds shares of stock on the date of the making of a demand
pursuant to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation nor consented
thereto in writing pursuant to Section228 of this title shall be entitled to an
appraisal by the Court of Chancery of the fair value of his shares of stock
under the circumstances described in subsection (b) and (c) of this section. As
used in this section, the word "stockholder" means a holder of record of stock
in a stock corporation and also a member of record of a nonstock corporation;
the words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to SectionSection251, 252, 254, 257, 258 or 263 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock which, at the
record date fixed to determine the stockholders entitled to receive notice
of and to vote at the meeting of stockholders to act upon the agreement of
merger or consolidation, were either (i) listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or (ii) held of record by more than 2,000 stockholders; and
further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did
not require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of Section251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection251, 252, 254, 257, 258 and 263 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation;
b. Shares of stock of any other corporation which at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on
an interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 stockholders;
c. Cash in lieu of fractional shares of the corporations described
in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock and cash in lieu of
fractional shares described in the foregoing subparagraphs a., b. and c.
of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is
D-1
<PAGE>
a constituent corporation or the sale of all or substantially all of the assets
of the corporation. If the certificate of incorporation contains such a
provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section228
or 253 of this title, the surviving or resulting corporation, either before
the effective date of the merger or consolidation or within 10 days
thereafter, shall notify each of the stockholders entitled to appraisal
rights of the effective date of the merger or consolidation and that
appraisal rights are available for any or all of the shares of the
constituent corporation, and shall include in such notice a copy of this
section. The notice shall be sent by certified or registered mail, return
receipt requested, addressed to the stockholder at his address as it appears
on the records of the corporation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of the notice, demand
in writing from the surviving or resulting corporation the appraisal of his
shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of his shares.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom
D-2
<PAGE>
agreements as to the value of their shares have not been reached by the
surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective
D-3
<PAGE>
date of the merger or consolidation as provided in subsection (e) of this
section or thereafter with the written approval of the corporation, then the
right of such stockholder to an appraisal shall cease. Notwithstanding the
foregoing, no appraisal proceeding in the Court of Chancery shall be dismissed
as to any stockholder without the approval of the Court, and such approval may
be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
D-4
<PAGE>
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Article 12 of the Peoples First's Articles of Incorporation provides as
follows:
(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, partner-
ship, joint venture, trust, other enterprise or employee benefit plan.
(ii) "Corporation" includes any domestic or foreign predeces- sor
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.
(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 contem-
plated in section (i) of this Article, the elective or appointive office in the
corporation held by the officer or the employment or agency relationship under-
taken by the employee or agent in 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 pro-
ceeding, 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
II-1
<PAGE>
be made in respect of any proceeding in which the person shall have been
adjudged solely 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.
(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 merits or
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 sub-
section (4)(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 determi-
nation 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
(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
II-2
<PAGE>
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 sentence 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
witness in a proceeding at a time when he has not been made a named defendant or
respondent in the proceeding.
(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 perfor-
mance 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 seek 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 enterprise 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.
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<PAGE>
(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, employ or agent and shall inure to the
benefit of their heirs, executors and administrators of such a person.
(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.
* * * * *
The registrant has also purchased directors' and officers' liability
insurance covering certain liabilities incurred by its officers and directors in
connection with the performance of their duties, including liabilities arising
under the federal securities laws.
Item 21. Exhibits and Financial Statements Schedules.
<TABLE>
<CAPTION>
Exhibit Description
<S> <C>
2.1 Merger Agreement and Plan of Reorganization dated as of
October 15, 1993 among Peoples First Corporation,
Peoples First Acquisition Corporation, First Kentucky
Bancorp, Inc. and First Kentucky Federal Savings Bank is
included as Appendix A to the Prospectus-Proxy
Statement.
2.2 Form of Plan and Agreement of Merger between Peoples First
Acquisition Corporation and First Kentucky Bancorp, Inc.
is included as Annex B to the Prospectus-Proxy
Statement.
3.1 Peoples First's Restated Articles of Incorporation and
Amendments are incorporated herein be reference to
Exhibit 3(a) to Peoples First's 10-K for the year ended
December 31, 1992.
3.2 Peoples First's Bylaws and Amendments are incorporated
herein by reference to Exhibit 3(b) to Peoples First's
10-K for the year ended December 31, 1992.
5 Opinion of Brown, Todd & Heyburn as to the legality of
the securities registered.
8 Opinion of Brown, Todd & Heyburn as to tax matters and
consequences to stockholders.
10.1 Consulting Agreement between Bank of Murray and Mr. Joe
Dick is incorporated by reference to Exhibit 10.1 to
Registration No. 33-44235.
10.2 Peoples First's 1986 Stock Option Plan is incorporated
herein by reference to Exhibit 28 to Registration No.
33-28304.
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C>
10.3 Employment Agreement between Salem Bank, Inc. and Neal
H. Ramage is incorporated herein by reference to Exhibit
10.1.
21 Subsidiaries of Peoples First.
23.1 Consent of Brown, Todd & Heyburn is contained in their
opinions filed as Exhibits 5 and 8 hereto.
23.2 Consent of Whelan Doerr Pike & Pawley, PSC, Certified
Public Accountants.
23.3 Consent of Capital Resources, Inc.
23.4 Consent of KPMG Peat Marwick, Certified Public
Accountants
23.5 Consent of Dennis W. Kirtley to serve as a director of
Peoples First.
24 Power of Attorney is contained in the Signature Page.
99.1 Form of Employment Agreement between First Kentucky and
Dennis W. Kirtley.
99.2 Form of Employment Agreement between First Kentucky and
David R. Morrison.
99.3 Option Agreement dated October 15, 1993 between Peoples
First Corporation and First Kentucky.
99.4 Form of Affiliate Agreement between Peoples First
Corporation and each of the Directors of First Kentucky.
99.5 Form of Agreement dated October 15, 1993 between Peoples
First Corporation and each director of First Kentucky.
99.6 Proxy Form.
99.7 Fairness Opinion of Capital Resources, Inc. is included
as Appendix C to the Prospectus-Proxy Statement.
99.8 Participation Direction Form for First Kentucky Federal
Savings Bank Employee Stock Ownership Plan
</TABLE>
Item 22. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefor, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or a controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling persons in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this form within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed
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<PAGE>
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning the transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrant hereby undertakes (1) to file, during any period
in which offers or sales are being made, a post-effective amendment to this
registration statement, to (a) include any prospectus required by Section
10(a)(3) of the Securities Act, (b) reflect in the prospectus any facts or
events arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement, (c) include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement; (2) that,
for the purpose of determining any liability under the Securities Act, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof; and
(3) to remove from registration by means of a post-effective amendment any of
the securities being registered that remain unsold at the termination of the
offering.
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this amendment to its registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Paducah,
Commonwealth of Kentucky, on January 24, 1994.
PEOPLES FIRST CORPORATION
By:/s/ Aubrey W. Lippert
--------------------------
Aubrey W. Lippert
Pursuant to the requirements of the Securities Act, this amendment to the
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ Aubrey W. Lippert Chairman of the Board, January 24, 1994
- ----------------------------- President, Chief
Aubrey W. Lippert Executive Officer, and
Director
* Vice Chairman of the January 24, 1994
- ---------------------------- Board and Director
Joe Dick
/s/ Allan B. Kleet Chief Financial Offi- January 24, 1994
- ---------------------------- cer, Treasurer and
Allan B. Kleet Director (Principal
financial and accounting
officer)
* Director January 24, 1994
- ----------------------------
Walter L. Apperson
* Director January 24, 1994
- ----------------------------
William R. Dibert
* Director January 24, 1994
- ----------------------------
Richard E. Fairhurst, Jr.
* Director January 24, 1994
- ----------------------------
William Rowland Hancock
* Director January 24, 1994
- -----------------------------
Robert P. Meriwether, M.D.
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
* Director January 24, 1994
- -----------------------------
Joe Harry Metzger
* Director January 24, 1994
- ----------------------------
Jerry L. Page
* Director January 24, 1994
- ----------------------------
Rufus E. Pugh
* Director January 24, 1994
- ----------------------------
Neal H. Ramage
* Director January 24, 1994
- ----------------------------
Allan Rhodes, Jr.
* Director January 24, 1994
- ----------------------------
Mary Warren Sanders
* Director January 24, 1994
- ----------------------------
Victor F. Speck, Jr.
____________________________
* By /s/ Aubrey W. Lippert
------------------------
Aubrey W. Lippert, Attorney-in-fact
pursuant to power of attorney previously
filed with this registration statement.
</TABLE>
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<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
------- -----------
<C> <S>
2.1 Merger Agreement and Plan of Reorganization dated as of
October 15, 1993 among Peoples First Corporation, Peoples
First Acquisition Corporation, First Kentucky Bancorp,
Inc. and First Kentucky Federal Savings Bank is included
as Appendix A to the Prospectus-Proxy Statement.
2.2 Form of Plan and Agreement of Merger between Peoples First
Acquisition Corporation and First Kentucky Bancorp, Inc.
is included as Annex B to the Prospectus-Prox Statement.
3.1 Peoples First's Restated Articles of Incorporation and
Amendments are incorporated herein be reference to
Exhibit 3(a) to Peoples First's 10-K for the year ended
December 31, 1992.
3.2 Peoples First's Bylaws and Amendments are incorporated
herein by reference to Exhibit 3(b) to Peoples First's
10-K for the year ended December 31, 1992.
*5 Opinion of Brown, Todd & Heyburn as to the legality of
the securities registered.
*8 Opinion of Brown, Todd & Heyburn as to tax matters and
consequences to stockholders.
10.1 Consulting Agreement between Bank of Murray and Mr. Joe
Dick is incorporated by reference to Exhibit 10.1 to
Registration No. 33-44235.
10.2 Peoples First's 1986 Stock Option Plan is incorporated
herein by reference to Exhibit 28 to Registration No. 33-
28304.
10.3 Employment Agreement between Salem Bank, Inc. and Neal H.
Ramage is incorporated herein by reference to Exhibit
10.1.
*21 Subsidiaries of Peoples First.
23.1 Consent of Brown, Todd & Heyburn is contained in their
opinions filed as Exhibits 5 and 8 hereto.
23.2 Consent of Whelan Doerr Pike & Pawley, Certified Public
Accountants.
23.3 Consent of Capital Resources, Inc.
23.4 Consent of KPMG Peat Marwick, Certified Public
Accountants.
*23.5 Consent of Dennis W. Kirtley to serve as a director of
Peoples First.
*24 Power of Attorney.
*99.1 Form of Employment Agreement between First Kentucky and
Dennis W. Kirtley.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
*99.2 Form of Employment Agreement between First Kentucky and
David R. Morrison.
*99.3 Option Agreement dated October 15, 1993 between Peoples
First Corporation and First Kentucky.
*99.4 Form of Affiliate Agreement between Peoples First
Corporation and each of the Directors of First Kentucky.
*99.5 Form of Agreement dated October 15, 1993 between Peoples
First Corporation and each director of First Kentucky.
99.6 Proxy Form.
99.7 Fairness Opinion of Capital Resources, Inc. is included
as Appendix C to the Prospectus-Proxy Statement.
99.8 Participation Direction Form for First Kentucky Federal
Savings Bank Employee Stock Ownership Plan.
_________________________
* Previously filed.
</TABLE>
<PAGE>
EXHIBIT 23.2
The Board of Directors
Peoples First Corporation:
We consent to the use of our reports herein and to the reference to our
firm under the heading "Experts" in the prospectus contained in the Registration
Statement on Form S-4 filed by Peoples First Corporation.
WHELAN, DOERR, PIKE & PAWLEY, PSC
Elizabethtown, Kentucky
January 24, 1994
<PAGE>
EXHIBIT 23.3
CONSENT OF CAPITAL RESOURCES GROUP, INC.
We hereby consent to reference to us in the Proxy Statement/Prospectus
constituting part of this Registration Statement on Form S-4, and to the
inclusion in such Proxy Statement/Prospectus of our fairness opinion (in whole
but not in part) to the Board of Directors of First Kentucky Bancorp, Inc. dated
as of the date of the Proxy Statement/Prospectus. In giving this consent, we do
not concede that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or rules and
regulations of the Securities and Exchange Commission thereunder.
CAPITAL RESOURCES GROUP, INC.
Washington, D.C.
January 24, 1994
<PAGE>
EXHIBIT 23.4
The Board of Directors
Peoples First Corporation:
We consent to the use of our reports incorporated herein by reference and
to the reference to our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK
St. Louis, Missouri
January 24, 1994
<PAGE>
EXHIBIT 99.6
REVOCABLE PROXY
FIRST KENTUCKY BANCORP, INC.
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 28, 1994
The undersigned hereby appoints Glen Barryman, Charles H. Shaver and Larry Young
with full powers of substitution to act, as attorneys and proxies for the
undersigned, to vote all shares of Common Stock of First Kentucky Bancorp, Inc.
which the undersigned is entitled to vote at the Annual Meeting of Stockholders,
to be held at the Convention Center Inn, 2011 West Everly Brothers Boulevard,
Central City, Kentucky on Monday, February 28, 1994 at 2:00 p.m., local time,
and at any and all adjournments thereof, as indicated below and in accordance
with the determination of a majority of the Board of Directors with respect to
other matters which come before the Annual Meeting.
VOTE
FOR WITHHELD
1. The election as directors of all nominees listed below
(except as marked to the contrary below). / / / /
Gathiel D. Baker
Dennis W. Kirtley
INSTRUCTION: To withhold your vote for any individual nominee, insert that
nominee's name on the line provided below.
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of the Merger Agreement and Plan of
Reorganization, dated October 15, 1993 (the
"Merger Agreement") by and between First Kentucky
Bancorp, Inc. ("First Kentucky") and Peoples First
Acquisition Corporation ("Subsidiary"), a
subsidiary wholly owned by Peoples First
Corporation ("Peoples First"), pursuant to which
First Kentucky will be merged with and into,
Subsidiary, and each outstanding share of the
common stock, $.01 par value per share, of First
Kentucky will be converted to 2.27194 shares of no
par value common stock of Peoples First (the
"Merger"). / / / / / /
3. Approval of an adjournment of the Annual Meeting
to a later date, if necessary, to solicit
additional proxies in the event insufficient
shares are present in person or by proxy at the
Annual Meeting to approve the Merger Agreement. / / / / / /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE LISTED PROPOSITIONS.
<PAGE>
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE NOMINEES AND FOR THE OTHER LISTED
PROPOSITIONS. IF ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL MEETING, THIS
PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN ACCORDANCE WITH THE
DETERMINATION OF A MAJORITY OF THE BOARD OF DIRECTORS. AT THE PRESENT TIME, THE
BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE ANNUAL
MEETING. THIS PROXY CONFERS DISCRETIONARY AUTHORITY ON THE HOLDERS THEREOF TO
VOTE WITH RESPECT TO THE ELECTION OF ANY PERSON AS DIRECTOR WHERE THE NOMINEE IS
UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE AND MATTERS INCIDENT TO THE
CONDUCT OF THE ANNUAL MEETING.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Annual Meeting or at
any adjournment thereof and after notification to the Secretary of First
Kentucky at the Annual Meeting of the stockholder's decision to terminate this
proxy, then the power of said attorneys and proxies shall be deemed terminated
and of no further force and effect. The undersigned hereby revokes any and all
proxies heretofore given with respect to the shares of Common Stock held of
record by the undersigned.
The undersigned acknowledges receipt from First Kentucky prior to the execution
of this proxy of a Notice of Annual Meeting and a Proxy Statement.
Dated:
- ------------------------------------------------ , 1994
- --------------------------------------- ---------------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
- --------------------------------------- ---------------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on the envelope in which this card was
mailed. When signing as attorney, executor, administrator, trustee or guardian,
please give your full title. If shares are held jointly, each holder should
sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
<PAGE>
EXHIBIT 99.8
PARTICIPANT DIRECTION FORM
FIRST KENTUCKY BANCORP, INC.
ANNUAL MEETING OF STOCKHOLDERS
FEBRUARY 28, 1994
The undersigned participant in the First Kentucky Federal Savings Bank
Employee Stock Ownership Plan (the "Plan") hereby directs the Trustees
to vote all shares of Common Stock of First Kentucky Bancorp, Inc.
allocated to the participant's account at the Annual Meeting of Stockholders,
to be held at the Convention Center Inn, 2011 West Everly Brothers Boulevard,
Central City, Kentucky on Monday, February 28, 1994 at 2:00 p.m., local time,
and at any and all adjournments thereof, as indicated below and in accordance
with the determination of a majority of the Board of Directors with respect
to other matters which come before the Annual Meeting.
VOTE
FOR WITHHELD
1. The election as directors of all nominees listed below
(except as marked to the contrary below). / / / /
Gathiel D. Baker
Dennis W. Kirtley
INSTRUCTION: To withhold your vote for any individual nominee, insert that
nominee's name on the line provided below.
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
2. Approval of the Merger Agreement and Plan of
Reorganization, dated October 15, 1993 (the
"Merger Agreement") by and between First Kentucky
Bancorp, Inc. ("First Kentucky") and Peoples First
Acquisition Corporation ("Subsidiary"), a
subsidiary wholly owned by Peoples First
Corporation ("Peoples First"), pursuant to which
First Kentucky will be merged with and into,
Subsidiary, and each outstanding share of the
common stock, $.01 par value per share, of First
Kentucky will be converted to 2.27194 shares of no
par value common stock of Peoples First (the
"Merger"). / / / / / /
3. Approval of an adjournment of the Annual Meeting
to a later date, if necessary, to solicit
additional proxies in the event insufficient
shares are present in person or by proxy at the
Annual Meeting to approve the Merger Agreement. / / / / / /
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE LISTED PROPOSITIONS.
<PAGE>
THIS PARTICIPANT DIRECTION FORM WILL BE VOTED BY THE TRUSTEES AS DIRECTED BY THE
COMMITTEE UNDER SECTION 13.6 OF THE PLAN, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PARTICIPANT DIRECTION FORM WILL BE VOTED FOR EACH OF THE NOMINEES AND FOR
THE OTHER LISTED PROPOSITIONS. IF ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL
MEETING, THIS PARTICIPANT DIRECTION FORM WILL BE VOTED IN ACCORDANCE WITH THE
DETERMINATION OF THE TRUSTEES. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS
OF NO OTHER BUSINESS TO BE PRESENTED AT THE ANNUAL MEETING. THIS PARTICIPANT
DIRECTION FORM CONFERS DISCRETIONARY AUTHORITY ON THE BOARD OF DIRECTORS TO
VOTE WITH RESPECT TO THE ELECTION OF ANY PERSON AS DIRECTOR WHERE THE NOMINEE
IS UNABLE TO SERVE OR FOR GOOD CAUSE WILL NOT SERVE AND MATTERS INCIDENT TO THE
CONDUCT OF THE ANNUAL MEETING.
THIS PARTICIPATION DIRECTION FORM IS SOLICITED BY THE TRUSTEE
The undersigned acknowledges receipt from First Kentucky prior to the execution
of this participant direction form of a Notice of Annual Meeting and a Proxy
Statement.
Dated:
- ------------------------------------------------ , 1994
- --------------------------------------- ---------------------------------------
PRINT NAME OF PARTICIPANT PRINT NAME OF PARTICIPANT
- --------------------------------------- ---------------------------------------
SIGNATURE OF PARTICIPANT SIGNATURE OF PARTICIPANT
Please sign exactly as your name appears on the envelope in which this card was
mailed. When signing as attorney, executor, administrator, trustee or guardian,
please give your full title. If shares are held jointly, each holder should
sign.
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PARTICIPANT DIRECTION FORM PROMPTLY
IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
