_______________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (date of earliest event reported) October 7, 1994
Commission File Number Number 0-16839
PEOPLES FIRST CORPORATION
(Exact name of registrant as specified in its charter)
Kentucky 61-1023747
(State or other jurisdiction of (I R S Employer
incorporation or organization) Identification No.)
100 South Fourth Street
Paducah, Kentucky 42002-2200
(Address of principal exective offices) (Zip Code)
Registrant's telephone number, including area code: (502) 441-1200
______________________________________________________________________________1
Item 2.
ACQUISITION OR DISPOSTION OF ASSETS
The Merger (the Merger) of Libsab Bancorp, Inc. (Bancorp), the parent company
of Liberty Bank & Trust (Bank), Mayfield, Kentucky, into Peoples First
Acquisition Corporation II (Subsidiary), a wholly-owned subsidiary of Peoples
First Corporation (PFC), became effective upon the filing of Articles of Merger
with the Kentucky Secretary of State on October 7, 1994. In the Merger, the
surviving Subsidiary, acquired all the assets and assumed all the liabilities of
the Bancorp. At the time of the Merger, the principal asset of Bancorp was the
stock of the Bank. At June 30, 1994, Bancorp had, on a consolidated basis,
total assets of approximately $141.9 million, loans of approximately $74.1
million, deposits of approximately $119.1 million and net assets (stockholders'
equity) of approximately $12.9 million.
PFC exchanged 1,077,853 shares of its common stock for all the outstanding
shares of Bancorp. PFC's common stock is traded on the National Association of
Securities Dealers Automated Quotation System (NASDAQ) National Market System
(NMS) under the symbol PFKY. The last trading price reported by NASDAQ on
October 7, 1994, for PFKY was $21.75 per share. This business combination will
be accounted for as a pooling-of-interest. PFC will report the results of
operations for 1994 as though Bancorp had been combined as of the beginning of
1994 and financial statements for prior years will be restated on a combined
basis to furnish comparative information.
Peoples First generally intends to continue to use the assets acquired in the
Merger for the purpose of the general business conducted by a commercial bank,
their use immediately before the Merger.
Item 7.
FINANCIAL STATEMENTS AND EXHIBITS
Listed below are the financial statments, pro forma information and exhibits
filed as a part of this report:
(a) Financial statements of business acquired
Audited balance sheets of Libsab Bancorp, Inc. and Subsidiary as of
December 31, 1993 and 1992, and the related statements of income, share-
holders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1993.
Unaudited balance sheets of Libsab Bancorp, Inc. and Subsidiary as
of June 30, 1994 and 1993, and the related statements of income and
cash flows for the six months then ended.
(b) Pro forma financial information
Pro forma condensed combined balance sheet of Peoples First
Corporation and Subsidiaries and Libsab Bancorp, Inc. and
Subsidiary as of June 30, 1994.
Pro forma condensed combined statement of income of Peoples
First Corporation and Subsidiaries and Libab Bancorp, Inc.
and Subsidiary for the six months ended June 30, 1994.
Pro forma condensed combined statement of income of Peoples
First Corporation and Subsidiaries and Libab Bancorp, Inc.
and Subsidiary for the year ended December 31, 1993.
Pro forma condensed combined statement of income of Peoples
First Corporation and Subsidiaries and Libab Bancorp, Inc.
and Subsidiary for the year ended December 31, 1992.
Pro forma condensed combined statement of income of Peoples
First Corporation and Subsidiaries and Libab Bancorp, Inc.
and Subsidiary for the year ended December 31, 1991.
(c) Exhibits
(2.1) Affiliation Agreement between Peoples First Corporation and
Libsab Bancorp, Inc. is incorporated herein by reference to
Appendix A of Form S-4, registration No. 33-54535 as filed
with the Securities and Exchange Commission on July 12, 1994.
(23.1) Consent of Corman, Bryan & Watts, independent public accountants.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Libsab Bancorp, Inc.
Mayfield, Kentucky
We have audited the accompanying consolidated balance sheets of Libsab Bancorp,
Inc. and subsidiary as of December 31, 1993 and 1992, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1993. These
consolidated financial statements are the responsibility of the corporation's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Libsab Bancorp,
Inc. and subsidiary as of December 31, 1993 and 1992, and the consolidated
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1993, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1993 the
corporation adopted the provisions of the Financial Accounting Standards Board's
Statements of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" and No. 115, "Accounting for Certain Investments in Debt and Equity
Securities".
/s/ CORNMAN, BRYAN & WATTS
Mayfield, Kentucky
February 10, 1994, except for Notes 15 and 16 as to which the date
is June 8, 1994.
4
<PAGE>
LIBSAB BANCORP, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and 1992
<TABLE>
<CAPTION>
ASSETS 1993 1992
------------ ------------
<S> <C> <C>
Cash and due from banks (Note 2) $ 7,936,084 $ 6,595,582
Federal funds sold 1,000,000 1,775,000
Securities available-for-sale (Note 3) 52,152,160 54,675,724
Investment securities (Note 3) 8,922,300 6,760,401
Loans, net (Note 4) 66,915,255 60,111,298
Bank premises and equipment, net (Note 5) 2,698,680 2,450,423
Federal Home Loan Bank stock, at cost (Note 10) 763,900 704,400
Accrued interest receivable 1,053,322 1,065,302
Prepaid expenses and other assets 101,615 96,456
Income tax refund receivable 66,302 -
------------ ------------
$141,609,618 $134,234,586
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 13,221,674 $ 10,336,516
NOW and money market accounts 29,052,667 29,300,055
Savings 13,924,915 11,480,179
Time, $100,000 and over 4,090,242 4,498,255
Other time 59,073,292 61,236,550
------------ ------------
119,362,790 116,851,555
Securities sold under repurchase agreements (Note 8) 197,299 71,767
Note payable (Note 9) - 40,000
Advances from Federal Home Loan Bank (Note 10) 6,807,501 3,776,881
Accrued interest and other liabilities 859,249 1,005,784
Deferred income taxes (Note 6) 485,374 293,614
------------ ------------
Total liabilities 127,712,213 122,039,601
------------ ------------
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 13)
STOCKHOLDERS' EQUITY
Common stock, no par value, $10 stated value; authorized
200,000 shares; issued 100,000 shares 1,000,000 1,000,000
Surplus 3,000,000 3,000,000
Retained earnings (Note 11) 10,527,417 9,468,265
Minimum pension liability adjustment, net of deferred
income taxes (Note 7) - (20,155)
Unrealized appreciation of securities available-for-sale,
net of deferred income taxes (Note 3) 623,563 -
------------ ------------
15,150,980 13,448,110
Less cost of shares reacquired for the treasury 14,663 in
1993; 14,660 in 1992 1,253,575 1,253,125
------------ ------------
Total stockholders' equity 13,897,405 12,194,985
------------ ------------
$141,609,618 $134,234,586
------------ ------------
------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE>
<TABLE>
<CAPTION>
LIBSAB BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1993, 1992 and 1991
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 5,629,233 $ 5,285,981 $ 5,121,602
Interest on federal funds sold 40,685 53,292 173,715
Taxable interest on securities 3,547,481 4,493,677 5,085,615
Nontaxable interest on securities 461,568 399,935 371,132
Interest on deposits in banks and other - 3,402 49,796
------------ ------------ ------------
9,678,967 10,236,287 10,801,860
------------ ------------ ------------
Interest expense:
Interest on deposits 3,844,742 4,804,624 6,066,242
Interest on time deposits, $100,000 and over 217,650 293,836 358,899
Interest on securities sold under repurchase
agreements 5,284 27,383 15,317
Interest on FHLB advances 372,865 57,666 -
Interest on note payable 1,137 4,227 5,215
------------ ------------ ------------
4,441,678 5,187,736 6,445,673
------------ ------------ ------------
Net interest income 5,237,289 5,048,551 4,356,187
Provision for loan losses (Note 4) 311,500 220,000 -
------------ ------------ ------------
Net interest income after provision for
loan losses 4,925,789 4,828,551 4,356,187
------------ ------------ ------------
Other income:
Service fees and other (Notes 13 and 14) 484,111 378,567 313,818
Securities gains (Note 3) 190,065 399,471 358,396
------------ ------------ ------------
674,176 778,038 672,214
------------ ------------ ------------
Other expenses:
Salaries and wages 1,491,939 1,389,168 1,217,279
Pension and other employee benefits (Note 7) 399,915 334,087 277,049
Occupancy expenses (Note 13) 279,296 263,990 263,248
Other operating expenses (Note 14) 1,373,787 1,329,028 1,781,002
------------ ------------ ------------
3,544,937 3,316,273 3,538,578
------------ ------------ ------------
Income before income taxes and cumulative
effect adjustment 2,055,028 2,290,316 1,489,823
Income tax expense (Note 6) 534,793 646,717 376,860
------------ ------------ ------------
Net income before cumulative effect
adjustment 1,520,235 1,643,599 1,112,963
Cumulative effect on prior years of accounting
change (Note 6) 50,947 - -
------------ ------------ ------------
Net income $ 1,571,182 $ 1,643,599 $ 1,112,963
------------ ------------ ------------
------------ ------------ ------------
Earnings per share of common stock:
Before cumulative effect adjustment $ 17.81 $ 19.26 $ 13.32
Cumulative effect adjustment of accounting change .60 - -
------------ ------------ ------------
Net income $ 18.41 $ 19.26 $ 13.32
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
See Notes to Consolidated Financial Statements.
6
<PAGE>
LIBSAB BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
Minimum
Pension Unrealized
Common Retained Liability Securities Treasury
Stock Surplus Earnings Adjustment Appreciation Stock
------------ ------------ ------------ ------------ ------------ ------------ -
<S> <C> <C> <C> <C> <C> <C> <
Balance at December 31, 1990, as
previously reported $1,000,000 $3,000,000 $ 7,658,215 $ - $ - $(1,069,930) $
Prior period adjustment (Note 15) - - (49,118) - - -
----------- ----------- ----------- ----------- ----------- ----------- -
Balance at December 31, 1990
as restated 1,000,000 3,000,000 7,609,097 - - (1,069,930)
Net income, as restated (Note 15) - - 1,112,963 - - -
Purchase of treasury stock, 1593
shares at $115 per share - - - - - (183,195)
Cash dividends paid, $5.00 per
share - - (428,024) - - -
----------- ----------- ----------- ----------- ----------- ----------- -
Balance at December 31, 1991 1,000,000 3,000,000 8,294,036 - - (1,253,125)
Net income, as restated (Note 15) - - 1,643,599 - - -
Cash dividends paid, $5.50 per share - - (469,370) - - -
Adjustment for excess minimum
pension liability - - - (20,155) - -
----------- ----------- ----------- ----------- ----------- ----------- -
Balance at December 31, 1992 1,000,000 3,000,000 9,468,265 (20,155) - (1,253,125)
Net income, as restated (Note 15) - - 1,571,182 - - -
Purchase of treasury stock, 3
shares at $150 per share - - - - - (450)
Cash dividends paid, $6.00 per share - - (512,030) - - -
Adjustment for excess minimum
pension liability - - - 20,155 - -
Adjustment of securities
available-for-sale to fair value - - - - 623,563 -
----------- ----------- ----------- ----------- ----------- ----------- -
Balance at December 31, 1993 $1,000,000 $3,000,000 $10,527,417 $ - $ 623,563 $(1,253,575) $
----------- ----------- ----------- ----------- ----------- ----------- -
</TABLE>
See Notes to Consolidated Financial Statements.
7
<PAGE>
LIBSAB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,571,182 $ 1,643,599 $ 1,112,963
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 195,911 172,074 173,214
Provision for loan losses 311,500 220,000 -
Net securities premium amortization, (discount
accretion) 443,002 144,829 (125,902)
Deferred income tax (credits) (139,852) (70,433) (19,148)
Securities (gains) (190,065) (399,471) (385,421)
Loss on sale of other real estate - - 12,155
Interest accrued on securities sold under
repurchase agreements 5,284 27,383 15,317
Stock dividends from FHLB (32,900) (13,100) -
Other non-cash charges (credits), net 173 (123) 5,612
(Increase) decrease in accrued interest receivable 11,980 160,329 (20,152)
(Increase) decrease in prepaid expenses (11,104) (18,387) (5,658)
(Increase) decrease in income tax refund receivable (66,302) - -
Increase (decrease) in accrued interest and
other liabilities (110,052) (218,609) (370,631)
----------- ----------- -----------
Net cash provided by operating activities 1,988,757 1,648,091 392,349
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of securities available-for-sale 19,360,634 21,552,586 23,789,965
Proceeds from maturities of securities available-
for-sale 450,000 1,000,000 5,370,000
Proceeds from sale of investment securities - - 415,090
Proceeds from maturities of investment securities 845,194 1,552,570 360,000
Principal collected on mortgage-backed securities
available-for-sale 12,917,642 13,010,624 7,475,030
Purchase of securities available-for-sale (29,504,324) (32,723,676) (35,808,400)
Purchase of investment securities (3,015,626) (2,476,168) (3,480,291)
Proceeds from sale of other real estate - - 76,023
Net decrease in deposits in other banks - 649,899 343,601
Purchase of Federal Home Loan Bank stock (26,600) (691,300) -
Loans made to customers, net of principal payments
received (7,115,457) (8,148,538) (6,565,761)
Purchases of bank premises and equipment (444,341) (219,754) (103,671)
----------- ----------- -----------
Net cash (used in) investing activities (6,532,878) (6,493,757) (8,128,414)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits 2,511,235 6,605,816 4,739,598
Dividends paid (512,030) (469,370) (428,024)
Purchase of treasury stock (450) - (183,195)
</TABLE>
(Continued)
8
<PAGE>
LIBSAB BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1993, 1992 and 1991
<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Net increase (decrease) in securities sold under
repurchase agreements 120,248 (1,460,933) 1,490,000
Net borrowings (payments) on line of credit (40,000) (41,000) 81,000
Advances from Federal Home Loan Bank 3,492,686 3,803,579 -
Repayment of advances from Federal Home Loan Bank (462,066) (26,698) -
----------- ----------- -----------
Net cash provided by financing activities 5,109,623 8,411,394 5,699,379
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents 565,502 3,565,728 (2,036,686)
Cash and due from banks and federal funds sold:
Beginning 8,370,582 4,804,854 6,841,540
----------- ----------- -----------
Ending $ 8,936,084 $ 8,370,582 $ 4,804,854
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for:
Interest paid to depositors $ 4,152,054 $ 5,383,316 $ 6,547,833
Interest paid on securities sold under repurchase
agreements 5,284 27,383 -
Interest paid on note payable 374,002 61,893 5,215
----------- ----------- -----------
$ 4,531,340 $ 5,472,592 $ 6,553,048
----------- ----------- -----------
----------- ----------- -----------
Income taxes $ 703,150 $ 587,008 $ 795,452
----------- ----------- -----------
----------- ----------- -----------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES
Other real estate acquired in settlement of loans $ - $ - $ 88,178
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements.
9
<PAGE>
LIBSAB BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Significant Accounting Policies
Principles of consolidation:
The consolidated financial statements include the accounts of
Libsab Bancorp, Inc. (the Corporation) and its wholly owned
subsidiary, Liberty Bank and Trust (the Bank). All significant
intercompany accounts and transactions have been eliminated.
Presentation of cash flows:
For purposes of reporting cash flows, cash and cash equivalents
includes cash on hand, amounts due from banks (including cash
items in process of clearing) and federal funds sold. Cash flows
from loans originated by the Bank, deposits, and securities sold
under repurchase agreements are reported net.
Trust assets:
Assets of the trust department, other than trust cash on deposit
at the Bank, are not included in these financial statements
because they are not assets of the Bank.
Securities Available-for-Sale and Investment Securities:
The Bank adopted Financial Accounting Standard No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115), as of the end of 1993. This statement
establishes standards of financial accounting and reporting for
all investments in debt securities. The statement requires that
securities be classified into one of three categories; trading,
available-for-sale or investment.
Trading securities are bought and held principally with the
intention of selling them in the near term in an anticipation of
market gains. The Bank has no trading securities as of December
31, 1993 and 1992.
Securities classified as available-for-sale are those securities
that the Bank intends to hold for an indefinite period of time
but not necessarily to maturity. Any decision to sell a security
classified as available-for-sale would be based on various
factors, including significant movements in interest rates,
changes in the maturity mix of the Bank's assets and liabilities,
liquidity needs, regulatory capital considerations, and other
similar factors. Securities available-for-sale are stated at
fair value for the year ended December 31, 1993 and at the lower
of amortized cost or market for the year ended December 31, 1992.
Subsequent to the adoption of SFAS 115, unrealized gains or
losses are reported as increases or decreases in stockholders'
equity, net of the related deferred tax effect. Realized gains
or losses, determined on the basis of the adjusted cost of
specific securities sold, are included in earnings. Mortgage-
backed securities represent a significant portion of the
securities available-for-sale portfolio. Amortization of
premiums 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.
(Continued)
10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Securities classified as investment are those securities the Bank
has both the intent and ability to hold to maturity regardless of
changes in market conditions, liquidity needs or changes in
general economic conditions. These securities are carried at
cost adjusted for amortization of premiums and accretion of
discounts, computed by the level-yield method over their
contractual lives. Gain or loss is recorded when realized on a
specific identification basis or when, in the opinion of
management, an unrealized loss is other than temporary in nature.
Loans and allowance for loan losses:
Loans are stated at the amount of unpaid principal, reduced by
unearned discount and fees and an allowance for possible loan
losses.
The allowance for loan losses is maintained at a level considered
adequate to provide for losses that can be reasonably
anticipated. The allowance is increased by provisions charged to
operating expense and reduced by net charge-offs. The Bank makes
continuous credit reviews of the loan portfolio and considers
current economic conditions, historical loss experience, review
of specific problem loans and other factors in determining the
adequacy of the allowance balance.
Unearned interest on discounted loans is amortized to income over
the life of the loans, using a method that approximates the
interest method. For all other loans, interest is accrued daily
on the outstanding balances. Accrual of interest is discontinued
on a loan when management believes, after considering collection
efforts and other factors, that the borrower's financial
condition is such that collection of interest is doubtful.
Loan origination and commitment fees and certain direct loan
origination costs are being deferred and the net amount amortized
as an adjustment of the related loan's yield. The Bank is
generally amortizing these amounts over the contractual life of
the loans.
During May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 114, "Accounting
by Creditors for Impairment of a Loan" (SFAS 114), which is
effective for fiscal years beginning after December 15, 1994.
SFAS 114 requires that impaired loans be measured at the present
value of expected future cash flows discounted at the loan's
effective interest rate, or at the loan's observable market price
or the fair value of the collateral if the loan is collateral
dependent. The Bank is currently evaluating when and how it will
adopt SFAS 114, as well as the possible financial impact to the
Bank.
Bank premises and equipment:
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed principally by the
straight-line method over the following estimated useful lives:
<TABLE>
<CAPTION>
Years
-----
<S> <C>
Buildings and improvements 10-40
Furniture and equipment 3-12
Safe deposit boxes, night depository and vaults 19-50
</TABLE>
(Continued)
11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income taxes:
The Corporation and its subsidiary file a consolidated federal
income tax return. The provision for income taxes relates to all
items of revenue and expenses recognized for financial accounting
purposes during each of the years. The actual current tax
liability may be more or less than the charge against earnings
due to the effect of temporary differences between financial and
tax accounting resulting in deferred income taxes, and due to the
effect of certain items of revenue that are not taxable.
Effective January 1, 1993 the Bank adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS
109), which requires an asset and liability approach to financial
accounting and reporting for income taxes. The difference
between the financial statement and tax bases of assets and
liabilities is determined annually. Deferred income tax assets
and liabilities are computed for those differences that have
future tax consequences using the currently enacted laws and
rates that apply to periods in which they are expected to affect
taxable income. Valuation allowances are established, if
necessary, to reduce the deferred tax asset to the amount that
will more likely than not be realized. Income tax expense is the
current tax payable or refundable for the period plus or minus
the net change in the deferred tax assets and liabilities.
The deferred method of accounting for income taxes under APB
Opinion 11, which applied in 1992, 1991 and prior years, requires
the recognition of deferred income taxes for income and expense
items that are reported in different years for financial
reporting purposes and for income tax purposes using the tax rate
applicable for the year of the calculation. Under this method,
deferred taxes are not adjusted for subsequent changes in tax
rates.
The significant components of deferred tax assets and liabilities
are principally related to provisions for loan losses,
depreciation, capitalized interest, deferred compensation and
accrued pension cost.
Earnings per share:
Earnings per share are calculated on the basis of the weighted
average number of shares outstanding (85,339 in 1993, 85,340 in
1992 and 83,580 in 1991).
Reclassification:
Certain items in the 1992 and 1991 financial statements have been
reclassified to conform with the classifications adopted for
1993.
Note 2. Cash and Due From Banks
Included in cash and due from banks are certain non-interest bearing
deposits that are held at the Federal Reserve or maintained in vault
cash in accordance with average balance requirements specified by the
Federal Reserve Board. The average balance requirements as of
December 31, 1993 and 1992 were $860,000 and $750,000 respectively.
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 3. Securities Available-for-Sale and Investment Securities
Carrying amounts and approximate market values of securities
available-for-sale as of December 31, 1993 and 1992 are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1993
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains (Losses) Market Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 1,214,911 $ 13,051 $ (1,462) $ 1,226,500
Mortgage-backed securities 47,559,445 1,003,624 (129,724) 48,433,345
Other debt securities 2,433,012 59,303 - 2,492,315
------------ ------------ ------------ ------------
$ 51,207,368 $ 1,075,978 $ (131,186) $ 52,152,160
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1992
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains (Losses) Market Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 3,626,520 $ 82,308 $ (2,363) $ 3,706,465
Mortgage-backed securities 48,690,263 1,235,987 (156,787) 49,769,463
Other debt securities 2,358,941 29,936 (6,047) 2,382,830
------------ ------------ ------------ ------------
$ 54,675,724 $ 1,348,231 $ (165,197) $ 55,858,758
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
Carrying amounts and approximate market values of investment
securities as of December 31, 1993 and 1992 are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1993
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains (Losses) Market Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $ 8,922,300 $ 541,801 $ (12,727) $ 9,451,374
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1992
---------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains (Losses) Market Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $ 6,760,401 $ 262,079 $ (1,287) $ 7,021,193
------------ ------------ ------------ ------------
</TABLE>
(Continued)
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and approximate market value of securities
available-for-sale and investment securities as of December 31, 1993
by contractual maturity are shown below. Actual maturities may differ
from contractual maturities because securities may be called or
prepaid without penalties. Contractual maturities are not meaningful
for mortgage-backed securities because they are particularly exposed
to prepayments.
<TABLE>
<CAPTION>
December 31, 1993
---------------------------
Amortized Approximate
Securities Available-for-Sale Cost Market Value
- - ----------------------------- ------------ ------------
<S> <C> <C>
Due in one year or less $ 705,371 $ 718,062
Due after one year through five years 1,921,361 1,947,728
Due after five years through ten years 1,021,191 1,053,025
Due after ten years - -
------------ ------------
3,647,923 3,718,815
Mortgage-backed securities 47,559,445 48,433,345
------------ ------------
$ 51,207,368 $ 52,152,160
------------ ------------
------------ ------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1993
---------------------------
Amortized Approximate
Investment Securities Cost Market Value
- - --------------------- ------------ ------------
<S> <C> <C>
Due in one year or less $ 80,092 $ 80,905
Due after one year through five years 2,117,740 2,196,623
Due after five years through ten years 3,700,043 3,891,740
Due after ten years 3,024,425 3,282,106
------------ ------------
$ 8,922,300 $ 9,451,374
------------ ------------
------------ ------------
</TABLE>
Gross realized gains and losses for the years ended December 31, 1993, 1992 and
1991 are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Realized gains $ 211,479 $ 447,946 $ 364,567
Realized losses (21,414) (48,475) (6,171)
------------ ------------ ------------
$ 190,065 $ 399,471 $ 358,396
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
Investment securities with a carrying amount of $5,255,390 and
$5,091,702 at December 31, 1993 and 1992, respectively, were pledged
as collateral on public deposits and for other purposes required or
permitted by law.
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 4. Loans and Allowances for Loan Losses
The composition of net loans is as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1993 1992
------------ ------------
<S> <C> <C>
Commercial and real estate $ 51,931,054 $ 46,112,730
Commercial and real estate, participations 160,192 388,988
Installment 16,852,626 15,126,389
Installment, participations 800,000 800,000
Other 88,777 254,323
------------ ------------
69,832,649 62,682,430
Unearned discounts and net deferred loan fees (2,020,514) (1,980,402)
Allowance for loan losses (896,880) (590,730)
------------ ------------
$ 66,915,255 $ 60,111,298
------------ ------------
------------ ------------
</TABLE>
Nonaccrual loans totaled $172,889 and $-0- at December 31, 1993 and
1992, respectively. These loans had the effect of reducing net income
$19,205 for year 1993 and $19,025 for year 1992. Interest income on
these loans, which is recorded only when received, amounted to $-0-
and $47,829 for the years ended December 31, 1993 and 1992,
respectively.
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1993 1992 1991
----------- ----------- ------------
<S> <C> <C> <C>
Balance, beginning $ 590,730 $ 454,439 $ 462,068
Loans charged off (23,477) (91,293) (25,812)
Recoveries 18,127 7,584 18,183
Provisions charged
to operating expenses 311,500 220,000 -
----------- ----------- ------------
Balance, ending $ 896,880 $ 590,730 $ 454,439
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 5. Bank Premises and Equipment
Major classes of bank premises and equipment and the total accumulated
depreciation are summarized as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1993 1992
------------ ------------
<S> <C> <C>
Land $ 313,717 $ 257,067
Buildings and improvements 3,282,154 3,129,257
Furniture and equipment 1,296,738 1,134,798
------------ ------------
4,892,609 4,521,122
Accumulated depreciation (2,193,929) (2,070,699)
------------ ------------
$ 2,698,680 $ 2,450,423
------------ ------------
------------ ------------
</TABLE>
Capitalized interest of approximately $211,000 relating to the
construction cost of the Plaza office building in 1981 is being
amortized over the estimated useful life of the asset. Depreciation
expense, including amortization of capitalized interest, aggregated
$195,911 in 1993, $172,074 in 1992 and $173,214, in 1991.
Note 6. Income Taxes
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1993 1992 1991
----------- ----------- ------------
<S> <C> <C> <C>
Currently paid or payable - federal $ 623,698 $ 717,150 $ 396,008
Deferred (credits) (88,905) (70,433) (19,148)
----------- ----------- ------------
$ 534,793 $ 646,717 $ 376,860
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
A reconciliation of the expected income tax expense computed at 34% in
1993, 1992 and 1991 to the income tax expense included in the
statements of income is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1993 1992 1991
----------- ----------- ------------
<S> <C> <C> <C>
Tax at statutory rate $ 698,710 $ 778,707 $ 506,540
Tax exempt interest (166,352) (144,258) (136,738)
Other 2,435 12,268 7,058
----------- ----------- ------------
$ 534,793 $ 646,717 $ 376,860
----------- ----------- ------------
</TABLE>
(Continued)
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred taxes result from temporary differences in the recognition of
income and expense for tax and financial reporting purposes. The
source of these differences and the tax effect of each were as
follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1993 1992 1991
----------- ----------- ------------
<S> <C> <C> <C>
Accrued pension cost $ (2,015) $ (22,272) $ (16,466)
Deferred compensation 2,021 3,058 3,058
Accretion of discount on securities - (570) (2,079)
Amortization of capitalized interest (2,383) (3,224) (3,223)
Accelerated depreciation 13,840 5,468 36
Provision for loan losses (104,091) (46,339) 2,594
Loan origination fees 3,315 (7,106) (3,620)
Other 408 552 552
----------- ----------- ------------
$ (88,905) $ (70,433) $ (19,148)
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The effect of adopting SFAS No. 109 on 1993 income from continuing
operations and net income was an increase of $5,300. The cumulative
effect of the accounting change on years prior to January 1, 1993, of
$50,947 is included in 1993 income.
The tax effects of temporary differences that give rise to the
deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
Decmber 31,
---------------------------
1993 1992
------------ ------------
<S> <C> <C>
Deferred tax assets
Accrued pension cost $ 66,056 $ 74,424
Deferred compensation 8,085 13,674
Allowance for loan losses 197,545 93,454
Unearned loan origination fees, net 19,301 22,616
Other 2,346 3,726
------------ ------------
293,333 207,894
------------ ------------
Deferred tax liabilities
Bank premises and equipment 457,478 501,508
Unrealized security appreciation 321,229 -
------------ ------------
778,707 501,508
------------ ------------
Net deferred tax (liability) $ (485,374) $ (293,614)
------------ ------------
------------ ------------
</TABLE>
Deferred tax assets have not been reduced by a valuation allowance
since based on the weight of available evidence, management believes
it is more likely than not that all of the deferred tax assets will be
realized.
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 7. Employee Benefit Plans
The Bank has a noncontributory defined benefit pension plan covering
substantially all full-time employees. The plan provides pension
benefits based on the employee's compensation and length of service
not to exceed thirty years. The Bank's funding policy is to
contribute annually at least the minimum amount required by government
funding standards but not more than is tax deductible. The Bank
contributed $85,292 for 1993, $-0- for 1992 and 1991. Plan assets
consist primarily of unallocated insurance contracts.
Net periodic pension expense for the plan consisted of the following
components for the years ended December 31, 1993, 1992 and 1991:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1993 1992 1991
------------ ----------- ------------
<S> <C> <C> <C>
Service cost (benefits earned) $ 70,555 $ 62,151 $ 50,538
Interest cost on projected benefit
obligations 40,602 29,248 29,903
Actual return on plan assets (14,905) (11,053) (22,460)
Net amortization and deferral (5,033) (14,841) (9,550)
------------ ------------ ------------
$ 91,219 $ 65,505 $ 48,431
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The following table sets forth the plan's funded status and amounts
recognized in the accompanying consolidated balance sheets as of
December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation $ 700,261 $ 633,856
Nonvested benefit obligation 9,044 13,778
------------ ------------
Accumulated benefit obligation 709,305 647,634
Effect of anticipated future compensation
levels and other events 336,218 256,978
------------ ------------
Projected benefit obligation 1,045,523 904,612
Plan assets at fair value 524,260 428,739
------------ ------------
Unfunded excess of projected benefit
obligation over plan assets $ 521,263 $ 475,873
------------ ------------
------------ ------------
(Continued)
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The unfunded excess consists of the
following:
Unrecognized net loss $ 344,170 $ 306,340
Unrecognized transition (asset) (17,191) (18,824)
Adjustment required to recognize
minimum liability - (30,538)
Pension liability recognized on
consolidated balance sheet 194,284 218,895
------------ ------------
$ 521,263 $ 475,873
------------ ------------
------------ ------------
</TABLE>
The provisions of Financial Accounting Standards Board Statement No.
87, "Employers' Accounting for Pensions" (SFAS 87), require
recognition in the balance sheet of an additional minimum liability
for pension plans with accumulated benefits in excess of plan assets
and unfunded accrued pension cost. At December 31, 1992 an additional
liability of $30,538 is reflected on the consolidated balance sheet.
This amount represents a net loss not yet recognized as net periodic
pension expense and is reported as a reduction to equity, net of any
deferred tax benefit.
Assumptions used in the accounting were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Discount rates 4.50% 4.25% 6.00%
Rate of increase in compensation levels 2.00% 4.50% 4.75%
Expected long-term rate of return on assets 7.00% 7.25% 7.50%
</TABLE>
Postretirement benefits other than the defined benefit pension plan
are not provided for the Bank's employees. Eligible retired employees
may for a period of time maintain certain health care benefits at the
employee's expense. There was no cost for employee benefits for
retired employees in 1993, 1992 and 1991.
Note 8. Securities Sold Under Repurchase Agreements
Information relating to securities sold under repurchase agreements is
as follows:
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
Average daily balance $ 141,582 $ 589,658
Maximum balance at any month-end (June 1993
and January 1992) $ 231,256 $ 1,391,493
Weighted average interest rate at year-end 3.5% 4.0%
</TABLE>
At December 31, 1993, the securities sold under agreement to
repurchase consisted of U.S. Treasury obligations with a book value
totalling $205,185 and a market value totalling $207,750. The
agreements do not state a specific repurchase date.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 9. Note Payable
Note payable at December 31, 1993 and 1992 consisted of the following:
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
6.0%, line of credit, payable July 1, 1993,
to Liberty National Bank and Trust of
Louisville, unsecured $ - $ 40,000
------------ ------------
</TABLE>
Note 10. Advances from Federal Home Loan Bank
Advances from Federal Home Loan Bank consists of various loans due in
monthly installments, including interest at rates ranging from 5.55%
to 7.35% per annum. The Bank has pledged, in addition to all of its
stock in the Federal Home Loan Bank, 100% of its home mortgage
portfolio as collateral for such borrowings.
Aggregate maturities of the advances at December 31, 1993 are as
follows:
<TABLE>
<S> <C>
1994 $ 289,029
1995 290,539
1996 309,462
1997 329,649
1998 351,138
1999 - 2013 5,237,684
-----------
$ 6,807,501
-----------
-----------
</TABLE>
The Bank, to maintain its membership in the Federal Home Loan Bank
(FHLB), is required to hold FHLB capital stock. A minimum balance of
stock is required, equivalent to the greater of .3% of the Bank's
total assets or 1.0% of the outstanding balance of the Bank's
residential mortgage loans. The stock is not publicly traded and is
purchased and redeemed at par of $100 per share from the Federal Home
Loan Bank.
Note 11. Regulatory Matters
Banking laws and regulations limit the amount of dividends that may be
paid without prior approval of the Bank's regulatory agency. Under
the limitation, the Bank could have paid dividends to the extent of
the current year earnings plus $1,738,025 of retained net earnings
from the preceding two years.
Banking regulations also require the Bank to maintain certain minimum
capital levels in relation to Bank assets. At December 31, 1993,
regulations required a ratio of capital to risk-weighted assets of 8.0
percent. The Bank's capital, as defined by the regulations, was
approximately 12.0 percent of risk-weighted assets. In addition,
banks are expected to maintain a leverage ratio of at least 3.0
percent. At December 31, 1993, the Bank's leverage ratio was
approximately 9.5 percent.
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 12. Transactions with Related Parties
The Bank has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors,
principal officers, their immediate families and affiliated companies
in which they are principal stockholders (commonly referred to as
related parties), all of which have been, in the opinion of
management, on the same terms, including interest rates and
collateral, as those prevailing at the time for comparable
transactions with others. Loans to related parties aggregated
$1,531,708 and $516,149 at December 31, 1993 and 1992, respectively.
Note 13. Commitments and Contingencies
Financial instruments with off-balance-sheet risk:
The Bank is party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs
of its customers. These financial instruments include
commitments to extend credit and standby letters of credit.
These instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the balance sheets.
The Bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the
contractual amount of those instruments. The Bank uses the same
credit policies in making commitments and conditional obligations
as they do for on-balance-sheet instruments. A summary of the
Bank's commitments at December 31, 1993 and 1992 is as follows:
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
Commitments to extend credit $ 4,352,410 $ 4,227,623
Standby letters of credit 375,400 235,250
------------ ------------
$ 4,727,810 $ 4,462,873
------------ ------------
</TABLE>
Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Since many of the commitments are
expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon
extension of credit, is based on managements' credit evaluation
of the party. Collateral held varies, but may include accounts
receivable, crops, livestock, inventory, property and
equipment, residential real estate and income producing
commercial properties.
Standby letters of credit are conditional commitments issued by
the Bank to guarantee the performance of a customer to a third
party. Those guarantees are primarily issued to support public
and private borrowing arrangements. The credit risk involved
in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers. Collateral
held varies as specified above and is required in instances
which the Bank deems necessary.
(Continued)
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Concentrations of credit risk:
All of the Bank's loans, commitments to extend credit, and standby
letters of credit have been granted to customers in the Bank's market
area. Investments in securities issued by state and political
subdivisions (see Note 3) also involve governmental entities within
the Bank's market area. The concentrations of credit by type of loan
are set forth in Note 4. The distribution of commitments to extend
credit approximates the distribution of loans outstanding. Standby
letters of credit were granted primarily to commercial borrowers. The
Bank, as a matter of policy, does not extend credit to any single
borrower or group of related borrowers in excess of $1,200,000.
Although the Bank has a diversified loan portfolio, a substantial
portion of its debtors' ability to honor their contracts is dependent
upon the local economic sector.
Other commitments:
The Bank leases certain equipment under noncancelable term leases
expiring through October 1994. Operating expenses include equipment
rentals of $18,362 in 1993, $16,494 in 1992 and $11,932 in 1991.
The Bank also rents out office space under a one year renewable
operating lease. Rental income aggregated $14,000 in 1993, 1992 and
1991.
Contingencies:
In the normal course of business, the Bank is involved in various
legal proceedings, including but not necessarily limited to those
associated with loan defaults and foreclosures. In the opinion of
management, any liability resulting from such proceedings would not
have a material effect on the Bank's financial statements.
Note 14. Supplemental Income Statement Information
Details of service fees and other income and other operating expenses
are as follows:
<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Service fees and other income
Dividends from Federal Home Loan Bank $ 33,172 $ 13,218 $ -
Service charges on deposits 274,719 230,508 194,649
Trust department fees 13,065 13,639 20,689
Insurance commissions 32,356 29,402 31,094
Building and equipment rent 25,058 14,000 14,000
Loss on sale of other real estate - - (12,155)
Other 105,741 77,800 65,541
----------- ----------- -----------
$ 484,111 $ 378,567 $ 313,818
----------- ----------- -----------
----------- ----------- -----------
Other operating expenses
FDIC insurance expense $ 257,898 $ 250,311 $ 220,832
Data processing expense 208,519 188,277 185,579
Bank shares tax 162,574 142,438 122,446
Equipment rentals, depreciation and
maintenance 132,922 120,285 114,953
Settlement - threatened claim against bank - - 350,000
Other expense 611,874 627,717 787,192
----------- ----------- -----------
$ 1,373,787 $ 1,329,028 $ 1,781,002
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 15. Revisions to Previously Issued Financial Statements
Subsequent to original issuance of the Corporation's 1993 financial
statements, management became aware of errors in the Bank's financial
statements for 1993 and earlier periods.
A summary of the revisions and the increase (decrease) to net income,
net of income taxes, is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- ------------
<S> <C> <C> <C>
Accounting for pension cost (A) $ (3,912) $ (43,233) $ (31,965)
Provision for loan losses (B) (96,690) - -
Adjustment of unamortized premium and
unaccreted discount (C) (80,004) - -
Accounting for securities (D) - - -
----------- ----------- ------------
Total revisions, net of income taxes (180,606) (43,233) (31,965)
Net income, as previously reported 1,751,788 1,686,832 1,144,928
----------- ----------- ------------
Net income, as revised $ 1,571,182 $ 1,643,599 $ 1,112,963
----------- ----------- ------------
----------- ----------- ------------
Earnings per share:
Net income, as previously reported $ 20.53 $ 19.77 $ 13.70
Effect of revisions (2.12) (.51) (.38)
----------- ----------- ------------
Net income, as revised $ 18.41 $ 19.26 $ 13.32
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
(A) Primarily based on quantitative considerations, the Bank had not
adopted in previously issued financial statements the provisions of
Statement of Financial Accounting Standards No. 87, "Employers'
Accounting for Pensions" (SFAS 87). Qualitative considerations
relating to the affiliation agreement discussed in Note 16 insist, for
due diligence purposes, that the statement be adopted. The statement
has been adopted as of its effective date, which was prior to January
1, 1991. Accordingly, retained earnings as of January 1, 1991 have
been decreased $49,118 for the cumulative effect of the adjustment,
previously unrecorded accrued pension cost of $74,421, net of $25,303
reduction in deferred income tax liability. Net income for 1993 has
been reduced by $5,927 of previously understated pension cost, net of
$2,015 reduction in deferred income taxes. Net income for 1992 has
been reduced by $65,505 of previously understated pension cost, net of
$22,272 reduction in deferred income taxes. Net income for 1991 has
been reduced by $48,431 of previously understated pension cost, net of
$16,466 reduction in deferred income taxes.
(B) Facts existing at the time the 1993 financial statements were
originally issued were misused or overlooked. Also, mistakes were
made in the application of accounting principles. This involved Bank
management's overall credit reviews, specific problem loans, and other
factors considered in determining the loan loss provision charged to
1993 operating expense. The 1993 financial statements have been
corrected to increase the provision by $146,500, net of reduction in
deferred income tax expense of $49,810.
(Continued)
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(C) Errors were made in analysis of significant factors, such as
prepayments and interest rates, that affect investment yield or
recoverability of the carrying value of mortgage-backed securities.
As a result unamortized premium, net of unaccreted discount, was
overstated in the previously issued December 31, 1993 consolidated
balance sheet. Net income for 1993 has been reduced by $121,311 of
previously overstated taxable interest income on securities, net of
$41,307 reduction in income taxes.
(D) As discussed in Note 1, the Bank has adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" (SFAS 115), as of
December 31, 1993. Previously issued financial statements stated the
Bank had chosen to delay implementation of the statement until January
1, 1994. To facilitate the impending merger as explained in Note 16,
the Bank chose to adopt the accounting change in these revised 1993
financial statements. The early adoption had no effect on 1993
income, as revised. Unrealized appreciation of $944,792 on securities
available-for-sale resulted in a $623,563 increase, net of $321,229 of
deferred income taxes, to stockholders' equity at December 31, 1993.
Where applicable, these matters have been considered in various other
Notes to Consolidated Financial Statements (notes). In addition to
the matters described above, other changes have been made in the notes
to these revised financial statements to clarify accounting policies
or other matters. These changes had no affect on net income, earnings
per share, or total assets of the Corporation.
Note 16. Event (Unaudited) Subsequent to the Date of the Report of Independent
Auditors
The Corporation entered into an affiliation agreement with Peoples
First Corporation (Peoples) on February 24, 1994, subsequently amended
April 15, 1994. Peoples, headquartered in Paducah, Kentucky, with
total assets of approximately $1 billion serves primarily western
Kentucky and the contiguous interstate area. The affiliation
agreement, as amended, calls for the Corporation to be merged into PFC
Acquisition Corporation II, a Kentucky Corporation and subsidiary of
Peoples. Effective upon the merger, shareholders of the corporation
will receive 12.632 shares of Peoples common stock for each share of
Libsab Bancorp, Inc. common stock, or a total of 1,078,000 shares.
The merger is contingent upon approval of various regulatory agencies
and the stockholders of the Corporation and, if approved, is expected
to close in the third quarter of 1994.
24
INTRODUCTION - PRO FORMA CONDENSED FINANCIAL STATEMENTS (unaudited)
Peoples First Corporation and Subsidiaries /
Libsab Bancorp, Inc. and Subsidiary
The following unaudited pro forma combined condensed balance sheet as of June
30, 1994 gives effect to the acquisition of Libsab Bancorp, Inc. and Subsidiary
(Libsab) by Peoples First Corporation and Subsidiaries (Peoples First) as if it
had been consummated as of June 30, 1994. The following unaudited pro forma
combined condensed statement of income for the six months ended June 30, 1994
and for the years ended December 31, 1993, 1992 and 1991 give effect to the
acquisition as if it had been consummated as of the beginning of the period
presented. The pro forma information is based upon the historical consolidated
financial statements of Peoples First and Libsab giving effect to the
acquisition under the assumptions and adjustments set forth in the accompanying
notes to the pro forma combined condensed financial statements.
These pro forma combined condensed financial statements may not be indicative of
the results that actually would have occurred if the Merger had been in effect
on the dates indicated or which may be obtained in the future. The pro forma
combined condensed financial statements should be read in conjunction with the
notes to the supplemental consolidated financial statements contained in the
July 28, 1994 current report on Form 8-K filed by Peoples First with the
Securities and Exchange Commission on August 1, 1994.
PRO FORMA COMBINED CONDENSED BALANCE SHEET (unaudited)
Peoples First Corporation and Subsidiaries /
Libsab Bancorp, Inc. and Subsidiary
(in thousands)
<TABLE>
<CAPTION>
Peoples Historical Adjust- Pro forma
June 30, 1994 First Libsab Combined ments Combined
______________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $30,747 $6,085 $36,832 $36,832
Federal funds sold 0 100 100 100
Securities held for sale 78,136 48,147 126,283 126,283
Investment securities 219,703 9,365 229,068 229,068
Loans 683,653 75,079 758,732 758,732
Allowance for loan losses (10,732) (952) (11,684) (11,684)
--------- --------- --------- ---------
Loans, net 672,921 74,127 747,048 747,048
Excess of cost over net assets
of purchased subsidiaries 10,492 0 10,492 10,492
Premises and equipment 13,706 2,985 16,691 16,691
Other assets 14,003 1,111 15,114 15,114
--------- --------- --------- ------- ---------
$1,039,708 $141,920 $1,181,628 $0 $1,181,628
========= ========= ========= ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand deposits $73,589 $11,827 $85,416 $85,416
Interest-bearing transaction accounts 213,332 28,286 241,618 241,618
Saving deposits 95,998 14,354 110,352 110,352
Time deposits 503,619 64,681 568,300 568,300
--------- --------- --------- ---------
886,538 119,148 1,005,686 1,005,686
Repurchase agreements 20,904 251 21,155 21,155
Federal funds purchased 13,100 1,500 14,600 14,600
Notes payable 17,998 7,027 25,025 25,025
Other liabilities 6,925 1,090 8,015 8,015
--------- --------- --------- ---------
Total liabilities 945,465 129,016 1,074,481 1,074,481
Stockholders' Equity
Common stock 5,557 853 6,410 (11)(1c) 6,399
Surplus 31,326 3,000 34,326 11 (1d) 34,337
Retained earnings 58,969 9,778 68,747 68,747
Unrealized loss on securities held
for sale, net of deferred tax (1,451) (727) (2,178) (2,178)
Debt on ESOP shares (158) 0 (158) (158)
--------- --------- --------- ------- ---------
94,243 12,904 107,147 0 107,147
--------- --------- --------- ------- ---------
$1,039,708 $141,920 $1,181,628 $0 $1,181,628
========= ========= ========= ======= =========
</TABLE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (unaudited)
Peoples First Corporation and Subsidiaries /
Libsab Bancorp, Inc. and Subsidiary
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Peoples Historical Adjust- Pro forma
For the six months ended June 30, 1994 First Libsab Combined ments Combined
______________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Interest on Federal funds sold $56 $13 $69 $69
Taxable interest on securities 7,286 1,529 8,815 8,815
Nontaxable interest on securities 1,930 262 2,192 2,192
Interest and fees on loans 26,624 2,985 29,609 29,609
------ ------ ------ ------
35,896 4,789 40,685 40,685
Interest Expense 16,050 2,167 18,217 18,217
------ ------ ------ ------
Net Interest Income 19,846 2,622 22,468 22,468
Provision for Loan Losses 939 60 999 999
------ ------ ------ ------
Net Interest Income after
Provision for loan losses 18,907 2,562 21,469 21,469
Noninterest income 3,024 293 3,317 3,317
Noninterest expense 14,066 1,957 16,023 16,023
------ ------ ------ ------
Income Before Income Tax Expense 7,865 898 8,763 8,763
Income Tax Expense 2,363 242 2,605 2,605
------ ------ ------ ------
Net Income Before Cumulative
Effect of Accounting Change $5,502 $656 $6,158 $0 $6,158
====== ====== ====== ====== ======
Weighted average common shares and
common stock equivalents outstanding 7,369 8,447
Net income before cumulative
effect of change in accounting
principle per common share $0.75 $0.73
</TABLE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (unaudited)
Peoples First Corporation and Subsidiaries /
Libsab Bancorp, Inc. and Subsidiary
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Peoples Historical Adjust- Pro forma
For the year ended December 31, 1993 First Libsab Combined ments Combined
______________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Interest on Federal funds sold $295 $41 $336 $336
Taxable interest on securities 16,426 3,547 19,973 19,973
Nontaxable interest on securities 3,951 462 4,413 4,413
Interest and fees on loans 50,863 5,629 56,492 56,492
------ ------ ------ ------
71,535 9,679 81,214 81,214
Interest Expense 33,556 4,442 37,998 37,998
------ ------ ------ ------
Net Interest Income 37,979 5,237 43,216 43,216
Provision for Loan Losses 2,229 311 2,540 2,540
------ ------ ------ ------
Net Interest Income after
Provision for loan losses 35,750 4,926 40,676 40,676
Noninterest income 5,641 674 6,315 6,315
Noninterest expense 25,828 3,545 29,373 29,373
------ ------ ------ ------
Income Before Income Tax Expense 15,563 2,055 17,618 17,618
Income Tax Expense 4,272 535 4,807 4,807
------ ------ ------ ------
Net Income Before Cumulative
Effect of Accounting Change $11,291 $1,520 $12,811 $0 $12,811
====== ====== ====== ====== ======
Weighted average common shares and
common stock equivalents outstanding 7,338 8,416
Net Income before cumulative
effect of change in accounting
principle per common share $1.54 $1.52
</TABLE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (unaudited)
Peoples First Corporation and Subsidiaries /
Libsab Bancorp, Inc. and Subsidiary
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Peoples Historical Adjust- Pro forma
For the year ended December 31, 1992 First Libsab Combined ments Combined
______________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Interest on Federal funds sold $724 $53 $777 $777
Taxable interest on securities 17,260 4,497 21,757 21,757
Nontaxable interest on securities 3,480 400 3,880 3,880
Interest and fees on loans 48,491 5,286 53,777 53,777
------ ------ ------ ------
69,955 10,236 80,191 80,191
Interest Expense 37,580 5,188 42,768 42,768
------ ------ ------ ------
Net Interest Income 32,375 5,048 37,423 37,423
Provision for Loan Losses 3,026 220 3,246 3,246
------ ------ ------ ------
Net Interest Income after
Provision for loan losses 29,349 4,828 34,177 34,177
Noninterest income 5,566 778 6,344 6,344
Noninterest expense 22,626 3,316 25,942 25,942
------ ------ ------ ------
Income Before Income Tax Expense 12,289 2,290 14,579 14,579
Income Tax Expense 3,427 647 4,074 4,074
------ ------ ------ ------
Net Income Before Cumulative
Effect of Accounting Change $8,862 $1,643 $10,505 $0 $10,505
====== ====== ====== ====== ======
Weighted average common shares and
common stock equivalents outstanding 6,690 7,768
Net Income before cumulative
effect of change in accounting
principle per common share $1.32 $1.35
</TABLE>
PRO FORMA COMBINED CONDENSED STATEMENT OF INCOME (unaudited)
Peoples First Corporation and Subsidiaries /
Libsab Bancorp, Inc. and Subsidiary
(in thousands except per share amounts)
<TABLE>
<CAPTION>
Peoples Historical Adjust- Pro forma
For the year ended December 31, 1991 First Libsab Combined ments Combined
______________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Interest on Federal funds sold $2,188 $174 $2,362 $2,362
Taxable interest on securities 11,285 5,135 16,420 16,420
Nontaxable interest on securities 2,974 371 3,345 3,345
Interest and fees on loans 46,381 5,122 51,503 51,503
------ ------ ------ ------
62,828 10,802 73,630 73,630
Interest Expense 38,640 6,446 45,086 45,086
------ ------ ------ ------
Net Interest Income 24,188 4,356 28,544 28,544
Provision for Loan Losses 2,338 0 2,338 2,338
------ ------ ------ ------
Net Interest Income after
Provision for loan losses 21,850 4,356 26,206 26,206
Noninterest income 3,769 672 4,441 4,441
Noninterest expense 16,136 3,538 19,674 19,674
------ ------ ------ ------
Income Before Income Tax Expense 9,483 1,490 10,973 10,973
Income Tax Expense 2,389 377 2,766 2,766
------ ------ ------ ------
Net Income Before Cumulative
Effect of Accounting Change $7,094 $1,113 $8,207 $0 $8,207
====== ====== ====== ====== ======
Weighted average common shares and
common stock equivalents outstanding (1) 6,535
Net Income before cumulative
effect of change in accounting
principle per common share $1.30 $1.26
</TABLE>
(1) Peoples First's historical net income per share has not been restated to
reflect the pooling-of-interest merger with First Kentucky Bancorp, Inc. that
was consummated on March 10, 1994. First Kentucky Bancorp, Inc. converted from
the mutual form of organization to a stock corporation during 1991, and
accordingly, the average number of shares outstanding are not meaningful to the
restated consolidated operations of Peoples First.
NOTES TO PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS (unaudited)
Peoples First Corporation and Subsidiaries /
Libsab Bancorp, Inc. and Subsidiary
Transaction
Peoples First acquired Libsab as outlined in the Merger Agreement. The Merger
Agreement provided that Peoples First obtained 100% ownership of the outstanding
stock of Libsab for 1,077,853 shares of Peoples First Common Stock.
Assumptions
1. The pro forma combined condensed balance sheet of Peoples First and Libsab
as of June 30, 1994 has been prepared with the following assumptions:
a. The Merger occurred on June 30, 1994.
b. The pooling-of-interest method of accounting was used to account for
the business combination and, accordingly, the recorded assets and
liabilities of Libsab are carried forward to the combined entity at
their recorded amounts.
c. Pro forma adjustment to record Peoples First's issuance of 1,077,853
shares of Peoples First Common Stock at a stated value of $0.7812
per share.
d. Pro forma adjustment to record the excess of Libsab's total stock-
holders' equity over the total of the stated value of the Peoples
First stock issued and Libsab'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 year presented.
b. The pooling-of-interest method of accounting was used for the business
combination.
c. No pro forma adjustments to the historical combined statements of
income are necessary to reflect the Merger. The reported income of
Peoples First and Libsab for prior periods was combined and stated
as income of the combined entity.
SIGNATURE
_______________________________________________________________________________
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on October 21, 1994.
PEOPLES FIRST CORPORATION
By: /s/ Allan B. Kleet
Allan B. Kleet
Principal Financial Officer
INDEX TO EXHIBITS Page
_______________________________________________________________________________
(23.1) Consent of Corman, Bryan & Watts 39
EXHIBIT 23.1 - CONSENT OF CORMAN, BYRAN & WATTS INDEPENDENT PUBLIC ACCOUNTANTS
______________________________________________________________________________
The Board of Directors
Peoples First Corporation:
We consent to inclusion in the October 7, 1994, Form 8-K of Peoples First
Corporation, of our report dated February 10, 1994, relating to the consolidated
balance sheets of Libsab Bancorp, Inc. and subsidiary as of December 31, 1993
and 1992, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 1993.
/s/ Corman, Bryan & Watts
Mayfield, Kentucky
October 21, 1994
39
