_______________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, For the Quarter Ended September 30, 1994
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 0-16839
PEOPLES FIRST CORPORATION
(Exact name of registrant as specified in its charter)
Kentucky 61-1023747
(State or other jurisdiction of (I R S Employer
incorporation or organization) Identification No.)
100 South Fourth Street
P. O. Box 2200
Paducah, Kentucky 42002-2200
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 441-1200
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing require-
ments for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the Registrant's only class of stock as of
September 30, 1994: Common stock, no par value - 7,125,062 shares outstanding.
______________________________________________________________________________1
INDEX Page
_______________________________________________________________________________
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1994,
September 30, 1993 and December 31, 1993 3
Consolidated Statements of Income - Three and Nine
Months Ended September 30, 1994 and 1993 4
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1994 and 1993 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults on Senior Securities 22
Item 4. Submission of Matters to a Vote of Securities Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
Signatures 23
2
<TABLE>
<CAPTION>
September 30, December 31,
CONSOLIDATED BALANCE SHEETS 1994 1993 1993
_______________________________________________________________________________
(in thousands)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $32,399 $30,243 $34,655
Federal funds sold 0 1,000 2,100
Securities held for sale 86,207 44,342 67,431
Investment securities 205,240 279,698 246,096
Loans 703,932 616,916 636,225
Allowance for loan losses (10,936) (9,581) (9,818)
--------- --------- ---------
Loans, net 692,996 607,335 626,407
Excess of cost over net assets
of purchased subsidiaries 10,285 11,115 10,908
Premises and equipment 13,916 13,979 13,999
Other assets 15,127 13,562 13,300
--------- --------- ---------
$1,056,170 $1,001,274 $1,014,896
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand deposits $74,736 $64,941 $73,029
Interest-bearing transaction accounts 211,688 205,033 209,707
Savings deposits 92,058 93,032 93,133
Time deposits 512,072 493,324 497,664
--------- --------- ---------
890,554 856,330 873,533
Repurchase agreements 19,602 19,449 19,705
Short-term borrowings 25,000 17,500 12,600
Notes payable 16,697 11,512 9,747
Other liabilities 7,818 7,360 6,843
--------- --------- ---------
Total liabilities 959,671 912,151 922,428
Stockholders' Equity
Common stock 5,567 5,527 5,539
Surplus 31,591 30,595 30,851
Retained earnings 61,259 53,159 54,990
Unrealized net appreciation (loss)
on securities held for sale (1,785) 0 1,246
Debt on ESOP shares (133) (158) (158)
--------- --------- ---------
96,499 89,123 92,468
--------- --------- ---------
$1,056,170 $1,001,274 $1,014,896
========= ========= =========
Fair value of securities held for sale $86,207 $44,743 $67,431
Fair value of investment securities 205,071 291,974 255,606
Common shares issued and outstanding 7,125 7,074 7,090
</TABLE>
See accompanying notes to consolidated financial statements. 3
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
CONSOLIDATED STATEMENTS OF INCOME 1994 1993 1994 1993
____________________________________________________________________________________________
(in thousands, except per share data)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest on Federal funds sold $0 $5 $56 $99
Taxable interest on securities 3,749 3,895 11,034 12,777
Nontaxable interest on securities 932 1,031 2,862 2,951
Interest and fees on loans 14,665 12,924 41,290 37,688
------ ------ ------ ------
19,346 17,855 55,242 53,515
INTEREST EXPENSE
Interest on deposits 8,075 7,691 23,103 23,765
Interest on repurchase agreements 211 176 592 520
Other interest expense 532 340 1,174 864
------ ------ ------ ------
8,818 8,207 24,869 25,149
------ ------ ------ ------
Net Interest Income 10,528 9,648 30,373 28,366
Provision for Loan Losses 375 466 1,313 1,849
------ ------ ------ ------
Net Interest Income after
Provision for Loan Losses 10,153 9,182 29,060 26,517
Noninterest Income 1,518 1,367 4,541 4,125
Noninterest Expense 7,177 6,728 21,243 19,176
------ ------ ------ ------
Income Before Income Tax Expense 4,494 3,821 12,358 11,466
Income Tax Expense 1,345 920 3,708 3,084
------ ------ ------ ------
NET INCOME $3,149 $2,901 $8,650 $8,382
====== ====== ====== ======
Net Income per Common Share
and Common Share Equivalent $0.42 $0.39 $1.17 $1.15
Cash Dividend per Common Share 0.120 0.105 0.330 0.295
Average Common Shares and Common
Share Equivalents Outstanding 7,361 7,357 7,366 7,278
</TABLE>
See accompanying notes to consolidated financial statements. 4
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
CONSOLIDATED STATEMENTS OF CASH FLOWS 1994 1993
_______________________________________________________________________________
(dollars in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $8,650 $8,382
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,624 1,559
Net (discount accretion) premium
amortization 867 1,149
Provision for loan losses 1,313 1,849
Net (increase) decrease in loans held for sale 471 (89)
Provision for deferred income taxes (889) (1,009)
Other, net 1,776 2,509
------ ------
Net Cash Provided by Operating Activities 13,812 14,350
INVESTING ACTIVITIES
Net decrease in Federal funds sold 2,100 12,750
Proceeds from sales of securities
held for sale 3,019 2,537
Proceeds from maturities of securities
held for sale 11,900 1,875
Proceeds from maturities of investment
securities 27,415 41,276
Principal collected on mortgage-backed
securities held for sale 8,898 3,463
Principal collected on mortgage-backed
investment securities 25,875 25,994
Purchase of securities held for sale (34,357) (10,358)
Purchase of investment securities (25,995) (57,654)
Net increase in loans (68,289) (52,849)
Purchases of premises and equipment (946) (829)
------ ------
Net Cash Used by Investing Activities (50,380) (33,795)
See accompanying notes to consolidated financial statements. 5
Nine Months Ended
September 30,
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED 1994 1993
_______________________________________________________________________________
(dollars in thousands)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 17,021 (3,746)
Net decrease in repurchase agreements (103) (41)
Net increase in Federal funds purchased 12,400 17,500
Net increase in short-term borrowings 12,500 0
Proceeds from notes payable borrowings 3,800 6,200
Repayments of notes payable (9,351) (7,008)
Proceeds from issuance of common stock 377 594
Cash dividends paid (2,332) (1,763)
------ ------
Net Cash Provided by Financing Activities 34,312 11,736
------ ------
Cash and Cash Equivalents
Decrease (2,256) (7,709)
Beginning of Year 34,655 37,952
------ ------
End of Period $32,399 $30,243
====== ======
SUPPLEMENTAL DISCLOSURES
Cash paid for interest expense $24,220 $25,207
Cash paid for income tax 4,319 4,555
NONCASH INVESTING AND FINANCING TRANSACTIONS
Other real estate transferred to (from) loans, net (84) 280
Dividends reinvested 390 323
</TABLE>
See accompanying notes to consolidated financial statements. 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______________________________________________________________________________
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements are unaudited and should be
read in conjunction with the notes to the supplemental consolidated financial
statements contained in the July 28, 1994 current report on Form 8-K. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the periods ended September 30, 1994 are not necessarily indicative
of the results that may be expected for the year ending December 31, 1994.
NOTE B - SECURITIES HELD FOR SALE AND INVESTMENT SECURITIES
The Company adopted Financial Accounting Standard No. 115 "Accounting for Cer-
tain Investments in Debt and Equity Securities" (FAS 115) as of the end of 1993.
This new accounting policy expands the use of fair value accounting for secur-
ities for which there is not a positive intent and ability to hold to maturity.
At acquisition, FAS 115 requires that securities be classified into one of three
catergories: trading, held for sale or investment. Trading securities are
bought and held principally with the intention of selling them in the near term.
The Company has no trading securities. Investment securities are those securi-
ties for which the Company has the ability and intent to hold until maturity.
All other debt securities are classified as held for sale.
Securities held for sale are stated at fair value for September 30, 1994 and
December 31, 1993, and are stated at the lower of amortized cost or market for
September 30, 1993. Fair value is based on market prices quoted in financial
publications or other independent sources. Subsequent to adoption of FAS 115,
net unrealized gains or losses are excluded from earnings and reported, net of
deferred income taxes, as a separate component of stockholders' equity until
realized. The adjusted cost of the specific security held for sale that is sold
is used to compute any gain or loss upon sale.
Investment securities are carried at cost, adjusted for amortization of premiums
and accretion of discounts, which are recognized as adjustments to interest
income on the level-yield method. Gain or loss is recorded when realized on a
specific identity basis or when, in the opinion of management, an unrealized
loss is other than temporary in nature. Mortgage-backed securities represent a
significant portion of the investment security portfolio. Amortization of pre-
miums and accretion of discounts on mortgage-backed securities are analyzed in
relation to the corresponding prepayment rates, both historical and estimated,
using a method which approximates the level-yield method.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
_______________________________________________________________________________
NOTE C - LOAN REVENUES
Interest on commercial and real estate mortgage loans is accrued and credited
to income based upon the principal amount outstanding. Interest on certain
consumer installment loans is credited to income using a method which approxi-
mates the level-yield method.
When in the opinion of management the collection of interest on a loan is
unlikely or when either principal or interest is past due 90 days, the loan is
generally placed on nonaccrual status and interest income is not recognized
unless received in cash. When a loan is placed on nonaccrual status, accrued
interest for the current period is reversed and charged against current earnings
and accrued interest from prior periods is charged against the allowance for
loan losses. A loan remains on nonaccrual status until the loan is current as
to payment of both principal and interest and/or the borrower demonstrates the
ability to pay and remain current. Interest payments received on nonacccrual
loans are applied to principal if there is any doubt as to the collectibility of
total principal, otherwise these payments are recorded as interest income.
NOTE D - ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level determined by management
to be adequate to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based on an evaluation of the
portfolio, past loan loss experience, current domestic economic conditions,
volume, growth and composition of the loan portfolio and other relevant factors.
The allowance is increased by provisions for loan losses charged to expense and
is reduced by loan chargeoffs, net of recoveries.
NOTE E - NET INCOME PER COMMON SHARE AND COMMON SHARE EQUIVALENT
Net income per common share and common share equivalent is determined by divid-
ing net income by the weighted average number of common shares actually out-
standing and common stock equivalents pertaining to common stock options. The
average number of shares outstanding including common stock equivalents for the
nine months ended September 30, 1994 and 1993 were 7,366,337 and 7,278,104,
respectively, and for the three months ended September 30, 1994 and 1993, were
7,361,226 and 7,356,910, respectively. Common stock equivalents have no
material dilutive effect.
NOTE F - CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all cash and due from banks to be cash equivalents.
NOTE G - BUSINESS COMBINATIONS
On March 10, 1994, the Company consummated the acquisition of First Kentucky
Bancorp, Inc. (First Kentucky) and First Kentucky Federal Savings Bank, a
wholly-owned subsidiary of First Kentucky. First Kentucky's six locations are
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
_______________________________________________________________________________
immediately east of the market area served by the Company's other subsidiary
banks, and at September 30, 1994, had total assets of approximately $172.0
million. The acquisition has been accounted for as a pooling of interest, and
accordingly, the accompanying consolidated financial statements have been
restated. A total of 929,794 shares of the Company's common stock was issued in
this business combination. The following table shows the results of operations
of the previously separate enterprises for the period from January 1, 1994
through March 10, 1994 and for the three and nine month periods ended September
30, 1993, the periods before the combination:
Peoples Pooled
Results of Operations First affiliate Combined
_______________________________________________________________________________
(in thousands)
1994 Total revenue $12,357 $2,273 $14,630
Net income 1,758 210 1,968
1993 Three-month period
Total revenue 16,435 2,787 19,222
Net income 2,506 394 2,900
Nine-month period
Total revenue 48,286 9,354 57,640
Net income 7,057 1,325 8,382
On October 7, 1994, the Company consummated the acquisition of Libsab Bancorp,
Inc. (Libsab) and Liberty Bank & Trust, a wholly-owned subsidiary of Libsab.
Liberty Bank's three locations are part of the market area served by the
Company's other subsidiary banks, and at September 30, 1994, had total assets of
approximately $140.4 million. The acquisition will be accounted for as a
pooling of interest, and accordingly, future consolidated financial statements
will include Libsab for all periods presented. A total of 1,077,853 shares of
the Company's common stock was issued in this business combination.
Merger expenses of approximately $390,000 related to pooling of interest acquis-
itions were charged to expense during 1994. The after-tax impact of these
expenses on earning per common share and common share equivalent was $0.05.
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
_______________________________________________________________________________
Headquartered in Paducah, Kentucky, Peoples First Corporation (Company) is a
bank holding company. Through 23 banking offices, the Company serves primarily
the western Kentucky and contiguous interstate area. The purpose of this dis-
cussion and analysis is to provide financial statement readers with information
relevant to understanding and assessing the financial condition and results of
operations of Peoples First Corporation (Company).
EARNING ASSETS
Average earning assets of the Company for the first nine months of 1994 in-
creased 5.3%, or $48.8 million to $975.4 million from $926.6 million for the
first nine months of 1993. This compares to internal average earning asset
growth of 4.3% for the first three quarters of 1993 over the first three
quarters of 1992. Management attributes this increased earning asset growth to
favorable economic conditions and increased marketing efforts. A consistently
favorable ratio of average earning assets to average total assets has been
achieved. The ratio was 94.6% and 94.2% for the first nine months of 1994 and
1993, respectively.
Loans are the Company's primary earning asset. Management has focused on
increasing lending activity and loan demand has been strong. Loans, net of
unearned income, increased $67.7 million during the nine-month period since
December 31, 1993, compared to a $52.3 million increase for the first nine-month
period in the prior year. Average loans for the first three quarters of 1994
were 14.8% greater than average loans for the first three quarters of 1993.
Prior to 1993, loans had been a decreasing portion of earning assets. Average
loans for the first nine months of 1994 were 68.7% of total average earning
assets, compared to 63.0% during the first nine months of 1993. Management
attributes the current reversal of the declining loan composition trend to their
focus on improving the earning asset composition of all the banks, the Company's
desire for promininence in area lending and a slowed growth of deposits.
The Company primarily directs lending activities to its regional market from
which deposits are drawn. Management has focused on retail lending and the
growth of residential real estate mortgage loans over the last two years.
A portion of the proceeds from the sale and maturity of debt securities and the
principal collected on mortgage-backed securities was used to fund loans. Debt
securities decreased $22.1 million during the first nine months of 1994. The
Company maintains a portfolio of securities held for sale as a partial source of
available funding for loan growth.
10
Table 1 September 30, December 31,
Types of Loans 1994 1993 1993
_______________________________________________________________________________
(in thousands)
Commercial, financial
and agricultural $102,994 $112,989 $111,187
Real estate
Construction 14,950 8,655 10,887
Residential mortgage 281,182 238,026 244,558
Commercial mortgage 119,789 102,852 112,400
Installment loans to
individuals 186,321 156,180 159,611
Consumer revolving credit 5,205 3,830 3,922
Loans held for sale 33 1,331 504
Other 2,205 2,373 2,161
------- ------- -------
712,679 626,236 645,230
Unearned income (8,747) (9,320) (9,005)
------- ------- -------
$703,932 $616,916 $636,225
======= ======= =======
FUNDING
The total of average deposits and repurchase agreements, which management relies
on as a stable source of funding, of the Company for the first nine months of
1994 increased 3.6%, or $30.9 million to $898.8 million from $867.9 million for
1993. Internal funding from local area deposits increased 1.5% during the first
nine months of 1994 compared to the same prior year period. Highly competitive
local markets for deposits exist and sustained lower interest rates do not
benefit internal funding growth rates. During periods of slow internal deposit
growth, management partially relies on brokered deposits and Federal funds
purchased to fund loan growth. Brokered deposits amounted to $28.0 million,
$19.2 million and $19.2 million at September 30, 1994 and 1993 and December 31,
1993, respectively.
Beginning in 1994, the Company's subsidiaries obtained various advances from the
Federal Home Loan Bank (FHLB) under Blanket Agreements for Advances and Security
Agreements (Agreements). The Agreements entitle the banks to borrow funds from
the FHLB to fund mortgage loan programs and satisfy other funding needs. Cer-
tain mortgage loans are pledge as collateral to secure the Agreements. Included
in the notes payable liability at September 30, 1994 was $12.5 million due the
FHLB.
NONPERFORMING ASSETS AND RISK ELEMENTS
The level of nonperforming assets at September 30, 1994 remains relatively low,
improving slightly since December 31, 1993. Diversification within the loan
portfolio is an important means of reducing inherent lending risks. At
September 30, 1994, the Company had no concentrations of ten percent or more of
total loans in any single industry nor any geographical area outside of the
Paducah, Kentucky, western Kentucky region, the immediate market area of the
subsidiary banks.
11
The Company discontinues the accrual of interest on loans which become ninety
days past due as to principal or interest, or when in the opinion of management
the collection of interest is unlikely, unless the loans are adequately secured
and in the process of collection. Other real estate owned is carried at the
lower of cost or fair value less estimated disposal costs, if any. A loan is
classified as a renegotiated loan when the interest rate is materially reduced
or the term is extended beyond the original maturity date because of the
inability of the borrower to service the debt under the original terms.
Management continues to exert efforts to monitor and minimize nonperforming
assets even though the nonperforming totals are significantly lower than peer
bank holding company ratios. Significant focus on underwriting standards is
maintained by management and the subsidiary bank boards.
Table 2 September 30, December 31,
Nonperforming Assets 1994 1993 1993
_______________________________________________________________________________
(in thousands)
Nonaccrual loans $464 $2,496 $662
Other real estate owned 1,665 2,030 2,258
Renegotiated loans 2,755 1,219 2,995
----- ----- -----
$4,884 $5,745 $5,915
===== ===== =====
Loans past due ninety days and still
accruing interest $716 $323 $484
Ratios:
Nonperforming assets to total
loans and other real estate 0.69% 0.93% 0.93%
Allowance for loan losses to
nonperforming assets 224% 167% 166%
Internal credit review procedures are designed to alert management of possible
credit problems which would create serious doubts as to the future ability of
borrowers to comply with loan repayment terms. At September 30, 1994, loans
with a total principal balance of $12.5 million have been identified that may
become nonperforming in the future, compared to $16.5 million at December 31,
1993 and $18.0 million that had been identified at September 30, 1993.
Performance of borrowers is aided by the current lower interest carrying costs.
Potential problem loans are not included in nonperforming assets since the
borrowers currently meet all applicable loan agreement terms.
Nonperforming assets at September 30, 1994 were 0.69% of total loans and other
real estate, down from 0.93% at December 31, 1993. A small number of loans and
one tract of undeveloped land in Nashville, Tennessee, represent most of the
nonperforming balance for the last two years.
12
CAPITAL RESOURCES AND DIVIDENDS
The current economic and regulatory environment places increased emphasis on
capital strength. Stockholders' equity was 9.1% of assets at September 30,
1994, the same as at December 31, 1993, and an increase of 0.2% from 8.9% at
September 30, 1993. Stockholders' equity increased $4.0 million, or 5.8%
(annualized), during the first nine months of 1994 due to a 71.8% earnings
retention rate, the sale of common stock through shareholder and employee plans
($767,301) and offset by $3,030,402 of unrealized loss on securities held for
sale, net of deferred income tax. This compares to an increase of $7.7 million
during the same 1993 period when the earnings retention rate was 74.3%, proceeds
from the sale of common stock through shareholder and employee plans was
$917,452 and there was no adjustment on securities held for sale as they were
not accounted for at fair value through equity at that time.
The quarterly dividend was raised to $0.105 per share in the third quarter of
1993 and to $0.120 per share in the third quarter of 1994 in an attempt to reach
a dividend payout ratio equal to 30% of earnings. The board of directors
develops and reviews the capital goals of the consolidated entity and each of
the subsidiary banks. The Company's dividend policy is designed to retain
sufficient amounts for healthy financial ratios, considering future planned
asset growth and other prudent financial management principles.
Subsidiary bank dividends are the principal source of funds for the Company's
payment of dividends to its stockholders. At September 30, 1994, approximately
$12.0 million, compared to $13.8 million at September 30, 1993, in retained
earnings of subsidiary banks were available for dividend payments to the Company
without regulatory approval or without reducing capital of the respective banks
below minimum standards. Capital ratios of all of the Company's subsidiaries
are in excess of applicable regulatory capital ratios. At September 30, 1994
and December 31, 1993, the Company, the two largest subsidiary banks' and the
subsidiary savings bank's capital ratios were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Total Tier I Leverage Ratio
Table 3 Sept 30, Dec 31, Sept 30, Dec 31, Sept 30, Dec 31,
Risk-Based Capital 1994 1993 1994 1993 1994 1993
_________________________________________________________________________________________________________
Company 14.17% 13.94% 12.92% 12.69% 8.48% 8.18%
Peoples First National
Bank 12.56 13.13 11.31 11.88 8.82 9.24
Bank of Murray 16.32 16.54 15.07 15.29 9.34 9.17
First Kentucky FSB 20.40 19.99 19.23 18.86 7.85 7.35
Regulatory minimum 8.00 8.00 4.00 4.00 4.00 4.00
</TABLE>
Bank regulatory agencies' minimum capital guidelines assign relative measures of
credit risk to balance sheet assets and off-balance sheet exposures. Based upon
the nature and makeup of their current businesses and growth expectations,
management expects all of the reporting entities' capital ratios to continue to
exceed regulatory minimums.
13
RESULTS OF OPERATIONS
Earnings per share increased 1.7% for the first nine months of 1994 over the
same 1993 period. The increase is attributable to improved net interest income
and provision for loan losses, offset by costs involved with two acquisitions in
progress and costs associated with expanding customer volumes during the first
three quarters of 1994. Net income per common share and common share equivalent
for the first nine months of 1994 was $1.17, up from $1.15 for the first nine
months of 1993. Net income per common share and common share equivalent for the
third quarter of 1994 was $0.42, up from $0.39 for the third quarter of 1993.
Return on average stockholders' equity for the first nine months of 1994 and
1993 was 12.32% and 13.18%, respectively; and, return on average stockholders'
equity was 13.12% for both the third quarter of 1994 and 1993. Return on
average assets for the first nine months of 1994 and 1993 was 1.12% and 1.14%,
respectively; and, return on average assets for the third quarter of 1994 and
1993 was 1.19% and 1.15%, respectively.
NET INTEREST INCOME
The amount by which interest earned on assets exceeds the interest paid on sup-
porting funds, constitutes the primary source of income for the Company. For
the nine months ended September 30, 1994, net interest income (TE) increased
6.4%, or $1.9 million to $31.8 million as compared to $29.9 million for the nine
months ended September 30, 1993. Most of 1994's increase is attributable to
growth of average earning assets. A small amount of 1993's increase was attri-
butable to improved margins. Compared to 1994, net interest spreads on loans in
1993 were more favorably affected by falling interest rates which reduced
liability costs to a greater extent than earning assets due to rate-reduction
limits on repricable loans.
The net interest income margin increased primarily due to a change in the mix
of earning assets. Management significantly increased the amount of loans
outstanding while decreasing lower yielding debt securities. Net interest
income on a tax-equivalent basis as a percent of average earning assets was
4.36% and 4.31% for the nine months ended September 30, 1994 and 1993, respec-
tively. Net interest income on a tax-equivalent basis as a percent of average
earning assets was 4.40% and 4.28% for the three months ended September 30, 1994
and 1993, respectively. For the nine months ended September 30, 1994, interest
earned on securities was 2.88% greater than the average funding cost, up from
2.75% for the nine months ended September 30, 1993. For the nine months ended
September 30, 1994, interest earned on loans was 4.37% greater than the average
funding cost, down from 4.57% for the nine months ended September 30, 1993.
Aggressive pricing of loans during the past year has stimulated demand and
retarded margins. Margins in 1993, and in 1994 to a lesser extent, were
unfavorably affected by the purchase accounting recognition of interest income
on certain investment securities at market yields. Net interest income margins
continue to benefit from a favorable mix of earning assets and a favorable mix
of funding sources.
Generally, the subsidiary banks maintain a relatively balanced position between
volumes of rate-repricing assets and liabilities to guard against adverse
effects to net interest income from possible fluctuations in interest rates.
Low levels of nonperforming loans contributed to good margins each period.
14
Table 4
Net Interest Income Analysis Average Average
Nine months ended September 30, 1994 volume Interest rate
_______________________________________________________________________________
(dollars in thousands)
Loans $669,800 $41,351 8.25%
Securities 301,435 15,232 6.76
Other interest earning assets 4,148 97 3.13
------- ------
975,383 56,680 7.77
Time deposits 501,530 16,470 4.39
All other interest bearing deposits 301,269 6,633 2.94
Other interest bearing liabilities 54,894 1,766 4.30
------- ------
$857,693 24,869 3.88
------ ----
Net interest income (TE) spread $31,811 3.89%
====== ====
Net interest income (TE) as a percent 4.36%
of average interest-earning assets ====
Table 5
Net Interest Income Analysis Average Average
Nine months ended September 30, 1993 volume Interest rate
_______________________________________________________________________________
(dollars in thousands)
Loans $583,465 $37,754 8.65%
Securities 333,294 17,029 6.83
Other interest earning assets 9,807 238 3.24
------- ------
926,566 55,021 7.94
Time deposits 488,244 17,240 4.72
All other interest bearing deposits 292,665 6,528 2.98
Other interest bearing liabilities 43,818 1,381 4.21
------- ------
$824,727 25,149 4.08
------ ----
Net interest income (TE) spread $29,872 3.86%
====== ====
Net interest income (TE) as a percent 4.31%
of average interest-earning assets ====
Note: The average volume and average rate of securities includes securities
held for sale at fair value pursuant to FAS 115.
15
Table 6
Net Interest Income Analysis Average Average
Three months ended September 30, 1994 volume Interest rate
_______________________________________________________________________________
(dollars in thousands)
Loans $694,874 $14,686 8.38%
Securities 297,341 5,124 6.84
Other interest earning assets 0 0 0.00
------- ------
992,215 19,810 7.92
Time deposits 505,530 5,744 4.51
All other interest bearing deposits 301,287 2,330 3.07
Other interest bearing liabilities 64,851 744 4.55
------- ------
$871,668 8,818 4.01
------ ----
Net interest income (TE) spread $10,992 3.91%
====== ====
Net interest income (TE) as a percent 4.40%
of average interest-earning assets ====
Table 7
Net Interest Income Analysis Average Average
Three months ended September 30, 1993 volume Interest rate
_______________________________________________________________________________
(dollars in thousands)
Loans $605,988 $12,952 8.48%
Securities 331,122 5,375 6.44
Other interest earning assets 6,790 57 3.33
------- ------
943,900 18,384 7.73
Time deposits 489,178 5,575 4.52
All other interest bearing deposits 295,193 2,119 2.85
Other interest bearing liabilities 52,116 513 3.91
------- ------
$836,487 8,207 3.89
------ ----
Net interest income (TE) spread $10,177 3.84%
====== ====
Net interest income (TE) as a percent 4.28%
of average interest-earning assets ====
Note: The average volume and average rate of securities includes securities
held for sale at fair value pursuant to FAS 115.
16
PROVISION FOR LOAN LOSSES
A significant factor in the Company's past and future operating results is the
level of the provision for loan losses. Management desires to provide assurance
through sufficient provision for loan losses that future earnings will be less
susceptible to changing economic cycles. The provision for loan losses amounted
to $1,313,100 for the nine months ended September 30, 1994, a decrease of
$535,400 or 29.0% when compared to $1,848,500 for the nine months ended
September 30, 1993. The decline in the 1994 provision for loan losses was
influenced by a significant decline in net charge-offs from previous years and a
modest decline in nonperforming assets. The annualized provision for loan
losses as a percentage of average loans was 0.26% for the nine months ended
September 30, 1994, down from 0.38% and 0.59% for the years ended December 31,
1993 and 1992, respectively. Levels of providing for loan losses reflect, among
other things, management's evaluation of potential problem loans.
Net chargeoffs as a percentage of average loans were 0.04% and 0.06% for the
nine months ended September 30, 1994 and 1993, respectively, periods of unusally
low net chargeoffs. Net chargeoffs as a percent of average loans were 0.34% for
the five-year period ended December 31, 1993. The allowance for loan losses was
1.55% of outstanding loans at September 30, 1994, which approximates the average
during the last five years. The September 30, 1994 allowance is 224% compared
to 166% at December 31, 1993, of nonperforming assets and is maintained at a
level which management considers adequate to absorb estimated potential losses
in the loan portfolio, after reviewing the individual loans and in relation to
risk elements in the portfolios and giving consideration to the prevailing
economy and anticipated changes.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
Table 8 September 30, September 30,
Allowance for Loan Losses 1994 1993 1994 1993
____________________________________________________________________________________________
(dollars in thousands)
Balance at beginning of period $10,732 $9,341 $9,818 $8,016
Provision charged to expense 375 466 1,313 1,849
Loans charged off (223) (362) (449) (761)
Recoveries of chargeoffs 52 136 254 477
----- ----- ----- -----
Net loans charged off (171) (226) (195) (284)
----- ----- ----- -----
Balance at end of period $10,936 $9,581 $10,936 $9,581
====== ====== ====== ======
Annualized Ratios:
Provision for loan losses
to average loans 0.21% 0.31% 0.26% 0.42%
Net chargeoffs to
average loans 0.10 0.15 0.04 0.06
Allowance for loan losses
to period end loans 1.55 1.55 1.55 1.55
</TABLE>
17
NONINTEREST INCOME
Noninterest income amounted to $4,541,352 for the nine months ended September
30, 1994, a 10.1% increase from $4,124,548 for the nine months ended September
30, 1993. Most areas reflected good increases. Service charges on deposit
accounts, the largest component of noninterest income, increased 11.5% during
the first nine months of 1994 over the first nine months of 1993. During the
recent year, some of the subsidiary banks adjusted fee schedules to recapture
higher operating costs and to provide more uniform pricing among the affiliated
banks.
Total assets under management by the trust department have increased, generating
more fee income. The 24.2% increase in insurance commissions for the first
three quarters of 1994 over 1993 is attributable to greater opportunities
resulting from the significant increase in consumer loans as well as better
penetration of this product to consumer loan customers. Fee income from
secondary-market mortgage loan services during 1994 is anticipated to be lower
than 1993 due to the unusually large amount of home refinancing in 1993. The
relative improvement in fee income slightly exceeds the growth in net interest
income. Noninterest income excluding securities gains was 13.0% of total net
interest income plus noninterest income for the nine months ended September 30,
1994, compared to 12.6% for the nine months ended September 30, 1993.
Three Months Ended Nine Months Ended
Table 9 September 30, September 30,
Noninterest Income 1994 1993 1994 1993
_______________________________________________________________________________
(in thousands)
Services charges on
deposits $841 $776 $2,534 $2,272
Net securities gains 1 1 9 23
Trust fees 279 280 871 864
Insurance commissions 84 78 267 215
Other income 313 232 860 751
----- ----- ----- -----
$1,518 $1,367 $4,541 $4,125
===== ===== ===== =====
Annualized Ratio:
Noninterest income
to average assets 0.57% 0.54% 0.59% 0.56%
NONINTEREST EXPENSE
During the first nine months of 1994, it required more noninterest expense
(overhead) to produce total net interest income plus noninterest income
(revenue). The ratio of overhead to revenue was 58.44% for the nine months
ended September 30, 1994, compared to 56.40% for the nine months ended September
30, 1993. During the first quarter of 1994, management changed its strategic
plans regarding the approach to productivity gains. Management shifted its
focus from controlling the rate of increase of noninterest expense to gain more
employee productivity, to increasing revenue volumes to gain operational ratio
efficiencies.
18
The ratio of personnel expense has increased as a percentage of average total
assets and was 1.27% for the nine months ended September 30, 1994, compared to
1.21% for the nine months ended September 30, 1993. Management expects a
double-digit percentage increase in personnel and equipment expenses for 1994 as
a result of their current focus on increasing revenue volumes. The Company has
made investments in facilities and equipment as technology has advanced and the
need to leverage personnel costs has intensified. Two new branch locations are
scheduled to be opened during the next two quarters. Five of the operating
subsidiaries will be combined into one bank during the fourth quarter of 1994 to
allow the personnel at all locations to better focus on quality customer service
and increasing the volume of business as well as reducing a small amount of
redundant costs.
The Company's bank subsidiaries are required to pay deposit insurance assess-
ments to the FDIC, to maintain significant noninterest-bearing balances with the
Federal Reserve, and to pay fees to regulatory agencies for periodic examina-
tions by the agencies. The 5.7% increase in assessments for deposit insurance
for the nine months ended September 30, 1994 from the same 1993 period, is
attributable to increased deposit levels. Beginning in 1993, the assessments
were based not only on deposits but also on the risk characteristics of the
individual financial institutions. All of the Company's subsidiaries received
the lowest deposit assessment rate from the FDIC.
Three Months Ended Nine Months Ended
Table 10 September 30, September 30,
Noninterest Expense 1994 1993 1994 1993
_______________________________________________________________________________
(in thousands)
Salaries $2,873 $2,587 $8,130 $7,424
Employee benefits 471 478 1,666 1,467
Occupancy expense 329 323 1022 984
Equipment expense 361 339 1028 934
FDIC insurance expense 503 446 1480 1400
Data processing expense 464 419 1337 1265
Bank share taxes 312 288 917 831
Goodwill amortization 207 207 622 622
Other expense 1,657 1,641 5,041 4,249
------ ------ ------ ------
$7,177 $6,728 $21,243 $19,176
====== ====== ====== ======
Annualized Ratios:
Overhead ratio 57.37% 58.28% 58.44% 56.40%
Noninterest expense
to average assets 2.72 2.67 2.75 2.61
Additional data processing expense was incurred during 1993 related to proces-
sing changes; and, during the last three quarters of 1994, additional costs have
and will be incurred in connection with the consolidation of five subsidiary
banks into one bank. Routine data processing expense should level off or
slightly decline in 1995 after system conversions are complete. Bankshare taxes
imposed by the State of Kentucky have been increasing and are expected to
19
continue to increase in future years. Kentucky has raised the assessment level
and is attempting to significantly increase this taxation, which is based upon
net income of the subsidiaries. During 1994, the Company was involved in two
pooling-of-interests acquisitions. Included in other noninterest expense for
the nine months ended September 30, 1994 was approximately $390,000 (equal to
more than $0.05 per common share and common share equivalent) of professional
fees relating to the merger completed in the first quarter and one merger
completed in the fourth quarter of 1994. Several components of other
noninterest expense have increased primarily as a result of costs associated
with expanding customer volumes and marketing.
INCOME TAXES
The increase in income tax expense for the nine months ended September 30, 1994,
is primarily attributable to nondeductible organizational costs associated with
two acquisitions, and to a lesser extent, to higher operating earnings. The
effective tax rate is increasing, and was 30.0% for the nine months ended
September 30, 1994, compared to 26.9% for the nine months ended September 30,
1993. The Company manages the effective tax rate to some degree, based upon
changing tax laws, particularly new alternative minimum tax provisions, the
availability and price of nontaxable investment securities and other portfolio
considerations.
LIQUIDITY AND INTEREST-RATE SENSITIVITY
The Company's objective of liquidity management is to ensure the ability to
access funding which enables each bank to efficiently satisfy the cash flow
requirements of depositors and borrowers. Asset/Liability management (ALM)
involves the funding and investment strategies necessary to maintain an
appropriate balance between interest sensitive assets and liabilities as well as
to assure adequate liquidity. The Company's ALM committee monitors funds
available from a number of sources to meet its objectives. The primary source
of liquidity for the banks, in addition to loan repayments, is their debt
securities portfolios. Debt securities classified as held for sale are those
that the Company intends to use as part of its asset/liability management and
that may be sold prior to maturity in response to changes in interest rates,
resultant prepayment risks and other factors. The Company's access to the re-
tail deposit market through individual banks located in nine different counties
has been a stable source of funds. Additional funds for liquidity are available
by borrowing of Federal funds from correspondent banks, Federal Home Loan Bank
borrowings and brokered deposits. Various types of analyses are performed to
ensure adequate liquidity, and to evaluate the desirability of the relative
interest rate sensitivity of assets and liabilities. In the past, as was
typical for most financial institutions, the Company's cash flows provided by
financing activities (primarily through deposit and repurchase agreement
generation) generally greatly exceeded cash flows from operations and were used
to fund investing activities. During the past two years, due to strong loan
demand coupled with the low interest-rate environment, which hinders area
deposit growth, financing activities funding was partially derived from
increased levels of Federal funds purchased and brokered deposits. Management
considers current liquidity positions of the subsidiary banks to be adequate to
meet depositor and borrower needs.
20
Because banks must assume interest rate risks as part of their normal opera-
tions, the Company actively manages its interest rate sensitivity as well as
liquidity positions. Both interest rate sensitivity and liquidity are affected
by maturing assets and sources of funds; however, management must also consider
those assets and liabilities with interest rates which are subject to change
prior to maturity. The primary objective of the ALM Committee is to optimize
earnings results, while controlling interest rate risks within internal policy
constraints. The subsidiary banks and the Company collectively measure their
level of earnings exposure to future interest rate movements. Currently, the
Company does not employ interest rate swaps, financial futures or options to
affect interest rate risks. Management expects that a slightly lesser amount of
assets will reprice than liabilities during the fourth quarter of 1994. This
position is subject to change in response to the dynamics of the Company's
balance sheet and general market conditions. Rising interest rates are likely
to decrease net interest income in a negative gap position (lessser amount of
repricing assets than liabilities) and falling rates would likely increase net
interest income. Management has slightly decreased the net liability sensiti-
vity during the last year. At September 30, 1994, approximately $37.2 million
more liabilities are scheduled to reprice than assets in the following six-month
period, compared to approximately $39.0 million at September 30, 1993.
21
PART II
_______________________________________________________________________________
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Financial Data Schedule are submitted as exhibit 27.1.
No other exhibits are included.
(b) Peoples First Corporation filed a current report on Form
8-K dated October 7, 1994 on October 21, 1994 to report the
acquisition of a significant amount of assets. The report
contained consolidated financial statements of Libsab
Bancorp, Inc. and Subsidiary and pro forma condensed combined
information.
22
SIGNATURES
_______________________________________________________________________________
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, therunto duly authorized.
PEOPLES FIRST CORPORATION
11/14/94 /s/ Aubrey W. Lippert
Aubrey W. Lippert
President and Chairman
of the Board
11/14/94 /s/ Allan B. Kleet
Allan B. Kleet
Principal Financial Officer
23
INDEX TO EXHIBITS Page
_______________________________________________________________________________
(27.1) Financial Data Schedules 25
24
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1993 DEC-31-1994 DEC-31-1993
<PERIOD-END> SEP-30-1994 SEP-30-1993 SEP-30-1994 SEP-30-1993
<CASH> 32,399 30,243 32,399 30,243
<INT-BEARING-DEPOSITS> 0 0 0 0
<FED-FUNDS-SOLD> 0 1,000 0 1,000
<TRADING-ASSETS> 0 0 0 0
<INVESTMENTS-HELD-FOR-SALE> 86,207 44,342 86,207 44,342
<INVESTMENTS-CARRYING> 205,240 279,698 205,240 279,698
<INVESTMENTS-MARKET> 205,071 291,974 205,071 291,974
<LOANS> 703,932 616,916 703,932 616,916
<ALLOWANCE> (10,936) (9,581) (10,936) (9,581)
<TOTAL-ASSETS> 1,056,170 1,001,274 1,056,170 1,001,274
<DEPOSITS> 890,554 856,330 890,554 856,330
<SHORT-TERM> 44,602 36,949 44,602 36,949
<LONG-TERM> 16,697 11,512 16,697 11,512
<COMMON> 5,567 5,527 5,567 5,527
0 0 0 0
0 0 0 0
<OTHER-SE> 90,932 83,596 90,932 83,596
<TOTAL-LIABILITIES-AND-EQUITY> 1,056,170 1,001,274 1,056,170 1,001,274
<INTEREST-LOAN> 14,665 12,924 41,290 37,688
<INTEREST-INVEST> 4,681 4,926 13,896 15,728
<INTEREST-OTHER> 0 5 56 99
<INTEREST-TOTAL> 19,346 17,855 55,242 53,515
<INTEREST-DEPOSIT> 8,075 7,691 23,103 23,765
<INTEREST-EXPENSE> 8,818 8,207 24,869 25,149
<INTEREST-INCOME-NET> 10,528 9,648 30,373 28,366
<LOAN-LOSSES> 375 466 1,313 1,849
<SECURITIES-GAINS> 1 1 9 23
<EXPENSE-OTHER> 7,177 6,728 21,243 19,176
<INCOME-PRETAX> 4,494 3,821 12,358 11,466
<INCOME-PRE-EXTRAORDINARY> 4,494 3,821 12,358 11,466
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 3,149 2,901 8,650 8,382
<EPS-PRIMARY> 0.42 0.39 1.17 1.15
<EPS-DILUTED> 0.42 0.39 1.17 1.15
<YIELD-ACTUAL> 4.40 4.28 4.36 4.31
<LOANS-NON> 464 2,496 464 2,496
<LOANS-PAST> 716 323 716 323
<LOANS-TROUBLED> 2,755 1,219 2,755 1,219
<LOANS-PROBLEM> 12,500 18,000 12,500 18,000
<ALLOWANCE-OPEN> 10,732 9,341 9,818 8,016
<CHARGE-OFFS> 223 362 449 761
<RECOVERIES> 52 136 254 477
<ALLOWANCE-CLOSE> 10,936 9,581 10,936 9,581
<ALLOWANCE-DOMESTIC> 10,936 9,581 10,936 9,581
<ALLOWANCE-FOREIGN> 0 0 0 0
<ALLOWANCE-UNALLOCATED> 0 0 0 0
</TABLE>
