_______________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934, For the Fiscal Year Ended December 31, 1994
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number Number 0-16839
PEOPLES FIRST CORPORATION
(Exact name of registrant as specified in its charter)
Kentucky 61-1023747
(State or other jurisdiction of (I R S Employer
incorporation or organization) Identification No.)
100 South Fourth Street
Paducah, Kentucky 42002-2200
(Address of principal exective offices) (Zip Code)
Registrant's telephone number, including area code: (502) 441-1200
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing require-
ments for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 16, 1995: Common stock, no par value - $133,075,000.
The number of shares outstanding of the Registrant's only class of stock as of
February 16, 1995: Common stock, no par value - 8,236,760 shares outstanding.
Documents Incorporated by Reference
Portions of Peoples First Corporation's definitive proxy statement dated
March 21, 1995 are incorporated into Part III.
______________________________________________________________________________1
INDEX
Page
_______________________________________________________________________________
PART I.
Item 1. Business 3
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Maters to a Vote of Securities Holders 15
PART II.
Item 5. Market for the Registrant's Common Stock and Related
Security Holder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Item 8. Financial Statements and Supplementary Data 28
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 58
PART III.
Item 10. Directors and Executive Officers of the Registrant 58
Item 11. Executive Compensation 59
Item 12. Security Ownership of Certain Beneficial Owners
and Management 59
Item 13. Certain Relationships and Related Transactions 59
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 59
Signatures 61
2
PART I
Item 1. Business
Peoples First Corporation (the "Company") is a multi-bank and unitary savings
and loan holding company registered with the Board of Governors of the Federal
Reserve System ("Federal Reserve Board") pursuant to Section 5(a) of the Bank
Holding Company Act of 1956, as amended. In recent years, the Company has been
on of the ten largest independent financial institutions headquartered in
Kentucky. The Company conducts a complete range of commercial and personal
banking activities in Western Kentucky through three wholly owned subsidiaries:
The Peoples First National Bank & Trust Company of Paducah in McCracken,
Marshall, Ballard, Livingston and Calloway Counties; First Kentucky Federal
Savings Bank of Central City in Muhlenberg, Ohio, McLean and Butler Counties;
and Liberty Bank & Trust of Mayfield in Graves County (together, the "Banks").
Peoples First Corporation's principal executive offices are located at 100 South
Fourth Street, Paducah, Kentucky 42002-2200.
The Company is a Kentucky Corporation incorporated on March 1, 1983. The
Company became a bank holding company when it acquired Peoples First National
Bank & Trust Company ("Peoples Bank") in 1983. The Company acquired (and
subsequently merged into Peoples Bank during 1994) First Liberty Bank in 1985,
First National Bank of LaCenter in 1987 Salem Bank, Inc. in 1989 and Bank of
Murray in 1992.
During 1994, the Company consummated the acquisition of Libsab Bancorp, Inc.
(Libsab) and Liberty Bank and Trust, a wholly-owned subsidiary of Libsab. The
Company acquired all of the outstanding shares of Libsab in exchange for
1,077,853 shares of Peoples First Corporation common stock. Libsab's three
locations are part of the market area served by the Company's other subsidiary
banks. Also during 1994, the Company consummated the acquisition of First
Kentucky Bancorp, Inc. and First Kentucky Federal Savings Bank (First Kentucky
FSB), a wholly-owned subsidiary of First Kentucky. The Company acquired all of
the outstanding shares of First Kentucky Bancorp, Inc. in exchange for 929,794
shares of Peoples First Corporation common stock. First Kentucky FSB's six
locations are immediately east of the market area served by the Company's other
subsidiary banks.
Dividends from the banks are the principal source of cash income for the
Company. Legal limitations are imposed on the amount of dividends that may be
paid by the individual banks. Although the Company may engage in other
activities, subject to rules and regulations of the Federal Reserve Board and
Kentucky Department of Financial Institutions, it is currently expected that the
banks will remain the principal source of operating revenues.
Peoples Bank, organized in 1926, provides a full range of banking services to
the Western Kentucky region through its main office in Paducah, Kentucky and
twelve full service branch offices, three limited service branch offices and one
business operations office. Commercial lending services provided to medium-size
and small businesses, real estate mortgage lending and individual consumer
lending services are the primary sources of operating revenues. Peoples Bank
had total deposits of $726.6 million at December 31, 1994 and is the first or
3
second largest commercial banking operation in each of the five counties it
operates. At December 31, 1994, Peoples Bank had 395 full-time equivalent
employees.
First Kentucky FSB, organized in 1934, provides a broad array of banking
services to the Western Kentucky region through its main office in Central
City, Kentucky and five branch offices. Residential real estate mortgage
lending is the primary source of operating income. First Kentucky FSB had total
deposits of $151.7 million at December 31, 1994 and is largest financial
institution headquartered in their immediate West-Central Kentucky market area.
At December 31, 1994, First Kentucky FSB had 64 full-time employees.
Liberty Bank, organized in 1956, provides a full range of banking services to
the Graves County Kentucky area through its main office in Mayfield, Kentucky
and two branch offices. Residential real estate mortgage lending as well as
other customary banking services are the primary sources of operating income.
Liberty Bank had total deposits of $120.9 million at December 31, 1994 and is
largest financial institution headquartered in Graves County Kentucky. At
December 31, 1994, Liberty Bank had 70 full-time employees.
Management considers employee relations to be good with all of the bank
employees, none of which are covered by a collective bargining agreement.
Competition
The Banks actively compete on local and regional levels with other commercial
banks and financial institutions for all types of deposits, loans, trust
accounts and the provision of financial and other services. With respect to
certain banking services, the Banks compete with insurance companies, savings
and loan associations, credit unions and other financial institutions. Many of
the Banks' competitors are not commercial banks or savings and loan
associations. For example, the Banks compete for funds with money market
mutual funds, brokerage houses, and governmental and private issuers of money
market instruments. The Banks also compete for loans with other financial
institutions and private concerns providing financial services. These include
finance companies, credit unions, certain governmental agencies and merchants
who extend their own credit selling to consumers and other customers. Many of
the banks, financial institutions and other interests with which the Banks
compete have capital resources substantially in excess of the capital and
resources of the Banks.
Supervision and Regulation
The Registrant is a bank holding company within the meaning of the Bank Holding
Company Act. As such, it is registered with the Federal Reserve Board (FRB) and
files reports with and is subject to examination by that body.
Peoples Bank, chartered under the National Bank Act, is subject to the supervi-
sion of and is regularly examined by the Comptroller of the Currency of the
United States. By law, Peoples Bank is a member of the Federal Reserve System
and insured members of the Federal Deposit Insurance Corporation (FDIC). As
such, they are subject to regulation by these federal agencies.
4
Liberty Bank, chartered under the Commonwealth of Kentucky, is subject to the
supervision of and is regularly examined by the Kentucky Department of Financial
Institutions. They are insured members of the FDIC, and, as such, are subject
to regulation and examined by that federal agency.
First Kentucky FSB, as a federally chartered savings association, is subject to
the supervision of and is regularly examined by Office of Thrift Supervision.
They are subject to certain reserve requirements of the FRB and are insured
members of the Savings Association Insurance Fund of the FDIC, and, as such, are
subject to regulation and examined by these federal agencies.
Governmental Monetary Policies and Economic Growth
The continuing volatile conditions in the national economy and in the money
markets, together with the effects of actions by monetary and fiscal authorities
in recent years, make it exceedingly difficult to predict with any reasonable
accuracy the possible future changes in interest rates and their effect on
deposit levels, loan demand and the business and earnings of the Registrant and
its subsidiaries.
5
Statistical Disclosures
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates
and Interest Differential
A. AVERAGE BALANCE SHEETS For the Year Ended December 31,
(in thousands) 1994 1993 1992
_______________________________________________________________________________
INTEREST-EARNING ASSETS
Short-term investments $3,831 $10,579 $18,509
Taxable debt securities 278,165 313,315 297,266
Non-taxable debt securities 69,731 71,001 60,642
Loans (1) 755,314 660,345 568,477
--------- --------- ---------
1,107,041 1,055,240 944,894
NONINTEREST-EARNING ASSETS
Cash and due from banks 34,878 33,974 30,799
Allowance for loan losses (11,524) (9,827) (7,693)
Other assets 47,877 47,088 40,107
--------- --------- ---------
$1,178,272 $1,126,475 $1,008,107
========= ========= =========
INTEREST-BEARING LIABILITIES
Transaction accounts $235,918 $228,146 $197,566
Saving deposits 106,891 105,191 83,008
Time deposits 567,438 555,689 535,314
Short-term borrowings 51,454 31,761 24,174
Long-term borrowings 13,679 17,956 9,524
Other liabilities 1,201 944 776
--------- --------- ---------
976,581 939,687 850,362
NONINTEREST-BEARING LIABILITIES
Demand deposits 85,307 78,178 63,523
Other liabilities 8,391 9,471 11,278
STOCKHOLDERS' EQUITY 107,993 99,139 82,944
--------- --------- ---------
$1,178,272 $1,126,475 $1,008,107
========= ========= =========
(1) Nonperforming loans are included in
average loans
6
B. ANALYSIS OF NET INTEREST EARNINGS For the Year Ended December 31,
(in thousands) 1994 1993 1992
_______________________________________________________________________________
INTEREST INCOME
Short-term investments $169 $335 $781
Taxable securities 17,017 19,652 21,484
Non-taxable securities (TE) (2) 6,302 6,487 5,692
Loans 62,929 56,592 53,887
------ ------ ------
86,417 83,066 81,844
INTEREST EXPENSE
Transaction accounts 6,970 5,854 5,834
Saving deposits 3,194 3,980 4,412
Time deposits 25,547 25,926 30,888
Short-term borrowings 2,168 1,026 946
Long-term borrowings 900 1,151 668
Other liabilities 76 60 20
------ ------ ------
38,855 37,997 42,768
------ ------ ------
NET INTEREST INCOME (TE) (2) 47,562 45,069 39,076
TE Basis Adjustment (2,080) (2,161) (1,878)
------ ------ ------
NET INTEREST EARNINGS $45,482 $42,908 $37,198
====== ====== ======
(2) Tax equivalent (TE) interest income is based
upon a Federal income tax rate of 35%.
7
B. AVERAGE YIELDS AND RATES PAID For the Year Ended December 31,
1994 1993 1992
_______________________________________________________________________________
AVERAGE YIELDS FOR INTEREST-EARNING ASSETS
Short-term investments 4.41% 3.17% 4.22%
Taxable securities 6.12% 6.27% 7.23%
Non-taxable securities (TE) (2) 9.04% 9.14% 9.39%
Loans (1) 8.33% 8.57% 9.48%
All interest-earning assets 7.81% 7.87% 8.66%
AVERAGE RATES FOR INTEREST-BEARING LIABILITIES
Transaction accounts 2.95% 2.57% 2.95%
Saving deposits 2.99% 3.78% 5.32%
Time deposits 4.50% 4.67% 5.77%
Short-term borrowings 4.21% 3.23% 3.91%
Long-term borrowings 6.58% 6.41% 7.01%
Other liabilities 6.33% 6.36% 2.58%
All interest-bearing liabilities 3.98% 4.04% 5.03%
---- ---- ----
NET INTEREST-RATE SPREAD (TE) (2) 3.83% 3.83% 3.63%
==== ==== ====
NET YIELD ON INTEREST-EARNING ASSETS 4.30% 4.27% 4.14%
==== ==== ====
(1) Nonperforming loans are included in
average loans
(2) Tax equivalent (TE) interest income is based
upon a Federal income tax rate of 35%.
8
C. FOR THE LAST TWO FISCAL YEARS
CHANGES ATTRIBUTABLE TO VOLUME AND RATE Change Due to Due to
(in thousands) 1994/1993 Volume Rate (3)
_______________________________________________________________________________
INTEREST INCOME
Short-term investments ($166) ($214) $48
Taxable securities (2,635) (2,205) (430)
Non-taxable securities (TE) (2) (185) (116) (69)
Loans (1) 6,337 8,139 (1,802)
------
3,351 4,078 (727)
INTEREST EXPENSE
Transaction accounts 1,116 199 917
Saving deposits (786) 64 (850)
Time deposits (379) 548 (927)
Short-term borrowings 1,142 636 506
Long-term borrowings (251) (274) 23
Other liabilities 16 16 (0)
------
858 1,492 (634)
------ ------ ------
NET INTEREST INCOME (TE) (2) $2,493 $2,586 ($93)
====== ====== ======
(1) Nonperforming loans are included in average loans.
(2) Tax equivalent (TE) net interest income is based upon a Federal income
tax rate of 35%.
(3) Changes due to both rate and volume are included in due to rate.
9
CHANGES ATTRIBUTABLE TO VOLUME AND RATE Change Due to Due to
(in thousands) 1993/1992 Volume Rate (3)
_______________________________________________________________________________
INTEREST INCOME
Short-term investments ($446) ($335) ($111)
Taxable securities (1,832) 1,160 (2,992)
Non-taxable securities (TE) (2) 795 972 (177)
Loans (1) 2,705 8,708 (6,003)
------
1,222 9,558 (8,336)
INTEREST EXPENSE
Transaction accounts 20 903 (883)
Saving deposits (432) 1,179 (1,611)
Time deposits (4,962) 1,176 (6,138)
Short-term borrowings 80 297 (217)
Long-term borrowings 483 591 (108)
Other liabilities 40 4 36
------
(4,771) 4,493 (9,264)
------ ------ ------
NET INTEREST INCOME (TE) (2) $5,993 $5,065 $928
====== ====== ======
(1) Nonperforming loans are included in average loans.
(2) Tax equivalent (TE) net interest income is based upon a Federal income
tax rate of 35%.
(3) Changes due to both rate and volume are included in due to rate.
10
II. Debt Security Portfolios
A. Footnote 4 to the Consolidated Financial Statements included herein on page
41 presents the book value as of the end of 1994 and 1993 of debt securities by
type of security.
B. Footnote 4 to the Consolidated Financial Statements included herein on page
42 presents the amortized cost, estimated market value and the weighted average
yield of debt securities at December 31, 1994, by contractual maturity range.
C. As of December 31, 1994, the Company owned no securities (other than U. S.
Government and U. S. Government agencies and corporations) issued by one issuer
for which the book value exceeded ten percent of stockholders' equity.
III. Loan Portfolio
A. The table of Types of Loans in Management's Discussion and Analysis of
Financial Condition and Results of Operations (MDA) included herein on page 20
presents the amount of all loans in various categories as of the end of 1994
and 1993.
B. The following table presents the maturities in the loan portfolio, excluding
commercial paper, real estate mortgage, installment, consumer revolving credit
and other loans at December 31, 1994:
Loan Portfolio Maturities 1 year 1 to 5 Over
December 31, 1994 or less years 5 years Total
_______________________________________________________________________________
(in thousands)
Commercial, financial
and agricultural $58,251 $24,607 $29,071 $111,929
Real estate construction 17,529 556 1,336 19,421
------- ------- ------- -------
$75,780 $25,163 $30,407 $131,350
======= ======= ======= =======
The amounts of these loans due after one year which have predetermined rates
and adjustable rates are $4.8 million and $50.8 million, respectively.
C. Risk Elements
1. The table of Nonperforming Assets in MDA included herein on page 22 states
the amount of nonaccrual, past due and restructured loans. The following table
states the gross interest income that would have been recorded for the years
ended December 31, 1990 through 1994, if the nonaccrual and renegotiated loans
had been current in accordance with their original terms, and the amount of
interest income that was included in net income for each year:
11
<TABLE>
<CAPTION>
Interest Income on Nonaccrual
and Restructured Loans
Year ended December 31, 1994 1993 1992 1991 1990
____________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C> <C> <C>
Contractual interest ($209) ($407) ($434) ($584) ($269)
Interest recognized 192 279 173 462 211
</TABLE>
2. Potential Problem Loans
Internal credit review procedures are designed to alert management of possible
credit problems which would create serious doubts as to the future ability of
borrowers to comply with loan repayment terms. At December 31, 1994, loans
with a total principal balance of $14.8 million had been identified that may
become nonperforming in the future, compared to $22.4 million at December 31,
1993. Potential problem loans are not included in nonperforming assets since
the borrowers currently meet all applicable loan agreement terms. The
identified potential problem loan totals consist of many different loans and are
generally loans for which the collateral appears to be sufficient but that have
potential financial weakness evidenced by internal credit review's analysis of
historical financial information. At December 31, 1994, a total of $5.2 million
of potential problem loans were to three borrowers.
3. Foreign Outstandings
There were no foreign outstandings at anytime during the last three years.
4. Loan Concentrations
As of December 31, 1994, there was no concentration of loans exceeding 10% of
total loans which are not otherwise disclosed in the Types of Loans table
pursuant to III. A. There were no amounts loaned in excess of 10% of total
loans to a multiple of borrowers engaged in similar activities which would
cause them to be similarly impacted by economic or other conditions. Most
loans are originated in the immediate market area of the Banks.
D. Other Interest Bearing Assets
The Company has no other interest earning assets that would be required to
be disclosed under Item III. C.1. or 2. if such assets were loans.
12
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. The following table presents an analysis of loss experience and the allow-
ance for loan losses for the years ended December 31, 1994, 1993, 1992, 1991
and 1990:
<TABLE>
<CAPTION>
Analysis of the Allowance
for Loan Losses
Year ended December 31, 1994 1993 1992 1991 1990
____________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of
year $10,715 $8,606 $6,420 $5,880 $5,424
Balance of subsidiary bank
at acquisition -- -- 1,485 -- --
Provision charged to
expense 1,723 2,541 3,246 2,338 2,042
Loan charge-offs
Commercial, financial
and agricultural (248) (463) (1,893) (794) (842)
Real estate mortgage (81) (240) (440) (714) (505)
Installment loans (279) (317) (516) (448) (433)
Consumer revolving
credit (78) (24) (58) (63) (45)
------ ------ ------ ------ ------
(686) (1,044) (2,907) (2,019) (1,825)
Loan charge-off recoveries
Commercial, financial
and agricultural 339 376 187 85 97
Real estate mortgage 9 110 33 27 62
Installment loans 76 122 137 103 75
Consumer revolving
credit 12 4 5 6 5
------ ------ ------ ------ ------
436 612 362 221 239
------ ------ ------ ------ ------
Net loan charge-offs (250) (432) (2,545) (1,798) (1,586)
------ ------ ------ ------ ------
Balance at end of year $12,188 $10,715 $8,606 $6,420 $5,880
====== ====== ====== ====== ======
</TABLE>
13
B. The following tables present a breakdown of the allowance for loan losses
at December 31, 1994, 1993, 1992, 1991 and 1990:
<TABLE>
<CAPTION>
Allocation of the Allowance
for Loan Losses
December 31, 1994 1993 1992 1991 1990
____________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $5,899 $5,186 $4,014 $2,891 $3,054
Real estate mortgage 3,691 3,245 2,515 1,719 1,169
Consumer loans 2,402 2,112 1,927 1,690 1,557
Consumer revolving credit 196 172 150 120 100
------ ------ ------ ------ ------
$12,188 $10,715 $8,606 $6,420 $5,880
====== ====== ====== ====== ======
Percent of Loans in Each
Category to Total Loans
December 31, 1994 1993 1992 1991 1990
____________________________________________________________________________________________
(in thousands)
Commercial, financial
and agricultural 13.9% 16.9% 19.5% 22.6% 23.6%
Real estate mortgage
Construction 2.4% 1.7% 0.9% 0.9% 0.9%
Residential mortgage 39.5% 38.3% 38.7% 39.5% 40.4%
Commercial mortgage 17.3% 18.1% 16.6% 12.4% 8.5%
Consumer loans 26.6% 24.6% 23.6% 24.0% 24.6%
Other 0.3% 0.4% 0.7% 0.6% 2.0%
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
V. DEPOSITS
A.B. Average Balances and Rates Paid by Deposit
The Average Balance Sheets table and Average Yields and Rates Paid table in-
cluded herein on pages 6 and 8 present the average amount of and the average
rate paid for the years ended December 31, 1994, 1993 and 1992.
C. Foreign Deposits
The Company had no foreign deposits during the past three years.
14
D.E. Maturity Distribution of Time Deposits of $100,000 or More
The following table states the amount of time certificates of deposit at
December 31, 1994, of $100,000 or more by maturity:
Maturity of $100,000 Time Deposits
December 31, 1994
_______________________________________________________________________________
(in thousands)
Maturing 3 months or less $27,032
Maturing over 3 months through 6 months 14,991
Maturing over 6 months through 12 months 38,113
Maturing over 12 months 3,461
------
$83,597
======
For the Year Ended December 31,
VI. RETURN ON EQUITY AND ASSETS 1994 1993 1992
_______________________________________________________________________________
1. Return on average assets 1.11% 1.14% 1.04%
2. Return on average equity 12.15% 12.92% 12.67%
3. Dividend payout ratio 28.85% 26.32% 26.47%
4. Equity to assets ratio 9.17% 8.80% 8.23%
VII. SHORT-TERM BORROWINGS
A. Footnote 7 to the Consolidated Financial Statements included herein on page
46 presents for each category of short-term borrowings, the amounts outstanding
at the end of the reported periods, the weighted average interest rate, the
maiximum amount of borrowings in each catergory at any month-end and the
approximate weighted interest rate.
Item 2. PROPERTIES
The Company's investments in premises and equipment are comprised of properties
owned and leased by the Banks. Peoples Bank owns the building housing its main
offices, which contains 17,325 square feet of space and is located at 401
Kentucky Avenue. Peoples Bank also owns its Service Center, located at 100
South Fourth Street, which contains 50,000 square feet of space and houses the
Company's executive offices. Of the twenty-four other banking offices of the
Banks, twenty-one are owned and three are leased by their respective Banks.
Item 3. LEGAL PROCEEDINGS - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
15
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
Market Information, Dividends
The registrant's only class of common stock is traded on the National Associa-
tion of Securities Dealers Automated Quotation System National Market System.
Peoples First Corporation's common stock symbol is "PFKY". The high and low
stock prices and the quarterly dividends declared on the Company's common stock
for each quarter of 1994 and 1993 are as follows:
High and Low Stock Prices First Second Third Fourth
Dividends Declared quarter quarter quarter quarter
_______________________________________________________________________________
High 1994 $28.50 $25.50 $24.50 $21.75
Low 1994 23.50 22.00 21.00 16.25
Dividends declared 0.105 0.105 0.120 0.120
High 1993 $16.50 $16.88 $20.00 $25.50
Low 1993 16.00 16.00 16.63 19.25
Dividends declared 0.095 0.095 0.105 0.105
Holders
The approximate number of holders of registrant's only class of common stock as
of February 16, 1995, was 2,418.
16
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
December 31, 1994 1993 1992 1991 1990
____________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets
Loans, net of allowance $793,759 $693,322 $616,671 $480,157 $461,251
Debt securities 325,016 368,658 394,383 274,095 230,392
Short-term investments 0 3,100 15,525 9,650 15,725
--------- --------- --------- --------- ---------
1,118,775 1,065,080 1,026,579 763,902 707,368
Cash and due from banks 39,333 42,591 44,548 42,434 43,374
Premises and equipment 16,980 16,698 16,490 12,876 12,957
Other assets 35,468 32,137 26,803 13,579 13,465
--------- --------- --------- --------- ---------
$1,210,556 $1,156,506 $1,114,420 $832,791 $777,164
========= ========= ========= ========= =========
Liabilities and Stockholders' Equity
Interest-bearing deposits $910,598 $906,646 $898,285 $680,901 $665,310
Noninterest-bearing deposits 87,985 86,250 78,643 52,852 47,477
Federal funds purchased 41,500 12,600 0 0 0
Short-term borrowings 43,067 19,902 19,606 25,395 0
Long-term borrowings 9,536 16,555 16,137 335 0
Other liabilities 7,607 8,182 8,095 6,987 7,483
--------- --------- --------- --------- ---------
1,100,293 1,050,135 1,020,766 766,470 720,270
Stockholders' equity 110,263 106,371 93,654 66,321 56,894
--------- --------- --------- --------- ---------
$1,210,556 $1,156,506 $1,114,420 $832,791 $777,164
========= ========= ========= ========= =========
____________________________________________________________________________________________
As more fully explained in Footnote 2. to the consolidated financial statements,
additional banking organizations were acquired in 1994 and 1992.
17
Year ended December 31, 1994 1993 1992 1991 1990
____________________________________________________________________________________________
(in thousands except per share data)
Results of Operations
Net interest income $45,482 $42,908 $37,198 $28,544 $25,334
Provision for loan losses 1,723 2,541 3,246 2,338 2,042
Net interest income after ------ ------ ------ ------ ------
provision for loan losses 43,759 40,367 33,952 26,206 23,292
Noninterest income 7,168 6,623 6,569 4,441 4,258
Noninterest expense 32,337 29,373 25,942 19,674 17,240
------ ------ ------ ------ ------
Income before tax expense 18,590 17,617 14,579 10,973 10,310
Income tax expense 5,465 4,807 4,074 2,766 2,576
------ ------ ------ ------ ------
Net Income $13,125 $12,810 $10,505 $8,207 $7,734
====== ====== ====== ====== ======
Average shares outstanding 8,437 8,455 7,803 6,654 5,898
Net income per common share $1.56 $1.52 $1.36 $1.16 $1.21
Dividends per common share 0.45 0.40 0.36 0.31 0.25
</TABLE>
Shares outstanding and per share amounts have been adjusted for a two-for-one
stock split on January 4, 1994.
As more fully explained in Footnote 2. to the consolidated financial statements,
additional banking organizations were acquired in 1994 and 1992.
Earnings of First Kentucky Federal Savings Bank are excluded from the net income
per common share calculation prior to June 18, 1991, the date of their initial
public offering of common stock.
18
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The purpose of this discussion and analysis is to provide annual report readers
with information relevant to understanding and assessing the financial condition
and results of operations of Peoples First Corporation (Company). Headquartered
in Paducah, Kentucky, the Company is a multi-bank and unitary savings and loan
holding company registered with the Federal Reserve Board. The Company's market
area is primarily western Kentucky and the contiguous interstate area. This
discussion should be read in conjunction with the consolidated financial state-
ments and accompanying notes.
The following table provides certain information regarding the Company's three
banking subsidiaries as of December 31, 1994:
Year
Subsidiary acquired Assets Loans Deposits
_______________________________________________________________________________
(in thousands)
Peoples First National Bank 1983 $890,430 $634,498 $726,582
Liberty Bank & Trust 1994 143,479 81,585 120,895
First Kentucky Federal
Savings Bank 1994 173,556 89,863 151,722
The above amounts do not total to consolidated amounts due to eliminating
entries and parent company amounts.
EARNING ASSETS
Average earning assets of the Company for 1994, increased 4.9%, or $51.8 million
to $1,107.0 million from $1,055.2 million for 1993. This compares to growth
of earning assets, excluding the purchase of three branch bank locations in
1992, of 3.4% and 5.9%, respectively, for 1993 and 1992, over respective
previous years. Strong loan growth during the last three years has been
partially funded with reductions in debt securities, the other significant
earning asset category. The Company maintains a consistently favorable ratio of
average earning assets to average total assets. The ratio was 94.0% for 1994,
compared to 93.7% and 93.5% for 1993 and 1992, respectively.
Loans are the Company's primary earning asset. Management has focused on in-
creasing residential real estate and consumer lending activities and loan demand
has been strong. Loans, net of unearned income, increased $101.9 million during
1994, compared to $78.8 million and $26.7 million increases during 1993 and 1992
over respective prior years excluding the initial effect of the 1992 purchase
of three branch bank locations. Internal average loan growth for 1994 was
14.4%, up from an 8.6% increase in average loans for 1993 from 1992, and
compared to a 3.9% increase in average loans for 1992 from 1991. Average loans
for 1994 were 68.2% of total average earning assets, compared to 62.6% and 60.1%
during 1993 and 1992, respectively. Prior to 1993, loans had been a decreasing
portion of earning assets. Management attributes the reversal of the declining
loan composition trend to their focus on improving the earning asset
19
composition, strong loan demand and a slowed growth of deposits. The potential
mix of earning assets will be significantly impacted by the acquisition of
additional financial institutions and future loan demand levels.
The Company primarily directs lending activities to its regional market from
which deposits are drawn. Management has focused on secured lending and the
growth of real estate mortgage and consumer loans during the last three years.
<TABLE>
<CAPTION>
Types of Loans
December 31, 1994 1993 1992 1991 1990
____________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $111,929 $118,906 $122,188 $109,986 $110,128
Real estate
Construction 19,421 12,255 5,472 4,524 4,221
Residential mortgage 318,551 269,265 242,134 191,985 189,332
Commercial mortgage 139,629 127,666 103,808 60,308 39,492
Consumer, net 214,309 173,191 147,413 116,891 114,803
Loans held for sale 156 504 1,241 -- --
Other 1,952 2,250 3,022 2,882 9,154
------- ------- ------- ------- -------
$805,947 $704,037 $625,278 $486,576 $467,130
======= ======= ======= ======= =======
</TABLE>
A portion of the proceeds from the sale and maturity of debt securities and the
principal collected on mortgage-backed securities was used to fund high loan
demand. Debt securities decreased $43.7 million during 1994 and $20.8 million
during 1993. The Company maintains a portfolio of debt securities held for sale
as a partial source of available funding for loan growth.
FUNDING
Average deposits, which management relies on as a stable source of funding, of
the Company for 1994 increased 2.9%, or $28.4 million to $995.6 million from
$967.2 million for 1993. Internal growth from local area deposits was 1.5% for
1994 compared to average local deposit growth of 1.1% and 3.6% for 1993 and
1992, over respective previous year periods. Highly competitive local markets
for deposits exist and low interest rates do not benefit internal funding
efforts. During recent periods of low core deposit growth, management has
partially relied on brokered deposits, Federal funds purchased and other
short-term borrowings to fund loan growth. Brokered deposits amounted to $21.4
million, $19.2 million and $0.0 million at December 31, 1994, 1993 and 1992,
respectively. Average Federal funds purchased were $21.2 million for 1994, up
from $11.0 million for 1993 and $0.3 million for 1992. Average short-term
borrowings were $51.5 million for 1994, up from $31.8 million for 1993 and $24.3
million for 1992.
Management anticipates an increasing need to rely on more volatile purchased
liabilities. The Company's subsidiaries have obtained various short-term and
long-term advances from the Federal Home Loan Bank (FHLB) under Blanket
20
Agreements for Advances and Security Agreements (Agreements). The Agreements
entitle the banks to borrow additional funds from the FHLB to fund mortgage loan
programs and satisfy other funding needs.
NONPERFORMING ASSETS AND RISK ELEMENTS
The level of nonperforming assets at December 31, 1994 has improved since
December 31, 1993. Diversification within the loan portfolio is an important
means of reducing inherent lending risks. At December 31, 1994, the Company had
no concentrations of ten percent or more of total loans in any single industry
nor any geographical area outside of the Paducah, Kentucky, western Kentucky
region, the immediate market area of the subsidiary banks.
The Company discontinues the accrual of interest on loans which become ninety
days past due as to principal or interest, unless the loans are adequately
secured and in the process of collection. Other real estate owned is carried at
the lower of cost or fair value. A loan is classified as a renegotiated loan
when the interest rate is materially reduced or the term is extended beyond the
original maturity date because of the inability of the borrower to service the
debt under the original terms.
Management continues to exert efforts to monitor and minimize nonperforming
assets and to maintain aggressive charge-off practices, even though the
nonperforming totals are significantly lower than peer bank holding company
ratios. Significant focus on underwriting standards is maintained by management
and the subsidiary bank boards.
Internal credit review procedures are designed to alert management of possible
credit problems which would create serious doubts as to the future ability of
borrowers to comply with loan repayment terms. At December 31, 1994, loans
with a total principal balance of $14.8 million have been identified that may
become nonperforming in the future, compared to $22.4 million at December 31,
1993. Performance of borrowers has previously been aided by lower interest
carrying costs. Potential problem loans are not included in nonperforming
assets since the borrowers currently meet all applicable loan agreement terms.
Nonperforming assets at December 31, 1994 were 0.60% of total loans and other
real estate, down from 0.86% 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 three years.
21
<TABLE>
<CAPTION>
Nonperforming Assets
December 31, 1994 1993 1992 1991 1990
____________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $531 $835 $3,883 $3,536 $2,661
Other real estate owned 1,569 2,258 2,661 3,238 3,389
Renegotiated loans 2,741 2,995 1,259 1,296 246
----- ----- ----- ----- -----
$4,841 $6,088 $7,803 $8,070 $6,296
===== ===== ===== ===== =====
Nonperforming assets as a
percent of total loans
and other real estate 0.60% 0.86% 1.24% 1.65% 1.34%
Loans past due ninety
days and still accruing
interest $1,838 $503 $389 $408 $380
Allowance for loan losses
coverage of nonperform-
ing assets 252% 176% 110% 80% 93%
</TABLE>
CAPITAL RESOURCES AND DIVIDENDS
The current economic and regulatory environment places increased emphasis on
capital strength. Stockholders' equity was 9.1% of assets at December 31, 1994,
a decrease of 0.1% from December 31, 1993. Stockholders' equity increased $3.9
million, or 3.7%, during 1994, and increased $12.7 million, or 13.6%, during
1993. The earnings retention rate has been decreased by the board of
directors and was 71.2% for 1994 and 73.7% for 1993. Proceeds from the sale of
common stock through shareholder and employee plans amounted to $1.0 million in
1994 and $1.2 million in 1993. Unrealized gain or loss on securities held for
sale, net of applicable income taxes, are recorded directly to stockholders'
equity. For 1994 stockholders' equity was reduced by $6.5 million and for 1993
was increased by $1.9 million to record the change in the fair value of
securities held for sale during the year.
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. Similar, if not
greater, increases are expected for the next few years. 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 December 31, 1994, approximately $19.2
million in retained earnings of subsidiary banks was available for dividend
payments to the Company without regulatory approval or without reducing capital
of the respective banks below minimum standards.
Bank regulatory agencies' minimum capital guidelines assign relative measures of
credit risk to balance sheet assets and off-balance sheet exposures. Based upon
22
the nature and makeup of their current businesses and growth expectations,
management expects all of the reporting entities' capital ratios to continue to
exceed regulatory minimums. At December 31, 1994 and 1993, the Company and the
subsidiary banks' capital ratios were as follows:
<TABLE>
<CAPTION>
Risk-based capital Total Tier I Leverage ratio
December 31, 1994 1993 1994 1993 1994 1993
_________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Company 14.31% 14.37% 13.05% 13.12% 8.82% 8.18%
Peoples First National Bank 13.59 14.54 12.34 11.88 9.00 9.16
Liberty Bank & Trust 15.77 17.85 14.65 16.89 9.27 9.70
First Kentucky Federal
Savings Bank 20.05 20.08 18.90 19.08 7.89 7.27
</TABLE>
RESULTS OF OPERATIONS
Net income in 1994 reached a record level, increasing 2.5% and totaling $13.1
million, compared to an increase of 21.9% in 1993 when net income totaled $12.8
million. Net income per common share and common share equivalent for the year
ended December 31, 1994 increased 2.6% to $1.56, from $1.52 for the year ended
December 31, 1993, compared to $1.36 for the year ended December 31, 1992. Net
income per common share and common share equivalent for the fourth quarter of
1994 increased 10.8% to $0.41 from $0.37 for the fourth quarter of 1993,
principally due to a greater volume of earning assets and decreased provision
for loan losses.
Return on average stockholders' equity for the years ended December 31, 1994,
1993 and 1992 was 12.15%, 12.92% and 12.67%, respectively. Return on average
assets for the year ended 1994, 1993 and 1992 was 1.11%, 1.14% and 1.04%,
respectively. Earnings performance for 1994 was negatively impacted by costs of
approximately $0.07 per share related to two acquisitions completed during the
year.
NET INTEREST INCOME
The amount by which interest earned on assets exceeds the interest paid on sup-
porting funds, constitutes the primary source of income for the Company. For
the year ended December 31, 1994, net interest income (TE) increased 5.5%, or
$2.5 million to $47.6 million compared to $45.1 million for 1993. The 1994
increase is substantially all attributable to growth of average earning assets
as the interest margin increased only three basis points. Average earning asset
growth accounted for all but approximately 15% of the increased net interest
income for the year ended December 31, 1993 over 1992. Net interest income on a
tax-equivalent basis as a percent of average earning assets has improved
slightly and was 4.30%, 4.27% and 4.14% for the years ended December 31, 1994,
1993 and 1992, respectively. Margins in 1993 and 1992, to a greater degree than
1994, were unfavorably affected by the purchase accounting recognition of
interest income on certain debt securities at market yields. Net interest
income margins continue to benefit from a favorable mix of earning assets and a
funding sources.
23
Although the subsidiary banks generally 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, net interest income was unfavorably affected in 1994 by interest rate
caps on a significant portion of residential mortgage loans originated with low
rates that have repriced less quickly than the average liability funding rate
during the recent rapidly increasing interest-rate environment. Low levels of
nonperforming loans favorably contributed to margins each period.
PROVISION FOR LOAN LOSSES
A significant factor in the Company's past and future operating results is the
level of the provision for loan losses. Management desires to provide assurance
through sufficient provision for loan losses that future earnings will be less
susceptible to changing economic cycles. The provision for loan losses amounted
to $1.7 million for 1994, a decrease of $0.8 million or 32.0% compared to $2.5
million in 1993, which was a decrease of $0.7 million or 21.9% compared to
$3.2 million in 1992. The declines in the 1994 and 1993 provisions for loan
losses were influenced by significant declines in net charge-offs and modest
declines in nonperforming assets. The provision for loan losses as a percentage
of average loans was 0.23% for the year ended December 31, 1994, down from 0.38%
and 0.57% for the years ended December 31, 1993 and 1992, respectively. Levels
of providing for loan losses reflect, among other things, management's evalua-
tion of potential problem loans, which are currently at lower levels than in
much of the past five years.
Net chargeoffs as a percentage of average loans were 0.03% for 1994, down from
0.07% for 1993, periods of unusually low net chargeoffs, and 0.45% for 1992.
Net chargeoffs as a percent of average loans were 0.23% for the five-year period
ended December 31, 1994. The allowance for loan losses was 1.51% of outstanding
loans at December 31, 1994, compared 1.52% of outstanding loans at December 31,
1993. The December 31, 1994 allowance is 252% compared to 176% 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.
NONINTEREST INCOME
Noninterest income amounted to $7.2 million in 1994, an 8.2% increase from $6.6
million in 1993. Excluding net securities gains, the increase was 10.9%.
Service charges on deposit accounts, the largest component of noninterest
income, increased 11.2% in 1994 over 1993. During the past two years, some of
the subsidiary banks adjusted fee schedules to recapture higher operating costs
and to provide more uniform pricing among the affiliated banks.
Net gains of $62,309 were recognized in 1994 on $11.9 million of debt securities
held for sale and net gains of $230,642 were recognized on $21.9 million of debt
securities sold during 1993. Debt securities, primarily mortgage-backed
securities, were sold to reduce, to the extent possible, the Company's interest
rate sensitivity on assets in response to changing interest rates and prepayment
risks as a part of the Company's asset/liability strategies.
24
Trust department fees for the last three years, without the effects of the
additional locations purchased in 1992, have been relatively the same. There
has been little growth in average assets managed. Trust fees, which are
recognized on a cash basis, are usually greater in the fourth quarter than other
quarters of the year because of billing cycles. The 48.2% increase in insurance
commissions for 1994 over 1993 is attributable to greater opportunities
resulting from the significant increase in consumer loans as well as better
penetration of this product to customers. As expected, fee income from
secondary-market mortgage loan services during 1994 was lower than 1993 due to
the unusually large amount of home refinancing in 1993. The Company made
available two new financial services during 1994 to bank customers. Fees from
newly available investment brokerage services and property and casualty
insurance products, which will be higher in 1995, were not significant in 1994.
The relative improvement in fee income is slightly more than the growth in net
interest income. Management expects this trend to continue into 1995.
Noninterest income excluding securities gains was 13.9% of total net interest
income plus noninterest income for 1994, compared to 13.0% for both 1993 and
1992.
NONINTEREST EXPENSE
The ratio of noninterest expense as a percent of average assets has been
steadily rising, and was 2.74% for 1994, 2.61% for 1993 and 2.57% for 1992. It
is requiring more noninterest expense (overhead) to produce total net interest
income plus noninterest income exclusive of net securities gains (revenue). The
ratio of overhead to revenue was 61.5% for 1994, compared to 59.6% for 1993 and
60.5% for 1992. Since internal asset growth has slowed, management continues to
focus on controlling the rate of increase of noninterest expense by reconfigur-
ing certain functions to gain more employee productivity and consolidating some
operational tasks of the various banks. Based upon an analysis of operations,
the Company consolidated five of the previously separate corporate subsidiaries
into one bank during the fourth quarter of 1994 to allow the personnel at all
locations to better focus on consistent quality customer service, increasing the
volume of business and to reduce a small amount of redundant costs.
The ratio of personnel expense has been relatively constant as a percentage of
average total assets and was 1.26% for 1994, compared to 1.24% and 1.20%, re-
spectively, for 1993 and 1992. The Company has made investments in facilities
and equipment of approximately $5 million during the last three years as tech-
nology has advanced and the need to leverage personnel costs has intensified.
Occupancy expense increased an average of 5.5% per year for 1994 and 1993. One
new branch was opened during 1994 and investments in two new branches are
expected for 1995. The 1993 increase in occupancy expense was related to the
additional bank locations purchased in 1992. Equipment expense increased an
average of 19.2% per year for 1994 and 1993 due to depreciation and maintenance
of new equipment. Depreciation is computed using the straight-line method over
the estimated useful lives of the assets which range from two to ten years for
equipment. Much of the recent years' equipment purchases are electronic and
technology sensitive items which the Company depreciates over five year or
less periods.
25
Increased data processing expense is attributable to a greater volume of activ-
ity, the outsourcing of a portion of some functions in 1993, one-time system
conversion costs and the additional bank locations purchased in 1992. More than
one-half of 1994 and 1993's average annual increase of 14.4% is due to nonrecur-
ring conversion costs and to the additional bank locations. The Company's bank
subsidiaries are required to pay deposit insurance assessments to the FDIC, to
maintain significant noninterest-bearing balances with the Federal Reserve, and
to pay fees to regulatory agencies for periodic examinations by the agencies.
Assessments for deposit insurance were $2.2 million, $2.1 million and $2.0
million, respectively, in 1994, 1993 and 1992. Beginning in 1993, the assess-
ments were based not only on deposits but also on the risk characteristics of
the individual financial institutions. All of the Company's subsidiaries
received the lowest deposit assessment rate from the FDIC. Recent governmental
discussions have included indications that future FDIC assessment rates could be
significantly lower than the Company's current 0.23% of applicable deposits
rate.
Bankshare taxes imposed by the State of Kentucky have been increasing and are
expected to continue to increase in future years. Kentucky has raised the
assessment level and is attempting to significantly increase this taxation,
which is based upon net income and capital of the subsidiaries.
During 1994, the Company completed two pooling-of-interest acquisitions.
Included in other noninterest expense for 1994 and 1993 was approximately
$561,000 and $145,000, respectively, of professional fees related to these
acquisitions.
INCOME TAXES
Approximately one-half of the increase in income tax expense for the year ended
December 31, 1994 from the prior year, is attributable to higher operating
earnings and one-half is attributable to a higher effective tax rate. Most of
the 1993 increase from 1992 was due to higher operating earnings. The effective
tax rate has increased, and was 29.4% for the year ended December 31, 1994,
compared to 27.3% for 1993 and 27.9% for 1992. Nondeductible organizational
costs associated with two acquisitions was the main cause of the 1994 increase
in the effective tax rate. Also contributing to higher effective tax rates is a
lessening of the portion of pretax income that is derived from nontaxable
sources. The Company manages the effective tax rate to some degree, based
upon changing tax laws, particularly alternative minimum tax provisions, the
availability and price of nontaxable debt 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
26
of liquidity for the banks, in addition to loan repayments, is their debt
securities portfolios. Debt securities classified as held for sale are those
that the Company intends to use as part of its asset/liability management and
that may be sold prior to maturity in response to changes in interest rates,
resultant prepayment risks and other factors. The Company's access to the
retail deposit market through individual banks locations in ten different
counties has been a reliable source of funds. Additional funds for liquidity
are available by borrowing 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.
As is typical for most financial institutions, the Company's cash flows provided
by financing activities generally greatly exceed cash flows from operations and
are used to fund investing activities. Area deposit growth is no longer the
principal source of cash flows provided by financing activities. During 1994
and 1993, due to strong loan demand coupled with a low interest-rate
environment, which hinders area deposit growth, financing activities funding was
derived from increased levels of brokered deposits, Federal funds purchased and
other short-term borrowings. Debt securities held for sale totaling $11.9
million and $21.9 million in 1994 and 1993, respectively, were sold to adjust
repricing characteristics as determined to be desirable by the ALM Committee.
Management considers current liquidity positions of the subsidiary banks to be
adequate to meet depositor and borrower needs.
Because banks must assume interest rate risks as part of their normal opera-
tions, the Company actively manages its interest rate sensitivity as well as
liquidity positions. Both interest rate sensitivity and liquidity are affected
by maturing assets and sources of funds; however, management must also consider
those assets and liabilities with interest rates which are subject to change
prior to maturity. The primary objective of the ALM Committee is to optimize
earnings results, while controlling interest rate risks within internal policy
constraints. The subsidiary banks and the Company collectively measure their
level of earnings exposure to future interest rate movements. Currently, the
Company does not employ interest rate swaps, financial futures or options to
affect interest rate risks. The Company expects a greater amount of assets will
reprice than liabilities in the first six months of 1995. This position is
subject to change in response to the dynamics of the Company's balance sheet and
general market conditions. Rising interest rates are likely to increase net
interest income in a positive gap position (greater amount of repricing assets
than liabilities) and falling rates would likely decrease net interest income.
INDUSTRY DEVELOPMENTS
On September 29, 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Branching Act") was enacted. Under the Branching
Act, beginning September 29, 1995, adequately capitalized and adequately managed
bank holding companies will be allowed to acquire banks across state line,
without regard to whether the transaction is prohibited by state law; however,
they will be required to maintain the acquired institutions as separately
chartered institutions. Any state law relating to the minimum age of target
banks (not to exceed five years) will be preserved. Under the Branching Act,
27
the Federal Reserve Board will not be permitted to approve any acquisition if,
after the acquisition, the bank holding company would control more than 10% of
the deposits of insured depository institutions nationwide or 30% or more of the
deposits in the state where the target bank is located. The Federal Reserve
Board could approve an acquisition, notwithstandig the 30% limit, if the state
waives the limit either by statute, regulation or order of the appropriate state
official.
In addition, under the Branching Act beginning on June 1, 1997, banks will be
permitted to merge with one another across state lines and thereby create a main
bank with branches in separate states. After establishing branches in a state
through an interstate merger transaction, the bank could establish and acquire
additional branches at any location in the state where any bank involved in the
merger could have estabished or acquired branches under applicable Federal or
state law.
Under the Branching Act, states may adopt legislation permitting interstate
mergers before June 1, 1997. In contrast, states may adopt legislation before
June 1, 1997, subject to certain conditions, opting-out of interstate
branching. If a state opts-out of interstate branching, no out-of-state bank
may establish a branch in that state through an acquisition or de novo, and a
bank whose home state opts-out may not participate in an interstate merger
transaction.
28
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
_______________________________________________________________________________
The Board of Directors and Stockholders
Peoples First Corporation
We have audited the accompanying consolidated balance sheets of Peoples First
Corporation and subsidiaries as of December 31, 1994 and 1993, 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, 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Peoples First
Corporation and subsidiaries as of December 31, 1994 and 1993, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1994, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
January 27, 1995
29
December 31, December 31,
CONSOLIDATED BALANCE SHEETS 1994 1993
_______________________________________________________________________________
(in thousands)
ASSETS
Cash and due from banks $39,333 $42,591
Short-term investments 0 3,100
Debt securities held for sale 121,172 118,820
Debt securities held for investment 203,844 249,838
Loans 805,947 704,037
Allowance for loan losses (12,188) (10,715)
--------- ---------
Loans, net 793,759 693,322
Excess of cost over net assets
of purchased subsidiaries 10,077 10,907
Premises and equipment 16,980 16,698
Other assets 25,391 21,230
--------- ---------
$1,210,556 $1,156,506
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand deposits $87,985 $86,250
Interest-bearing transaction accounts 243,910 238,760
Savings deposits 98,571 107,058
Time deposits 568,117 560,828
--------- ---------
998,583 992,896
Federal funds purchased 41,500 12,600
Other short-term borrowings 43,067 19,902
Long-term borrowings 9,536 16,555
Other liabilities 7,607 8,182
--------- ---------
Total liabilities 1,100,293 1,050,135
Stockholders' Equity
Common stock 6,422 6,381
Surplus 34,859 33,862
Retained earnings 73,739 64,416
Unrealized net gain (loss) on
securities held for sale (4,624) 1,870
Debt on ESOP shares (133) (158)
--------- ---------
110,263 106,371
--------- ---------
$1,210,556 $1,156,506
========= =========
Fair value of debt securities held for investment $200,092 $259,760
Common shares issued and outstanding 8,220 8,168
See accompanying notes to consolidated financial statements. 30
Year Ended December 31,
CONSOLIDATED STATEMENTS OF INCOME 1994 1993 1992
_______________________________________________________________________________
(in thousands except per share data)
INTEREST INCOME
Interest on short-term investments $169 $336 $781
Taxable interest on securities 17,017 19,664 21,528
Nontaxable interest on securities 4,305 4,413 3,881
Interest and fees on loans 62,846 56,492 53,776
------ ------ ------
84,337 80,905 79,966
INTEREST EXPENSE
Interest on deposits 35,710 35,761 41,160
Other interest expense 3,145 2,236 1,608
------ ------ ------
38,855 37,997 42,768
------ ------ ------
Net Interest Income 45,482 42,908 37,198
Provision for Loan Losses 1,723 2,541 3,246
------ ------ ------
Net Interest Income after
Provision for Loan Losses 43,759 40,367 33,952
Noninterest Income 7,168 6,623 6,569
Noninterest Expense 32,337 29,373 25,942
------ ------ ------
Income Before Income Tax Expense 18,590 17,617 14,579
Income Tax Expense 5,465 4,807 4,074
------ ------ ------
NET INCOME $13,125 $12,810 $10,505
====== ====== ======
Net Income per Common Share
and Common Share Equivalent $1.56 $1.52 $1.36
Cash Dividend per Common Share 0.45 0.40 0.36
See accompanying notes to consolidated financial statements. 31
<TABLE>
<CAPTION>
Unrealized
net gain
CONSOLIDATED STATEMENTS OF CHANGES Common Retained (loss) on ESOP
IN STOCKHOLDERS' EQUITY stock Surplus earnings securities debt Total
______________________________________________________________________________________________________________________
(in thousands, except per data)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1991 $5,321 $14,511 $46,793 ($254) $66,371
Net income 10,505 10,505
Cash dividends declared
Common ($0.36 per share) (1,980) (1,980)
By pooled company prior to merger (469) (469)
Stock issued pursuant to shareholder
and employee plans 71 897 968
Reduction of ESOP debt 51 51
Stock issued in acquisition 951 17,307 18,258
------ ------ ------ ------ ------ -------
BALANCE AT DECEMBER 31, 1992 6,343 32,715 54,849 (203) 93,704
Net income 12,810 12,810
Cash dividends declared
Common ($0.40 per share) (2,452) (2,452)
By pooled companies prior to merger (791) (791)
Stock issued pursuant to shareholder
and employee plans 38 1,147 1,185
Reduction of ESOP debt 45 45
Adjustment of securities held for
sale to fair value 1,870 1,870
------ ------ ------ ------ ------ -------
BALANCE AT DECEMBER 31, 1993 6,381 33,862 64,416 1,870 (158) 106,371
Net income 13,125 13,125
Net income for period attributable to
change in fiscal year of subsidiary 335 335
Cash dividends declared
Common ($0.45 per share) (3,231) (3,231)
By pooled companies prior to merger (906) (906)
Stock issued pursuant to shareholder
and employee plans 41 997 1,038
Reduction of ESOP debt 25 25
Change in unrealized net gain
(loss) on securities held for sale (6,494) (6,494)
------ ------ ------ ------ ------ -------
BALANCE AT DECEMBER 31, 1994 $6,422 $34,859 $73,739 ($4,624) ($133) $110,263
===== ====== ====== ====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements. 32
<TABLE>
<CAPTION>
Year Ended December 31,
CONSOLIDATED STATEMENTS OF CASH FLOWS 1994 1993 1992
____________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income $13,125 $12,810 $10,505
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,557 2,337 1,861
Net (discount accretion) premium
amortization 1,372 2,352 1,857
Provision for loan losses 1,723 2,541 3,246
Net (increase) decrease in loans
held for sale 348 737 (1,241)
Provision for deferred income taxes (932) (1,312) (928)
Other, net 247 1,489 (402)
------ ------ ------
Net Cash Provided by Operating
Activities 18,440 20,954 14,898
INVESTING ACTIVITIES
Net decrease in short-term investments 3,100 12,425 8,425
Proceeds from sales of debt securities
held for sale 11,885 21,897 47,546
Proceeds from maturities of debt
securities held for sale 14,100 2,950 2,950
Proceeds from maturities of debt
securities held for investment 35,853 51,836 65,660
Principal collected on mortgage-backed
securities held for sale 22,686 17,537 13,582
Principal collected on mortgage-backed
securities held for investment 21,514 30,218 18,440
Purchase of debt securities held for sale (38,289) (40,432) (36,251)
Purchase of debt securities
held for investment (35,448) (64,185) (131,456)
Net increase in loans (102,714) (80,647) (27,915)
Purchases of premises and equipment (2,018) (1,661) (1,168)
Net cash paid for acquisition
of subsidiary -- -- (7,454)
------ ------ ------
Net Cash Used by Investing Activities (69,331) (50,062) (47,641)
</TABLE>
See accompanying notes to consolidated financial statements. 33
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF Year Ended December 31,
CASH FLOWS - CONTINUED 1994 1993 1992
____________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C> <C> <C>
FINANCING ACTIVITIES
Net increase in deposits $5,687 $15,967 $37,559
Net increase in Federal funds purchased 28,900 12,600 0
Net increase (decrease) in other
short-term borrowings 23,165 291 (6,816)
Proceeds from long-term borrowings 5,177 9,692 6,504
Repayments of long-term borrowings (12,196) (9,255) (811)
Proceeds from issuance of common stock 495 661 522
Cash dividends paid (3,595) (2,805) (2,102)
------ ------ ------
Net Cash Provided by Financing Activities 47,633 27,151 34,856
------ ------ ------
Cash and Cash Equivalents
Increase (Decrease) (3,258) (1,957) 2,113
Beginning of Year 42,591 44,548 42,435
------ ------ ------
End of Year $39,333 $42,591 $44,548
====== ====== ======
SUPPLEMENTAL DISCLOSURES
Cash paid for interest expense $38,409 $38,435 $43,801
Cash paid for income tax 6,556 6,508 4,611
NONCASH INVESTING AND FINANCING TRANSACTIONS
Other real estate transferred
from loans, net 84 544 101
Dividends reinvested 542 438 347
Notes payable issued in acquisition
of subsidiary -- -- 10,025
Common stock issued in purchase
acquisition of subsidiary -- -- 18,258
</TABLE>
See accompanying notes to consolidated financial statements. 34
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Peoples First Corporation (Company) through its subsidiaries, Peoples First
National Bank and Trust Company, First Kentucky Federal Savings Bank and Liberty
Bank and Trust, provides a full range of banking services to individual and
corporate customers in the western Kentucky and contiguous interstate area. The
Company and the subsidiary banks are subject to the regulations of various
Federal and state agencies and undergo periodic examination by regulators.
The accounting policies and reporting practices of the Company are based upon
generally accepted accounting principles and conform to predominant practices
within the banking industry. In preparing financial statements, management is
required to make assumptions and estimates which affect the Company's reported
amounts of assets and liabilities and the results of operations. The more
significant policies are summarized below.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the parent company
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated. Prior period financial statements are also restated to
include the accounts of companies which are acquired and accounted for as
pooling of interests. Results of operations of companies which are acquired and
subject to purchase accounting are included from the dates of acquisition. In
accordance with the purchase method of accounting, the assets and liabilities
of purchased companies are stated at fair values, less accumulated amortization
and depreciation since the date of acquisition. The excess of cost over fair
value of the net assets acquired is being amortized on the straight-line
method over a fifteen-year period.
SECURITIES HELD FOR SALE AND INVESTMENT
At acquisition, securities are classified into one of three categories: trading,
held for sale or investment. Transfers of debt securities between categories
are recorded at fair value at the date of transfer. Unrealized gains or losses
associated with transfers of debt securities from the investment to the held for
sale category are recorded and maintained as a separate component of stock-
holders' equity. The unrealized gains or losses included as a separate
component of stockholders' equity for debt securities transferred to the
investment from the held for sale category are maintained and amortized into
earnings over the remaining life of the debt securities as an adjustment to
yield in a manner consistent with the amortization or accretion of premiums or
discounts on the associated securities.
Trading securities are bought and held principally with the intention of
selling them in the near term. The Company currently has no trading securities.
Securities that are being held for indefinite periods of time, including secur-
ities that management intends to use as a part of its asset/liability strategy,
or that may be sold in response to changes in interest rates, changes in prepay-
ment risk, to meet liquidity needs, the need to increase regulatory capital or
other similar factors, are classified as securities held for sale and are stated
at fair value. Fair value is based on market prices quoted in financial publi-
cations or other independent sources. Net unrealized gains or losses are
excluded from earnings and reported, net of applicable income taxes, as a
35
separate component of stockholders' equity until realized. Securities for which
the Company has the ability and positive intent to hold until maturity are
classified as investment securities and 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.
Realized gains or losses on securities held for sale or investment are accounted
for using the specific security. Mortgage-backed securities represent a
significant portion of the security portfolios. 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.
During October 1994, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 119, "Disclosures about Derivative
Financial Instruments and Fair Value of Financial Instruments" (FAS 119). FAS
119, which is effective for 1994 financial statements, requires disclosure about
amounts, nature, and terms of derivative financial instruments. The Company
does not hold any derivative financial instruments contemplated by FAS 119. The
Company does not issue any derivative financial instruments as defined by FAS
119, except for commitments for traditional banking products such as fixed rate
loan commitments, variable rate loans with lagging interest rate adjustments or
interest rate caps or floors. The average value of these instruments during the
past three years was small, except for variable rate loans which normally
reprice in conjunction with repricing funding with the net effect recorded in
net interest income.
LOANS RECEIVABLE
Loans receivable held for investment are carried at cost, as the Company has the
ability and it is management's intention to hold them to maturity. Interest on
commercial and real estate mortgage loans is accrued if deemed collectible and
credited to income based upon the principal amount outstanding. Consumer
installment loans are generally made on a discount basis. The unearned discount
attributable to these loans is credited to income using a method which approxi-
mates the level yield method. Mortgage loans originated principally under
programs with the Government National Mortgage Association (GNMA) or the Federal
National Mortgage Association (FNMA) and held for sale are carried at the lower
of cost or market value.
The Company evaluates the collectibility of both contractual interest and
contractual principal of all receivables when assessing the need for a loss
accrual. When in the opinion of management the collection of interest on a loan
is unlikely or when either principal or interest is past due over 90 days, that
loan is generally placed on nonaccrual status and interest is not recognized
unless received in cash. When a loan is placed in nonaccrual status, accrued
interest for the current period is reversed and charged against earnings and
accrued interest from prior periods is charged against the allowance for loan
losses. A loan remains on nonaccrual status until the loan is current as to
payment of both principal and interest and/or the borrower demonstrates the
ability to pay and remain current. Interest payments received on nonaccrual
loans are applied to principal if there is any doubt as to the collectibility of
total principal, otherwise these payments are recorded as interest income.
36
ALLOWANCE FOR LOAN LOSSES
The allowance is increased by provisions for loan losses charged to operations
and is maintained at a level adequate to absorb estimated credit losses
associated with the loan portfolio, including binding commitments to lend and
off-balance sheet credit instruments. At the end of each quarter, or more
frequently if warranted, management uses a systematic, documented approach in
determining the appropriate level of the allowance for loan losses.
Management's approach provides for general and specific allowances and is based
upon current economic conditions, past losses, collection experience, risk
characteristics of the loan portfolio, assessment of collateral values and such
other factors which in management's judgement deserve current recognition in
estimating potential loan losses.
During May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" (FAS 114), and during October 1994, issued Statement of Financial
Accounting Standards No. 118, "Accounting by Creditors for Impairment of a Loan
- Income Recognition and Disclosures" (FAS 118). These financial accounting
standards are effective for fiscal years beginning after December 15, 1994. FAS
114, as amended by FAS 118 requires that impaired loans subject to the
statements 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. Management believes there will be no financial impact of the
adoption of FAS 114 and FAS 118 in the first quarter of 1995.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. The provision for depreciation and amortization is computed using
the straight-line method over the estimated useful lives of the assets. Esti-
mated useful lives on buildings range from ten to thirty years and two to ten
years on equipment. Leasehold improvements are amortized over the term of the
related leases. Expenditures for major renewals and betterments of premises and
equipment are capitalized and those for maintenance and repairs are expensed as
incurred.
OTHER REAL ESTATE
Real estate acquired through foreclosure or deed in lieu of foreclosure is in-
cluded in other assets, and is recorded at the lower of cost or the property's
fair value at the time of foreclosure less estimated disposal costs, if any.
The excess of cost over fair value of other real estate at the date of
acquisition is charged to the allowance for loan losses. Subsequent reductions
in carrying value to reflect current fair value and any other period costs are
charged to expense as incurred.
INCOME TAXES
Income tax expense is reported as the total of current income taxes payable and
the net change in deferred income taxes payable provided for temporary
differences. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying values of assets and liabilities for financial
37
reporting purposes and the values used for income tax purposes. Deferred income
taxes are recorded at the statutory Federal rates in effect at the time that the
temporary differences are expected to reverse. The measurement of deferred tax
assets is reduced, if necessary, by the amount of any tax benefits that, based
upon management's judgment of available evidence, are not expected to be
realized. The significant components of deferred tax assets and liabilities are
principally related to unrealized net gain or loss on securities, provisions for
loan losses, amortization of premiums on debt securities, depreciation and
deferred compensation. The Company files a consolidated Federal income tax
return which includes all of its subsidiaries. Income tax expense is allocated
among the parent company and its subsidiaries as if each had filed a separate
tax return.
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
1994, 1993 and 1992 were 8,437,240, 8,454,583 and 7,803,457, respectively.
Common stock equivalents have no material dilutive effect.
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.
RECLASSIFICATIONS
Certain amounts in the 1993 and 1992 consolidated financial statements have been
reclassified to conform with the 1994 presentation.
2. BUSINESS COMBINATIONS
During the three year period ended December 31, 1994, the Company was a party to
three business combinations.
On October 7, 1994, the Company consummated the acquisition of Libsab Bancorp,
Inc. (Libsab) and Liberty Bank and Trust, a wholly-owned subsidiary of Libsab.
The Company acquired all of the outstanding shares of Libsab in exchange for
1,077,853 shares of Peoples First Corporation common stock. Libsab's three
locations are part of the market area served by the Company's other subsidiary
banks. At December 31, 1994, Libsab had total assets of approximately $143.5
million.
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. The Company acquired all of the
outstanding shares of First Kentucky in exchange for 929,794 shares of Peoples
First Corporation common stock. First Kentucky's six locations are immediately
east of the market area served by the Company's other subsidiary banks. The
preacquisition year end for First Kentucky was September 30. The Consolidated
Financial Statements for December 31, 1993 and 1992 include the accounts of
First Kentucky for the twelve months ended the previous September 30, for the
respective years. For the year ended December 31, 1994, consolidated retained
earnings were increased $334,814 due to the change in First Kentucky's year end
38
to December 31. For the three months ended December 31, 1993, First Kentucky
had revenues of $3.0 million, expenses of $2.7 million and net income of
$334,814. At December 31, 1994, First Kentucky had total assets of approxi-
mately $173.6 million.
The two aforementioned acquisitions have been accounted for as pooling of
interests, and accordingly, the accompanying consolidated financial statements
have been restated.
The following table shows the results of operations of the previously separate
entities for the periods prior to combination:
First
Results of Operations Company Libsab Kentucky Combined
_______________________________________________________________________________
(in thousands)
1993 Total revenue $37,586 $5,911 $6,034 $49,531
Net income 9,534 1,520 1,756 12,810
1992 Total revenue 32,291 5,826 5,650 43,767
Net income 7,569 1,643 1,293 10,505
Merger expenses of approximately $561,000 and $145,000 related to the above
acquisitions were charged to expense during 1994 and 1993, respectively. The
after-tax impact of these expenses on earnings per share was $0.07 and $0.02 for
1994 and 1993, respectively.
On May 4, 1992, the Company consummated the acquisition of an additional banking
organization, Bank of Murray. The purchase price of approximately $42.4 million
consisted of 1,217,246 shares of the Company's common stock, $10.0 million of
subordinated two-year notes with an interest rate of 7.25% and $14.1 million in
cash. The transaction was accounted for using the purchase method of
accounting. The results of operations of Bank of Murray are included in the
accompanying consolidated financial statements subsequent to the acquisition
date and the excess of cost over fair value of the net assets acquired, $11.9
million, is being amortized over fifteen years on a straight-line basis. At
December 31, 1991, Bank of Murray had total assets of approximately $229.7
million. During 1994, Bank of Murray was merged into Peoples First National
Bank and Trust Company. The following table presents unaudited pro forma
results of operations for the year ended December 31, 1992 assuming the purchase
of Bank of Murray had taken place on January 1, 1992:
39
Pro Forma Statement of Income (unaudited)
Year Ended December 31, 1992
__________________________________________________________________
(in thousands, except per share data)
Interest income $85,457
Interest expense 46,247
------
Net interest income 39,210
Provision for loan losses 3,719
------
Net interest income after
provision for loan losses 35,491
Noninterest income 6,767
Noninterest expense 28,232
------
Income before income tax expense 14,026
Income tax expense 3,962
------
Net income $10,064
======
Net income per common share
and common share equivalent $1.26
The pro forma information is not necessarily indicative of the actual results of
operations which would have occurred had the acquisition of Bank of Murray been
consummated as of January 1, 1992, nor is it necessarily indicative of future
operating results.
3. CASH AND DUE FROM BANKS
The Company's bank subsidiaries are required to maintain certain reserve
balances in accordance with Federal Reserve Board requirements. The reserve
balances maintained in accordance with such requirements as of December 31, 1994
and 1993 were $8.2 million and $7.9 million, respectively.
40
4. DEBT SECURITIES HELD FOR SALE AND DEBT SECURITIES HELD FOR INVESTMENT
The amortized cost and fair value of debt securities held for sale as of
December 31, 1994 and 1993 are summarized as follows:
Debt Securities Gross Gross
Held For Sale Amortized unrealized unrealized Fair
December 31, 1994 cost gains losses value
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies $58,813 $0 ($3,321) $55,492
Mortgage-backed securities 69,304 39 (3,663) 65,680
------- ------- ------- -------
$128,117 $39 ($6,984) $121,172
======= ======= ======= =======
Debt Securities Gross Gross
Held For Sale Amortized unrealized unrealized Fair
December 31, 1993 cost gains losses value
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies $32,915 $1,801 ($1) $34,715
Mortgage-backed securities 81,404 1,193 (220) 82,377
Other 1,669 59 0 1,728
------- ------- ------- -------
$115,988 $3,053 ($221) $118,820
======= ======= ======= =======
The amortized cost and fair value of debt securities held for investment as of
December 31, 1994 and 1993 are summarized as follows:
Debt Securities Gross Gross
Held for Investment Amortized unrealized unrealized Fair
December 31, 1994 cost gains losses value
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies $45,709 $3 ($539) $45,173
Mortgage-backed securities 87,803 33 (3,480) 84,356
State and political
subdivisions 67,333 1,579 (1,329) 67,583
Other 2,999 3 (22) 2,980
------- ------- ------- -------
$203,844 $1,618 ($5,370) $200,092
======= ======= ======= =======
41
Debt Securities Gross Gross
Held for Investment Amortized unrealized unrealized Fair
December 31, 1993 cost gains losses value
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies $74,929 $1,908 ($1) $76,836
Mortgage-backed securities 97,082 2,148 (62) 99,168
State and political
subdivisions 73,771 5,858 (31) 79,598
Other 4,056 102 0 4,158
------- ------- ------- -------
$249,838 $10,016 ($94) $259,760
======= ======= ======= =======
Proceeds from sales of debt securities during 1994, 1993 and 1992 were
$11,885,303, $21,897,188 and $47,545,840, respectively. Gross gains of $62,309,
$252,056 and $1,041,127 were realized on those sales during 1994, 1993 and 1992,
respectively, and gross losses of $0, $21,414 and $48,475 were realized on
those sales during 1994, 1993 and 1992, respectively.
The amortized cost, estimated fair value and the weighted average yield of
securities held for sale and investment at December 31, 1994, by contractual
maturity, are shown below. Actual maturities will differ from the depicted
maturities because of the borrowers' right to call or prepay obligations with
or without prepayment penalties. Contractual maturities are not meaningful for
mortgage-backed securities, which are particularly exposed to prepayments.
Management evaluates, on an on-going basis, the potential maturities for
asset/liability purposes. Yields on tax-exempt obligations have not been
computed on a tax-equivalent basis.
Securities Held for Sale Portfolio Weighted
Maturity Distribution Amortized Fair average
December 31, 1994 cost value yield
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies
1 year or less $2,017 $2,003 5.61%
Over 1 through 5 years 42,877 40,600 5.65
Over 5 through 10 years 12,919 11,944 6.84
Over 10 years 1,000 945 7.65
Mortgage-backed securities 69,304 65,680 6.33
------- -------
$128,117 $121,172 6.15%
======= =======
42
Securities Held for Investment Portfolio Weighted
Maturity Distribution Amortized Fair average
December 31, 1994 cost value yield
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies
1 year or less $22,517 $22,452 7.13%
Over 1 through 5 years 23,193 22,722 6.36
Over 5 through 10 years -- -- --
Over 10 years -- -- --
Mortgage-backed securities 87,803 84,356 6.54
State and political sudivisions
1 year or less 4,257 4,293 6.40
Over 1 through 5 years 17,733 18,171 6.35
Over 5 through 10 years 25,059 25,787 6.49
Over 10 years 20,283 19,331 5.88
Other
1 year or less 2,499 2,477 5.56
Over 1 through 5 years 465 468 8.49
Over 5 through 10 years 35 35 7.50
Over 10 years -- -- --
------- -------
$203,844 $200,092 6.48%
======= =======
At December 31, 1994 and 1993, debt securities with carrying values of approxi-
mately $135.4 million and $110.6 million respectively, were pledged to secure
repurchase agreements, public and trust deposits and for other purposes as
required by law.
5. LOANS
The Company's lending activities are concentrated primarily in the contiguous
interstate area of western Kentucky, southern Illinois, northwestern Tennessee
and southeastern Missouri. The loan portfolio is well diversified and consists
of business loans extending across many industry types, as well as loans to
individuals. As of December 31, 1994 and 1993, total loans to any group of
customers engaged in similar activities and having similar economic character-
istics, as defined by standard industrial classifications, did not exceed 10%
of total loans, although the geographical concentration is a necessary factor
for regional banks.
43
Major classification of loans are as follows:
December 31, 1994 1993
_______________________________________________________________________________
(in thousands)
Commercial, financial and agricultural $111,929 $118,906
Real estate
Construction 19,421 12,255
Residential mortgage 318,551 269,265
Commercial mortgage 139,629 127,666
Consumer, net of unearned income of $11,340 and
$11,026 at December 31, 1994 and 1993 214,309 173,191
Loans held for sale 156 504
Other 1,952 2,250
------- -------
$805,947 $704,037
======= =======
The Company evaluates each customer's creditworthiness on a case by case basis.
The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the
counterparty. Collateral varies but may include accounts receivable, inventory,
property, plant and equipment, income producing commercial properties, real
estate mortgages and other property owned by the borrowers.
Nonaccrual and renegotiated loans totaled $3.3 million and $3.8 million at
December 31, 1994 and 1993, respectively.
Allowance for Loan Losses
Year Ended December 31, 1994 1993 1992
_______________________________________________________________________________
(in thousands)
Balance at beginning of year $10,715 $8,606 $6,420
Balance of purchased subsidiary
bank at acquisition -- -- 1,485
Provision charged to expense 1,723 2,541 3,246
Loans charged off (686) (1,044) (2,907)
Recoveries of loans
previously charged off 436 612 362
------ ------ ------
Net loans charged off (250) (432) (2,545)
------ ------ ------
Balance at end of year $12,188 $10,715 $8,606
====== ====== ======
Certain officers and directors of Peoples First Corporation and its subsidiaries
and certain corporations and individuals related to them incurred indebtedness
in the form of loans as customers. These loans were made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
44
time for comparable transactions with other customers and did not involve more
than the normal risk of collectibility. The activity of these loans is
summarized below:
Loans to Officers and Directors
Year Ended December 31, 1994 1993
_______________________________________________________________________________
(in thousands)
Balance at beginning of year $20,663 $15,849
Additions 4,230 6,050
Repayments (1,087) (1,236)
Changes in officer and director status (11,981) --
------ ------
Balance at end of year $11,825 $20,663
====== ======
6. PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
December 31, 1994 1993
_______________________________________________________________________________
(in thousands)
Land $2,264 $2,195
Buildings 17,502 17,209
Equipment 11,157 9,719
Leasehold improvements 1,084 957
Construction in progress 156 296
------ ------
32,163 30,376
Accumulated depreciation (15,183) (13,678)
------ ------
$16,980 $16,698
====== ======
The amount of depreciation and amortization related to premises and equipment
that was charged to operating expenses in 1994, 1993 and 1992 was $1,650,659,
$1,426,263 and $1,192,999, respectively.
45
7. SHORT-TERM BORROWINGS
Federal funds purchased and repurchase agreements generally represent borrowings
with overnight maturities as do certain short-term advances from the Federal
Home Loan Bank (FHLB) of Cincinnati. Information pertaining to the subsidiary
banks' short-term borrowings is summarized below:
Short-term Borrowings 1994 1993 1992
_______________________________________________________________________________
(in thousands)
Federal funds purchased
Average balance $21,171 $10,980 $331
Year end balance 41,500 12,600 0
Highest month-end balance 41,500 23,700 2,500
Average interest rate 4.63% 3.23% 3.87%
Year end interest rate 6.12% 3.30% --
Repurchase agreements
Average balance 22,702 20,781 23,843
Year end balance 21,567 19,902 19,606
Highest month-end balance 24,090 22,883 28,909
Average interest rate 3.50% 3.23% 3.92%
Year end interest rate 4.08% 3.27% 3.27%
Short-term FHLB advances
Average balance 7,581 0 0
Year end balance 21,500 0 0
Highest month-end balance 21,500 0 0
Average interest rate 5.18% -- --
Year end interest rate 6.16% -- --
At December 31, 1994, the subsidiary banks had total lines-of-credit for Federal
funds purchased of $60.0 million for funding from unaffiliated banks, of which
$18.5 million was undrawn and available.
8. LONG-TERM BORROWINGS
Information pertaining to long-term borrowings is summarized below:
December 31, 1994 1993
__________________________________________________________________
(in thousands)
Parent Company
Bank loan for subsidiary acquisition $1,530 $4,577
Subordinated notes 0 5,012
Subsidiaries
Federal Home Loan Bank advances 7,873 6,808
Employee Stock Ownership Plan debt 133 158
------ ------
$9,536 $16,555
====== ======
46
In May 1993, the Company obtained a $10,200,000 loan commitment from a regional
bank, which was used to retire short-term notes and other bank debt originally
used in the acquisition of a subsidiary bank. Interest is payable quarterly at
the lender's prime rate which can be adjusted daily (8.50% at December 31, 1994
and 6.00% at December 31, 1993). The note provides for quarterly principal
payments of $261,604 and a final maturity in May 2004. The note agreement
contains various financial covenants pertaining to levels of net worth and
indebtedness. The Company was in compliance with all such covenants at December
31, 1994.
The Company issued unsecured, subordinated, two-year notes on May 4, 1992 in
connection with an acquisition of a subsidiary bank. The notes provided for
quarterly interest payments at the annual rate of 7.25%.
The banking subsidiaries obtain various short-term and long-term advances from
the 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. Of the long-term
advances at December 31, 1994, none were at variable interest rates and $7.9
million were at fixed interest rates ranging from 5.55% to 8.10%. FHLB advances
are collateralized by the subsidiary banks' FHLB stock they are required to own
and certain single-family first mortgage loans in the approximate amount of
$231.4 million at December 31, 1994. As members of the FHLB system, the
Company's subsidiary banks must hold a minimum of FHLB stock equal to one
percent of home mortgage related assets. Additional FHLB stock ownership is
required as the level of advances increase. The subsidiary banks are in
compliance with the FHLB stock ownership requirements with a total required
investment of $5.2 million at December 31, 1994. The long-term advances provide
for scheduled monthly payments but may be prepaid at the option of the
subsidiary banks with the payment of a premium.
One of the Company's subsidiaries is obligated to pay, through annual contri-
butions and dividends to their Employee Stock Ownership Plan, a note payable to
a regional financial institution. An original amount of $253,570 was borrowed
in May, 1991. The loan is secured by the pledge of certain shares of the
subsidiary stock. Interest is payable quarterly at the lender's prime rate less
0.50% which can be adjusted daily (9.50% at December 31, 1994 and 7.00% at
December 31, 1993). The note provides for annual principal payments of $25,357
and a final maturity in May, 2001.
Annual minimum principal repayment requirements for long-term borrowings for the
years 1995 through 1999 are $1,432,693, $874,882, $414,356, $439,319 and
$460,912, respectively.
9. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual
amount of those instruments.
47
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Standby
letters of credit are conditional commitments issued by the Company to guarantee
the performance of a customer to a third party. These off-balance-sheet
financial instruments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the financial
instruments may expire without being drawn upon, the total amounts do not
necessarily represent future cash requirements. Commitments to extend credit
and standby letters of credit are subject to the same underwriting and collater-
alizing standards as on-balance-sheet items.
Contractual commitments to extend credit and standby letters of credit at
December 31, 1994 and 1993 are summarized as follows:
Financial Instruments with
Off-Balance-Sheet Risk
December 31, 1994 1993
_______________________________________________________________________________
(in thousands)
Contractual commitments to extend credit $101,132 $83,581
Standby letters of credit 4,183 3,607
Fixed-rate loan commitments, as defined in FAS 119, are considered derivative
financial instruments. Of the total commitments to extend credit at December
31, 1994, none represent fixed-rate loan commitments.
10. EMPLOYEE BENEFITS
The Company maintains two noncontributory Employee Stock Ownership Plans (ESOP)
and an employer matching 401(k) Plan. The plans cover substantially all of
the Company's employees.
Employer contributions to the ESOPs are determined annually by the Company's
board of directors and were $201,696, $208,983 and $188,102 for the years ended
1994, 1993 and 1992, respectively. The ESOP's investments include 255,191 and
268,080 shares of the Company's common stock at December 31, 1994 and 1993,
respectively.
During November 1993, the American Institute of Certified Public Accountants
issued Statement of Position 93-6, "Employers' Accounting for Employee Stock
Ownership Plans" (SOP 93-6), which is effective for fiscal years beginning after
December 15, 1993. SOP 93-6 replaced previous accounting guidance and provided
changes for certain leveraged employee stock ownership plan. There was no
impact of SOP 93-6 on the Company's financial condition or results of
operations.
Under the 401(k) Plan, participants may voluntarily contribute a percentage of
their salary through payroll deductions. The Company is currently committed to
make contributions to the 401(k) Plan annually in an amount equal to 100% of the
first 3% contribution of each participant's base salary. For the years ended
December 31, 1994, 1993 and 1992, the Company's required matching contribution
amounted to $225,583, $184,472 and $148,665, respectively. Employees have four
investment options in which their contributions may be invested.
48
The terms of the acquisitions, as described in Note 2., provided for the termi-
nation of the defined benefit retirement plans of Liberty Bank & Trust
(Liberty), First Kentucky Federal Savings Bank (First Federal) and Bank of
Murray as soon as reasonably practicable. Liberty's and First Federal's defined
benefit retirement plans will be terminated. Liberty's employees will become
eligible to participate in the Company's ESOP and 401(k) plans during 1995.
First Federal's employees remain covered by a previously existing ESOP and
became eligible to participate in the Company's 401(k) plan during 1994. The
respective fair value of defined benefit retirement plan assets will be
distributed to Liberty's and First Federal's employees as soon as Internal
Revenue and Department of Labor requirements are met. The plan terminations
should have no material financial effect on the Company. Bank of Murray's
defined benefit plan was terminated and their employees became eligible to
participate in the Company's ESOP and 401(k) plans during 1992. The fair value
of Bank of Murray's defined benefit plan assets, which were distributed to plan
participants in 1993, exceeded the actuarial present value of all accrued
benefits. The plan termination had no financial effect on the Company.
Post retirement benefits other than pensions are not provided for the Company's
employees. Eligible retired employees may for a period of time maintain certain
health care benefits through policies of the Company at the employee's expense.
There was no cost for employee benefits for retired employees in 1994, 1993 and
1992.
11. STOCKHOLDERS' EQUITY
AUTHORIZED CAPITAL STOCK
The Company has six million authorized shares of no par preferred stock and
thirty million authorized shares of no par, $0.7812 stated value common stock.
SHARE PURCHASE RIGHTS PLAN
In January of 1995, the Board of Directors of the Company adopted a Share
Purchase Rights Plan and distributed a dividend of one Preferred Share Purchase
Right (Right) for each outstanding common share of the Company and for each
common share issued thereafter. The Rights are generally designed to deter
coercive takeover tactics and to encourage all persons interested in acquiring
control of the Company to deal with each shareholder on a fair and equal basis.
Each Right trades in tandem with its respective share of common stock until the
occurrence of certain events, in which case it would separate from the common
stock and entitle the registered holder, subject to the terms of the Rights
Agreement, to purchase certain equity securities at a price below their market
value. The Company has not issued any of the authorized no par preferred
stock.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
In 1987, the Board of Directors of the Company adopted the Peoples First
Corporation Share Owner Dividend Reinvestment and Stock Purchase Plan (DRIP),
and amended the Plan during 1994. The DRIP provides for the issuance of
1,040,000 shares of authorized but previously unissued common stock. On certain
investment dates, shares may be purchased with all or a portion of reinvested
dividends or with optional cash payments not to exceed $3,000. The price of
shares purchased pursuant to the DRIP is the average market price reported by
NASDAQ for the last five trading days of the month preceding the dividend
49
payment month. At December 31, 1994 and 1993, 779,705 shares and 820,322
shares, were reserved for issuance under the DRIP. Shares issued under the DRIP
totaled 40,617, 33,912 and 32,268 shares in 1994, 1993 and 1992, respectively.
STOCK OPTION PLAN
The Peoples First Corporation 1986 Stock Option Plan (Option Plan), as amended
in 1994, authorizes the granting to key employees of the Company incentive stock
options and nonqualified stock options to purchase common stock of the Company
at market value at the time the options are granted. Shares sold under the
Option Plan may be either unissued authorized shares or shares reacquired by the
Company. Options granted are exercisable, subject to vesting and other
requirements, at varying times from the first through the tenth year after the
grant date. Optionees may exercise their options with cash or with shares of
the Company's common stock. Outstanding stock options are considered common
stock equivalents in the computation of earnings per share.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
-------- 1994 -------- -------- 1993 -------- -------- 1992 --------
Number Option Number Option Number Option
Stock Option Plan Activity of shares price of shares price of shares price
_______________________________________________________________________________________________________________________
Outstanding at beginning of year 446,960 $5.00-$16.88 378,980 $5.00-$12.38 361,920 $5.00- $9.38
Granted 90,000 19.50- 25.00 89,000 16.25- 16.88 86,300 12.38
Exercised (12,600) 5.00- 16.25 (14,620) 7.41- 12.38 (69,240) 5.00- 9.38
Expired (3,600) 16.25- 25.00 (6,400) 7.46- 12.38 --
------- ------- -------
Outstanding at end of year 520,760 $5.00-$25.00 446,960 $5.00-$16.88 378,980 $5.00-$12.38
======= ======= =======
Exercisable at end of year 275,552 202,600 156,152
Reserved for future grant 167,409 31,820 114,420
</TABLE>
RETAINED EARNINGS RESTRICTION
In connection with the Company's savings bank subsidiary conversion from mutual
to stock form of ownership during 1991, the subsidiary restricted the amount of
retained earnings at that date by establishing a liquidation account equal to
$6,750,000 for the purpose of granting to eligible depositors a priority in the
event of future liquidation. Only in such an event, an eligible depositor who
continues to maintain an account will be entitled to receive a distribution from
the liquidation account. The total amount of the liquidation account decreases
in an amount proportionately corresponding to decreases in the deposit account
balances of the eligible account holders.
DIVIDEND LIMITATIONS
Payment of dividends by the subsidiary banks, which is the principal source of
funds for payment of dividends by the Company to its shareholders, are subject
to various national and/or state regulatory restrictions. At December 31, 1994,
total retained earnings of the Company's direct subsidiaries was approxi- mately
$65.2 million, of which $19.2 million was available for payment of dividends
without approval by the applicable regulatory authority.
50
CAPITAL RESTRICTIONS
Banking regulations require minimum ratios of capital to total "risk weighted"
assets. The Company and its subsidiaries are required to have minimum Tier I
and total capital ratios of 4.00% and 8.00%, respectively. At December 31,
1994 and 1993, the Company and its subsidiaries actual capital ratios exceeded
minimum requirements.
12. INCOME TAXES
The current and deferred portions of income tax expense were as follows:
Year Ended December 31, 1994 1993 1992
_______________________________________________________________________________
(in thousands)
Current taxes $6,397 $6,119 $5,002
Deferred taxes (932) (1,312) (928)
----- ----- -----
Income tax expense $5,465 $4,807 $4,074
===== ===== =====
The Company adopted Statement of Financial Accounting Standards No. 109 as of
January 1, 1992, changing the method of computing deferred taxes on a prospec-
tive basis. No cumulative adjustment was required for the adoption of this
statement.
The following is a reconciliation between the amount of income tax expense and
the amount of tax computed by applying the statutory Federal income tax rates:
Year Ended December 31, 1994 1993 1992
_______________________________________________________________________________
(in thousands)
Tax computed at statutory rates $6,407 $6,020 $4,958
Increase (decrease) in taxes
resulting from:
Tax-exempt income (1,413) (1,562) (1,322)
Goodwill amortization 290 290 192
Other, net 181 59 246
----- ----- -----
Income tax expense $5,465 $4,807 $4,074
===== ===== =====
Enacted in September, 1993, the Revenue Reconciliation Act of 1993 was a change
in the tax laws that raised the Company's top income tax rate. Adjustment to
the deferred tax asset required by this rate change was insignificant. Not all
temporary differences are accounted for through income tax expense on the
consolidated statements of income. The tax effects of temporary differences,
that give rise to significant elements of the deferred tax assets and deferred
tax liabilities are as follows:
51
December 31, 1994 1993
_______________________________________________________________________________
(in thousands)
Deferred tax assets:
Allowance for loan losses ($3,824) ($2,963)
Deferred compensation (424) (347)
Other real estate owned (171) (107)
Unrealized security gain (loss) (1,650) --
Other (105) (297)
----- -----
(6,174) (3,714)
Deferred tax liabilities:
Premiums on securities 18 196
Discounts on securities 35 25
Unrealized security gain -- 965
Accrued interest income 93 98
Premises and equipment 1,314 1,365
Other 299 197
----- -----
1,759 2,846
----- -----
Net deferred tax assets ($4,415) ($868)
===== =====
Deferred tax assets have not been reduced by a valuation allowance. Based on
the weight of available evidence, management believes it is more likely than not
all of the deferred tax assets will be realized. Neither current or deferred
taxes have been provided for approximately $2.6 million of income at December
31, 1994 and 1993 which represents allocations for bad debt deductions for tax
purposes only. If the amounts that qualify for Federal income tax purposes are
later used for purposes other than bad debt losses, including distributions in
liquidation, such distributions will be subject to Federal income tax at the
then current corporate rate.
52
13. SUPPLEMENTAL INCOME STATEMENT INFORMATION
Details of noninterest income and noninterest expense are as follows:
Year Ended December 31, 1994 1993 1992
_______________________________________________________________________________
(in thousands)
Noninterest Income
Service charges on deposits $3,680 $3,308 $2,881
Net securities gains 62 230 993
Trust department fees 1,181 1,199 1,091
Insurance commissions 470 317 291
Other income 1,775 1,569 1,313
----- ----- -----
$7,168 $6,623 $6,569
===== ===== =====
Year Ended December 31, 1994 1993 1992
_______________________________________________________________________________
(in thousands)
Noninterest Expense
Salaries $12,370 $11,591 $9,984
Employee benefits 2,450 2,348 2,149
Occupancy expense 1,677 1,579 1,508
Equipment expense 1,665 1,433 1,173
FDIC insurance expense 2,250 2,135 1,962
Data processing expense 2,140 1,890 1,637
Bankshare taxes 1,365 1,253 1,003
Goodwill amortization 830 830 565
Other expense 7,590 6,314 5,961
------ ------ ------
$32,337 $29,373 $25,942
====== ====== ======
53
14. PARENT COMPANY FINANCIAL INFORMATION
Following are condensed balance sheets of Peoples First Corporation (parent
company only) as of December 31, 1994 and 1993, and the related condensed
statements of income and cash flows for the years ended 1994, 1993 and 1992:
Condensed Balance Sheets
December 31, 1994 1993
__________________________________________________________________
(in thousands)
ASSETS
Cash in subsidiary bank $492 $956
Investment in subsidiaries 111,302 114,561
Cost in excess of net
assets acquired 0 202
Other assets 276 558
------- -------
$112,070 $116,277
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Notes payable $1,530 $9,589
Other liabilities 277 317
------- -------
Total liabilities 1,807 9,906
Stockholders' equity
Common stock 6,422 6,381
Surplus 34,859 33,862
Retained earnings 73,739 64,416
Unrealized net gain (loss) on
securities held for sale (4,624) 1,870
Debt on ESOP shares (133) (158)
------- -------
110,263 106,371
------- -------
$112,070 $116,277
======= =======
Common shares issued and outstanding 8,220 8,168
54
Condensed Statements of Income
Year Ended December 31, 1994 1993 1992
_______________________________________________________________________________
(in thousands)
INCOME
Dividends from subsidiaries $10,878 $5,752 $3,520
Other income 11 7 84
------ ------ ------
10,889 5,759 3,604
EXPENSE
Salaries and employee benefits 0 0 127
Interest expense 385 745 578
Legal and accounting fees 571 335 140
Other expense 654 450 596
------ ------ ------
1,610 1,530 1,441
------ ------ ------
Income before income taxes
and equity in undistributed
income from subsidiaries 9,279 4,229 2,163
Income tax benefit 385 434 429
Income before equity in ------ ------ ------
undistributed income
of subsidiaries 9,664 4,663 2,592
Equity in undistributed
income of subsidiaries 3,461 8,147 7,913
------ ------ ------
NET INCOME $13,125 $12,810 $10,505
====== ====== ======
55
Condensed Statement of Cash Flows
Year Ended December 31, 1994 1993 1992
_______________________________________________________________________________
(in thousands)
OPERATING ACTIVITIES
Net income $13,125 $12,810 $10,505
Adjustments to reconcile net income to net
cash provided by operating activities
Equity in undistributed
income of subsidiaries (3,461) (8,147) (7,913)
Amortization and other, net 134 (16) (150)
Net cash provided by ------ ------ -----
operating activities 9,798 4,647 2,442
INVESTING ACTIVITIES
Cash paid for acquisition of subsidiary,
net of dividend received -- -- (3,914)
------ ------ ---------
Net cash used by investing activities -- -- (3,914)
FINANCING ACTIVITIES
Proceeds from notes payable 3,800 6,200 2,700
Repayments of notes payable (11,859) (8,712) (623)
Issuance of common stock 495 299 386
Cash dividends paid (2,698) (2,012) (1,633)
Net cash provided (used) ------ ------ -----
by financing activities (10,262) (4,225) 830
Net Increase (Decrease) in Cash (464) 422 (642)
and Cash Equivalents
Cash and Cash Equivalents at
Beginning of Year 956 534 1,176
------ ------ -----
Cash and Cash Equivalents at End of
Year $492 $956 $534
====== ====== =====
SUPPLEMENTAL DISCLOSURES
Cash paid for interest expense $405 $716 $551
Cash received for income taxes (711) (365) (338)
NONCASH INVESTING AND FINANCING ACTIVITIES
Dividends reinvested 542 438 347
Notes payable issued in purchase
acquisition of subsidiary -- -- 10,025
Common stock issued in purchase
acquisition of subsidiary -- -- 18,258
56
15. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
To value financial instruments for both on and off-balance sheet assets and
liabilities where it is practicable to estimate that value, quoted market prices
are utilized by the Company where readily available. If quoted market prices
are not available, fair values are based on estimates using present value and
other valuation techniques. These techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. The calculated fair value estimates, therefore, cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. Certain financial instruments are
excluded from disclosure requirements. Accordingly, the aggregate fair value
amounts presented are not intended to represent the underlying value of the
Company.
The following methods and assumptions were used in estimating the fair value for
financial instruments.
CASH, DUE FROM BANKS, ACCRUED INTEREST RECEIVABLE, FEDERAL FUNDS SOLD, FEDERAL
FUNDS PURCHASED, ACCRUED INTEREST PAYABLE AND SHORT-TERM BORROWINGS
The carrying amount reported for cash, due from banks, accrued interest receiv-
able, Federal funds sold, Federal funds purchased, accrued interest payable and
short-term borrowings approximates the fair value for those assets and
liabilities.
DEBT AND EQUITY SECURITIES
For securities held both for sale and investment, fair values are based on
quoted market prices or dealer quotes, if available. If a quoted market price
is not available, fair value is estimated using quoted prices for similar
securities.
LOANS RECEIVABLE
Loan balances were assigned fair values based on a discounted cash flow
analysis. The discount rate is based on the treasury yield curve, with rate
adjustments for credit risk, liquidity, servicing costs and the prepayment
uncertainty.
DEPOSIT LIABILITIES
The fair value for demand deposits, any interest bearing deposit with no fixed
maturity date or short-term repurchase agreement liabilities is considered to be
equal to the amount payable on demand or maturity date at the reporting date.
Time deposits are assigned fair values based on a discounted cash flow analysis
using discount rates which approximate interest rates currently being offered on
liabilities with comparable maturities.
LONG-TERM BORROWINGS
Long-term debt is fair valued using discounted cash flow analysis with a
discount rate based on current incremental borrowing rates for similar types of
arrangements.
57
UNRECOGNIZED FINANCIAL INSTRUMENTS
No fair value of loan commitments is presented since the Company does not
generally collect fees for loan commitments. The fair value of guarantees and
letters of credit is based on equivalent fees that would be charged for similar
agreements and is less than $10,000 for 1994 and 1993.
The book values and estimated fair values for financial instruments as of
December 31, 1994 and 1993 are reflected below.
Financial Instruments
December 31, 1994 Book value Fair value
_______________________________________________________________________________
(in thousands)
Financial Assets
Cash and due from banks $39,333 $39,333
Debt securities held for sale 121,172 121,172
Debt securities held for investment 203,844 200,092
Loans, net 793,759 777,877
Equity securities 8,472 8,571
Accrued interest receivable 8,627 8,627
Financial Liabilities
Deposits 998,583 996,989
Federal funds purchased 41,500 41,500
Other short-term borrowings 43,067 43,067
Long-term borrowings 9,536 9,536
Accrued interest payable 4,454 4,454
Financial Instruments
December 31, 1993 Book value Fair value
_______________________________________________________________________________
(in thousands)
Financial Assets
Cash and due from banks $42,591 $42,591
Federal funds sold 3,100 3,100
Debt securities held for sale 118,820 118,820
Debt securities held for investment 249,838 259,760
Loans, net 693,322 706,862
Equity securities 6,709 6,826
Accrued interest receivable 8,507 8,507
Financial Liabilities
Deposits 992,896 999,624
Federal funds purchased 12,600 12,600
Other short-term borrowings 19,902 19,902
Long-term borrowings 16,555 16,579
Accrued interest payable 4,049 4,049
58
IMPACT OF INFLATION AND CHANGING PRICES
Inflation has a minor effect on banking concerns since most of the assets and
liabilities are monetary in nature. Monetary assets are those which can be
readily converted into a fixed number of dollars. Management believes that the
effect of inflation on nonmonetary assets such as bank premises and equipment is
not material to the Company as a whole.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the years ended December 31, 1994, 1993 and 1992 and in the subsequent
interim period, there has been no change in, or disagreements on accounting
matters with, the Company's independent auditors.
59
PART III
Item 10. DIRECTORS AND OFFICERS OF THE REGISTRANT
Information with respect to all directors and all persons nominated to become
directors of the registrant appearing in the table and footnotes on pages 3
through 6 and the first narrative paragraph on page 8 of Peoples First
Corporation's definitive proxy statement, filed with the Securities and Exchange
Commission on March 10, 1995, is incorporated herein by reference.
The following table provides information as of December 31, 1994, with respect
to the executive officers of the registrant:
Shares of
common stock
Executive Officers Officer beneficially
Name and age Principal positions since owned
_______________________________________________________________________________
Aubrey W. Lippert, Chairman of the Board, 1983 173,976(1)
age 54 President and Chief
Executive of the registrant;
Chairman of the Board and
Chief Executive Officer,
Peoples Bank
Steve Kight, Vice President of the regis- 1983 97,568(2)
age 43 trant; formerly Director,
President and Chief Operating
Officer of Peoples Bank
Allan B. Kleet, Chief Financial Officer, 1986 54,580(3)
age 46 Treasurer and Director of
the registrant
George Shaw, Director, President and Chief 1993 2,200(4)
age 49 Operating Officer of Peoples
Bank; formerly President and
Chief Executive Officer of
Bowling Green Bank & Trust
Company (1982-05/93)
(1) Represents 2.1% of the class of stock. Includes 98,300 shares subject to
currently exercisable stock options and 20,054 shares held in Mr. Lippert's
ESOP account for which he has voting but no dispositive power.
(2) Represents 1.4% of the class of stock. Includes 15,248 shares held jointly
by Mr. Kight and his wife, 76,280 shares subject to currently exercisable
stock options and 6,040 shares held in Mr. Kight's ESOP account for which
he has voting but no dispositive power.
60
(3) Represents less than 1.0% of the class of stock. Includes 637 shares
held individually by Mr. Kleet's wife, 49,800 shares subject to currently
exercisable stock options and 2,776 shares held in Mr. Kleet's ESOP
account for which he has voting but no dispositive power.
(4) Represents less than 1.0% of the class of stock. Includes 2,000 shares
subject to currently exercisable stock options
Item 11. EXECUTIVE COMPENSATION
The information concerning compensation appearing on pages 8 through 12 of
Peoples First Corporation's definitive proxy statement, filed with the
Securities and Exchange Commission on March 10, 1995, is incorporated herein
by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to any person who is known to the registrant to be the
beneficial owner of more than five percent of any class of the registrant's
voting securities appearing in the tables and footnotes on page 2 and pages 3
through 6 of Peoples First Corporation's definitive proxy statement, filed with
the Securities and Exchange Commission on March 10, 1995, is incorporated herein
by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the second narrative paragraph on page 8 of Peoples First
Corporation's definitive proxy statement, filed with the Securities and Exchange
Commission on March 10, 1995, is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) Financial Statements are incorporated herein by reference,
and listed in Item 8 hereof.
(2) Financial Statement Schedules - None
(3) List of Exhibits filed with original:
(3.1) Amended and Restated Articles of Incorporation of Peoples
First Corporation.
(3.2) Bylaws and Amendments of Peoples First Corporation are
incorporated herein by reference to Exhibit 3(b) to the
Registrant's Form 10-K for the year ended December 31, 1992.
61
(4) May, 1992 indenture, from Peoples First Corporation to The
Paducah Bank & Trust Company, relating to the 7.25% Subord-
inated Short-Term Notes due 1994, is incorporated herein
by reference to Exhibit 4.1 of Form S-4, registration No.
33-44235 as filed with the Securities and Exchange Commis-
sion on January 8, 1992.
(10.1)Peoples First Corporation 1986 Stock Option Plan is
incorporated herein by reference to Exhibit 10 to Form
10-Q/A for the quarter ended March 31, 1994.
(10.3)Consulting agreement between Bank of Murray and Mr. Joe
Dick is herein incorporated by reference to Exhibit 10.1
of Form S-4, registration #33-44235 as filed with the
Securities and Exchange Commission on January 8, 1992.
(10.2)Employment agreement between First Kentucky Federal
Savings Bank and Dennis W. Kirtley is herein incorporated
by reference to Exhibit 10.1 of Form S-4, registration
#33-51741 as filed with the Securities and Exchange
Commission on December 29, 1993.
(21) Subsidiaries of Registrant.
(23) Consent of KPMG Peat Marwick LLP, independent public
accountants.
(27) Financial Data Schedules.
(99) Undertakings.
(b) Reports on Form 8-K
Peoples First Corporation filed a current report on Form
8-K dated January 18, 1995 on January 18, 1995 to report the
Board of Director's declaration of a dividend of one Junior
Participating Preferred Stock Purchase Right on each outstand-
ing share of the Registrant's common stock.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PEOPLES FIRST CORPORATION
Date: 03/23/95 /s/ Aubrey W. Lippert
Aubrey W. Lippert
President and Chairman
of the Board
62
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant, in
the capacities and on the dated indicated.
Signature Title Date
_____________________ ______________________ ________
/s/ Aubrey W. Lippert President and Chairman 03/23/95
Aubrey W. Lippert of the Board
/s/ Allan B. Kleet Chief Financial Officer 03/23/95
Allan B. Kleet
/s/ William R. Dibert Director 03/23/95
William R. Dibert
/s/ Joe Dick Director 03/23/95
Joe Dick
/s/ Richard E. Fairhurst, Jr. Director 03/23/95
Richard E. Fairhurst, Jr.
/s/ William Rowland Hancock Director 03/23/95
William Rowland Hancock
/s/ Dennis W. Kirtley Director 03/23/95
Dennis W. Kirtley
/s/ Jerry L. Page Director 03/23/95
Jerry L. Page
/s/ Rufus E. Pugh Director 03/23/95
Rufus E. Pugh
/s/ Victor F. Speck, Jr. Director 03/23/95
Victor F. Speck, Jr.
63
INDEX TO EXHIBITS Page
_______________________________________________________________________________
(3.1) Amended and Restated Articles of Incorporation of Peoples
First Corporation 65
(21) Subsidiaries of Registrant 76
(23) Consent of KPMG Peat Marwick LLP, independent public
accountants 77
(27) Financial Data Schedules 78
(99) Undertakings 80
64
EXHIBIT 3.1 - AMENDED AND RESTATED ARTICLES OF INCORPORATION
_______________________________________________________________________________
ARTICLES OF AMENDMENT
TO THE
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
PEOPLES FIRST CORPORATION
Pursuant to KRS 271B.6-010(3) and KRS 271B.6-020(4), these Articles of
Amendment to the Amended and Restated Articles of Incorporation of
Peoples First Corporation (the "Corporation") are being delivered to the
Kentucky Secretary of State for filing. The information required by KRS
271B.6-020(4) is as follows:
FIRST: The name of the Corporation is Peoples First Corporation.
SECOND: These Articles of Amendment amend current Article 5 of the
Corporation's Amended and Restated Articles of Incorporation by
establishing a new Junior Participating Preferred Stock. As amended, a
new Article 5(c) shall be added to Article 5, which Article 5(c) shall
read in its entirety as follows:
"(c) Junior Participating Preferred Stock.
"(i) Designation. The designation of the
series of the Preferred Stock created by the Board of
Directors shall be "Junior Participating Preferred
Stock" (hereinafter called this "Series") and the
number of shares constituting this Series is three
hundred thousand (300,000).
"(ii) Dividends.
"(1) Subject to the prior and superior rights
of the holders of any shares of any series of
Preferred Stock ranking prior and superior to the
shares of this Series with respect to dividends, the
holders of shares of this Series shall be entitled to
receive, when and as declared by the Board of
Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on March
31, June 30, September 30 and December 31 of each year
(each such date being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of this
Series, in an amount per share (rounded to the nearest
cent) equal to the greater of (A) $1.00 or (B) subject
to the provision for adjustment hereinafter set forth,
65
100 times the aggregate per share amount of all cash
dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or
other distributions other than a dividend payable in
shares of Common Stock or a subdivision of the
outstanding shares of Common Stock (by reclass-
ification or otherwise), declared on the Common Stock
of the Corporation (the "Common Stock") since the
immediately preceding Quarterly Dividend Payment Date,
or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or
fraction of a share of this Series. If the
Corporation shall at any time after January 18, 1995
(the "Rights Declaration Date") (i) declare any
dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or
(iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the
amount to which holders of shares of this Series were
entitled immediately before such event under clause
(B) of the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock
outstanding immediately after such event and the
denominator of which is the number of shares of Common
Stock that were outstanding immediately before such
event.
"(2) The Corporation shall declare a dividend
or distribution on this Series as provided in clause
(A) of the preceding paragraph (1) immediately after
it declares a dividend or distribution on the Common
Stock (other than a dividend payable in shares of
Common Stock); provided that, in the event no dividend
or distribution shall have been declared on the Common
Stock during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $1.00 per share
on this Series shall nevertheless be payable on such
subsequent Quarterly Dividend Payment Date.
"(3) Dividends shall begin to accrue and be
cumulative on outstanding shares of this Series from
the Quarterly Dividend Payment Date next preceding the
date of issue of such shares of this Series unless the
date of issue of such shares is before the record date
for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to
accrue from the date of issue of such shares, or
66
unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for
the determination of holders of shares of this Series
entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and
be cumulative from such Quarterly Dividend Payment
Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of this Series
in an amount less than the total amount of such
dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share
basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the
determination of holders of shares of this Series
entitled to receive payment of a dividend or
distribution declared thereon, which record date shall
be no more than 30 days before the date fixed for the
payment thereof.
"(4) No full dividends shall be declared or
paid or set apart for payment on the Preferred Stock
of any series ranking, as to dividends, on a parity
with or junior to this Series for any period unless
full cumulative dividends have been or contempora-
neously are declared and a sum sufficient for the
payment thereof set apart for such payment on this
Series for all dividend payment periods terminating
on or prior to the date of payment of such full
cumulative dividends. When dividends are not paid
in full, as aforesaid, upon the shares of this Series
and any other Preferred Stock ranking on a parity as
to dividends with this Series, all dividends declared
upon shares of this Series and any other Preferred
Stock ranking on a parity as to dividends with this
Series shall be declared pro rata so that the amount
of dividends declared per share on this Series and
such other Preferred Stock shall in all cases bear to
each other the same ratio that accrued dividends per
share on the shares of this Series and such other
Preferred Stock bear to each other. Holders of shares
of this Series shall not be entitled to any dividends,
whether payable in cash, property or stock, in excess
of full cumulative dividends, as herein provided, on
this Series. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend
payment of payments on this Series which may be in
arrears.
67
"(5) So long as any shares of this Series are
outstanding, no dividend (other than a dividend in
Common Stock or in any other stock ranking junior to
this Series as to dividends and upon liquidation and
other than as provided in paragraph (4) of this
Article 5(c)(ii)) shall be declared or paid or set
aside for payment or other distribution declared or
made upon the Common Stock or upon any other stock
ranking junior to or on a parity with this Series as
to dividends or upon liquidation, nor shall any Common
Stock or any other stock of the Corporation ranking
junior to or on a parity with this Series as to
dividends or upon liquidation be redeemed, purchased
or otherwise acquired for any consideration (or any
moneys be paid to or made available for a sinking fund
for the redemption of any shares of any such stock) by
the Corporation (except by conversion into or exchange
for stock of the Corporation ranking junior to this
Series as to dividends and upon liquidation) unless,
in each case, the full cumulative dividends on all
outstanding shares of this Series shall have been paid
for all past dividend payment periods.
"(iii) Redemption.
"(1) The shares of this Series shall be
redeemable only as expressly provided in this Article
5(c)(iii). The Corporation, at its option, may redeem
shares of this Series, as a whole or in part, at any
time or from time to time, at a redemption price equal
to, subject to the provisions for adjustment herein-
after set forth, 100 times the "current per share
market price" of the Common Stock on the date of the
mailing of the notice of redemption, plus accrued and
unpaid dividends to the date fixed for such
redemption. In the event the Corporation shall any
time after the Rights Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock or
(iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the
amount to which holders of shares of this Series were
otherwise entitled immediately before such event under
the preceding sentence shall be adjusted by
multiplying such amount by a fraction the numerator of
which is the number of shares of Common Stock
outstanding immediately after such event and the
68
denominator of which is the number of shares of Common
Stock that were outstanding immediately before such
event. The "current per share market price" on any
date shall be deemed to be the average of the closing
price per share of such Common Stock for the 10
consecutive Trading Days (as such term is herein-
after defined) immediately before such date. The
closing price for each day shall be the last sale
price, regular way, or, in case no such sale takes
place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported
in the principal consolidated transaction reporting
system with respect to securities listed or admitted
to trading on the New York Stock Exchange or, if the
Common Stock is not listed or admitted to trading on
the New York Stock Exchange, as reported in the
principal consolidated transaction reporting system
with respect to securities listed or admitted to
trading on the principal national securities exchange
on which the Common Stock is listed or admitted to
trading or, if the Common Stock is not listed or
admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted
the average of the high bid and low asked prices in
the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc.
Automated Quotation System ("NASDAQ") or such other
system then in use or, if on such date the Common
Stock is not quoted by any such organization, the
average of the closing bid and asked prices as
furnished by a professional market maker making a
market in the Common Stock selected by the Board of
Directors of the Corporation. If on such date no such
market maker is making a market in the Common Stock,
the fair value of the Common Stock on such date as
determined in good faith by the Board of Directors of
the Corporation shall be used. The term "Trading Day"
shall mean a day on which the principal national
securities exchange on which the Common Stock is
listed or admitted to trading is open for the
transaction of business or, if the Common Stock is not
listed or admitted to trading on any national
securities exchange, a Monday, Tuesday, Wednesday,
Thursday or Friday on which banking institutions in
the Commonwealth of Kentucky are not authorized or
obligated by law or executive order to close.
69
"(2) If fewer than all the outstanding shares
of this Series are to be redeemed, the number of
shares to be redeemed shall be determined by the Board
of Directors and the shares to be redeemed shall be
determined by lot or pro rata as may be determined by
the Board of Directors or by any other method which
may be determined by the Board of Directors in its
sole discretion to be equitable.
"(3) In the event the Corporation shall redeem
shares of this Series, notice of such redemption shall
be given by first class mail, postage prepaid, mailed
not less than 30 nor more than 60 days before the
redemption date, to each holder of record of the
shares to be redeemed, at such holder's address as the
same appears on the stock register of the Corporation.
Each such notice shall state: (i) the redemption date;
(ii) the number of shares of this Series to be
redeemed and, if fewer than all the shares held by
such holder are to be redeemed, the number of such
shares to be redeemed from such holder; (iii) the
redemption price; (iv) the place or places where
certificates for such shares are to be surrendered for
payment of the redemption price; and (v) that
dividends on the shares to be redeemed will cease to
accrue on the close of business on such redemption
date.
"(4) Notice having been mailed as aforesaid,
from and after the redemption date (unless default
shall be made by the Corporation in providing money
for the payment of the redemption price) dividends on
the shares of this Series so called for redemption
shall cease to accrue, and said shares shall no longer
be deemed to be outstanding, and all rights of the
holders thereof as stockholders of the Corporation
(except the right to receive from the Corporation
the redemption price) shall cease. Upon surrender in
accordance with said notice of the certificates for
any shares so redeemed (properly endorsed or assigned
for transfer, if the Board of Directors of the
Corporation shall so require and the notice shall so
state), such shares shall be redeemed by the
Corporation at the redemption price aforesaid. In
case fewer than all the shares represented by any such
certificate are redeemed, a new certificate shall be
issued representing the unredeemed shares without
cost to the holder thereof.
70
"(5) Any shares of this Series which shall at
any time have been redeemed shall, after such
redemption, have the status of authorized but unissued
shares of Preferred Stock without designation as to
series until such shares are once more designated as
part of a particular series by the Board of Directors.
"(6) Notwithstanding the foregoing provisions
of this Article 5(c)(iii), if any dividends on this
Series are in arrears, no shares of the Series shall
be redeemed unless all outstanding shares of this
Series are simultaneously redeemed, and the
Corporation shall not purchase or otherwise acquire
any shares of this Series; provided, however, that the
foregoing shall not prevent the purchase or
acquisition of shares of this Series pursuant to a
purchase or exchange offer made on the same terms to
holders of all outstanding shares of this Series.
"(iv) Conversion or Exchange. The holders of
shares of this Series shall not have any rights to
convert such shares into or exchange such shares for
shares of any other class or classes or of any other
series of any class or classes of capital stock of the
Corporation.
"(v) Voting. The shares of this Series shall
not have any voting powers either general or special,
except that if at the time of any annual meeting of
stockholders for the election of directors a default
in preference dividends on the Preferred Stock shall
exist, the number of directors constituting the Board
of Directors of the Corporation shall be increased
by two, and the holders of the Preferred Stock of all
series (whether or not the holders of such series of
Preferred Stock would be entitled to vote for the
election of directors if such default in preference
dividends did not exist), shall have the right at such
meeting, voting together as a single class without
regard to series, to the exclusion of the holders of
Common Stock, to elect two directors of the
Corporation to fill such newly created directorships.
Such right shall continue until there are no dividends
in arrears upon the Preferred Stock. Each director
elected by the holders of shares of Preferred Stock
(herein called a "Preferred Director"), shall continue
to serve as such director for the full term for
71
which he shall have been elected, notwithstanding that
before the end of such term a default in preference
dividends shall cease to exist. In no case shall the
number of Preferred Directors exceed two. Any
Preferred Director may be removed by, and shall not be
removed except by, the vote of the holders of record
of the outstanding shares of Preferred Stock voting
together as a single class without regard to series,
at a meeting of the stockholders, or of the holders of
shares of Preferred Stock called for the purpose. So
long as a default in any preference dividends on the
Preferred Stock shall exist, (A) any vacancy in the
office of a Preferred Director may be filled (except
as provided in the following clause (B)) by an
instrument in writing signed by the remaining
Preferred Director and filed with the Corporation and
(B) in the case of the removal of any Preferred
Director, the vacancy may be filled by the vote of the
holders of the outstanding shares of Preferred Stock
voting together as a single class without regard to
series, at the same meeting at which such removal
shall be voted. Each director appointed as aforesaid
by the remaining Preferred Director shall be deemed,
for all purposes hereof, to be a Preferred Director.
Whenever the term of office of the Preferred Directors
shall end and a default in preference dividends shall
no longer exist, the number of Directors constituting
the Board of Directors of the Corporation shall be
reduced by two. For the purposes hereof, a "default
in preference dividends" on the Preferred Stock shall
be deemed to have occurred whenever the amount of
accrued dividends upon any series of the Preferred
Stock shall be equivalent to six full quarter-yearly
dividends or more, and, having so occurred, such
default shall be deemed to exist thereafter until, but
only until, all accrued dividends on all shares of
Preferred Stock of each and every series then
outstanding shall have been paid to the end of the
last preceding quarterly dividend period.
"(vi) Liquidation Rights.
"(1) Upon the dissolution, liquidation
(voluntary or otherwise), or winding up of the
Corporation, the holders of the shares of this Series
shall be entitled to receive out of the assets of the
Corporation, before any payment of distribution shall
72
be made on the Common Stock, or on any other class of
stock ranking junior to the Preferred Stock upon
liquidation, the amount of $6,000.00 per share, plus a
sum equal to all dividends (whether or not earned or
declared) on such shares accrued and unpaid thereon to
the date of final distribution (the "Liquidation
Preference"). Following the payment of the full
amount of the Liquidation Preference, no additional
distributions shall be made to the holders of shares
of this Series unless, prior thereto, the holders of
shares of Common Stock shall have received an amount
per share (the "Common Adjustment") equal to the
quotient obtained by dividing (i) the Liquidation
Preference by (ii) 100 (as appropriately adjusted as
set forth in paragraph (2) below to reflect such
events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock)
(such number in clause (ii), the "Adjustment Number").
Following the payment of the full amount of the
Liquidation Preference and the Common Adjustment in
respect of all outstanding shares of Junior Partici-
pating Preferred Stock and Common Stock, respectively,
holders of this Series and hold- ers of Common Stock
shall receive their ratable and proportionate share of
the remaining assets to be distributed in the ratio of
the Adjustment Number to 1 with respect to such
Preferred Stock and Common Stock, on a per share
basis, respectively.
"(2) If the Corporation shall at any time
after the Rights Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the
Adjustment Number in effect immediately before such
event shall be adjusted by multiplying such Adjust-
ment Number by a fraction the numerator of which is
the number of shares of Common Stock outstanding
immediately after such event and the denominator of
which is the number of shares of Common Stock that
were outstanding immediately before such event.
"(3) The sale, conveyance, exchange or
transfer (for cash, shares of stock, securities or
other consideration) of all or substantially all the
property and assets of the Corporation shall be deemed
73
a voluntary dissolution, liquidation or winding up of
the Corporation for the purposes of this Article
5(c)(vi), but the merger or consolidation of the
Corporation into or with another corporation or the
merger or consolidation of any other corporation into
or with the Corporation, shall not be deemed to be a
dissolution, liquidation or winding up, voluntarily or
involuntarily, for the purposes of this Article
5(c)(vi).
"(4) After the payment to the holders of the
shares of this Series of the full preferential
amounts provided for in this Article 5(c)(vi), the
holders of this Series as such shall have no right or
claim to any of the remaining assets of the
Corporation.
"(5) If the assets of the Corporation
available for distribution to the holders of shares of
this Series upon any dissolution, liquidation or
winding up of the Corporation, whether voluntary or
involuntary, shall be insufficient to pay in full all
amounts to which such holders are entitled pursuant to
paragraph (1) of this Article 5(c)(vi), no such
distribution shall be made on account of any shares of
any other class or series of Preferred Stock ranking
on a parity with the shares of this Series upon such
dissolution, liquidation or winding up unless
proportionate distributive amounts shall be paid on
account of the shares of this Series, ratably, in
proportion to the full distributable amounts for which
holders of all such parity shares are respectively
entitled upon such dissolution, liquidation or winding
up. If, however, there are not sufficient assets
available to permit payment in full of the Common
Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
"(vii) For purposes of this resolution, any
stock of any class or classes of the Corporation shall
be deemed to rank:
"(1) prior to the shares of this Series,
either as to dividends or upon liquidation, if the
holders of such class or classes shall be entitled to
the receipt of dividends or of amounts distributable
upon dissolution, liquidation or winding up of the
74
Corporation, as the case may be, in preference or
priority to the holders of shares of this Series;
"(2) on a parity with shares of this Series,
either as to dividends or upon liquidation, whether
or not the dividend rates, dividend payment dates or
redemption or liquidation prices per share or
sinking fund provisions, if any, be different from
those of this Series, if the holders of such stock
shall be entitled to the receipt of dividends or of
amounts distributable upon dissolution, liquidation
or winding up of the Corporation, as the case may be,
in proportion to their respective dividend rates or
liquidation prices, without preference or priority,
one over the other, as between the holders of such
stock and the holders of shares of this Series; and
"(3) junior to shares of this Series, either
as to dividends or upon liquidation, if the holders of
shares of this Series shall be entitled to receipt of
dividends or of amounts distributable upon
dissolution, liquidation or winding up of the
Corporation, as the case may be, in preference or
priority to the holders of shares of such class or
classes."
THIRD: These Articles of Amendment were duly adopted by the Corporation's
Board of Directors on January 18, 1995. Shareholder approval was
not required.
/s/ Aubrey W. Lippert
Aubrey W. Lippert
Chairman of the Board and President
Date: 1/18/95
75
EXHIBIT 21 - SIGNIFICANT SUBSIDIARIES OF REGISTRANT
_______________________________________________________________________________
Peoples First National Bank & Trust Company
Fourth and Kentucky Avenue
Paducah, Kentucky 42002-2200 Wholly owned
First Kentucky Federal Savings Bank
214 North First Street
Central City, Kentucky 42330-0110 Wholly owned
Liberty Bank & Trust
1104 Paris Road
Mayfield, Kentucky 42066 Wholly owned
76
EXHIBIT 23 - CONSENT OF KPMG PEAT MARWICK LLP, INDEPENDENT AUDITORS
_______________________________________________________________________________
The Board of Directors
Peoples First Corporation:
We consent to incorporation by reference in the Registration Statements No.
33-28301 on Form S-3 and No. 33-28304 on Form S-8 of Peoples First Corporation
of our report dated January 27, 1995, relating to the consolidated balance
sheets of Peoples First Corporation and Subsidiaries as of December 31, 1994 and
1993, and the related consolidated statements of income, changes in stock-
holders' equity, and cash flows for each of the years in the three-year period
ended December 31, 1994, which reports appears in the December 31, 1994 annual
report on Form 10-K of Peoples First Corporation.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
March 23, 1995
77
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 39,333
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 121,172
<INVESTMENTS-CARRYING> 203,844
<INVESTMENTS-MARKET> 200,092
<LOANS> 805,947
<ALLOWANCE> (12,188)
<TOTAL-ASSETS> 1,210,556
<DEPOSITS> 998,583
<SHORT-TERM> 84,567
<LIABILITIES-OTHER> 7,607
<LONG-TERM> 9,536
<COMMON> 6,422
0
0
<OTHER-SE> 103,841
<TOTAL-LIABILITIES-AND-EQUITY> 1,210,556
<INTEREST-LOAN> 62,846
<INTEREST-INVEST> 21,491
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 84,337
<INTEREST-DEPOSIT> 35,710
<INTEREST-EXPENSE> 38,855
<INTEREST-INCOME-NET> 45,482
<LOAN-LOSSES> 1,723
<SECURITIES-GAINS> 62
<EXPENSE-OTHER> 32,337
<INCOME-PRETAX> 18,590
<INCOME-PRE-EXTRAORDINARY> 13,125
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,125
<EPS-PRIMARY> 1.56
<EPS-DILUTED> 1.56
<YIELD-ACTUAL> 4.30
<LOANS-NON> 531
<LOANS-PAST> 1,838
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 14,800
<ALLOWANCE-OPEN> 10,715
<CHARGE-OFFS> 686
<RECOVERIES> 436
<ALLOWANCE-CLOSE> 12,188
<ALLOWANCE-DOMESTIC> 12,188
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
EXHIBIT 99 - UNDERTAKINGS
_______________________________________________________________________________
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represents a
fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the Registrant's Annual Report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemni-
fication is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemni-
fication against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
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EXHIBIT 99 - UNDERTAKINGS, CONTINUED
_______________________________________________________________________________
controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being regis-
tered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
81
