_______________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, For the Quarter Ended March 31, 1995
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 0-16839
PEOPLES FIRST CORPORATION
(Exact name of registrant as specified in its charter)
Kentucky 61-1023747
(State or other jurisdiction of (I R S Employer
incorporation or organization) Identification No.)
100 South Fourth Street
P. O. Box 2200
Paducah, Kentucky 42002-2200
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 441-1200
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing require-
ments for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the Registrant's only class of stock as of
March 31, 1995: Common stock, no par value - 8,247,158 shares outstanding.
______________________________________________________________________________1
INDEX Page
_______________________________________________________________________________
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1995,
March 31, 1994 and December 31, 1994 3
Consolidated Statements of Income - Three Months
Ended March 31, 1995 and 1994 4
Consolidated Statements of Cash Flows - Three Months
Ended March 31, 1995 and 1994 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults on Senior Securities 22
Item 4. Submission of Matters to a Vote of Securities Holders 22
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
2
March 31, December 31,
CONSOLIDATED BALANCE SHEETS 1995 1994 1994
_______________________________________________________________________________
(in thousands)
ASSETS
Cash and due from banks $41,249 $33,912 $39,333
Short-term investments 0 2,100 0
Securities held for sale 132,486 130,253 129,682
Securities held for investment 187,699 234,737 203,845
Loans 835,025 729,982 805,947
Allowance for loan losses (12,452) (11,218) (12,188)
--------- --------- ---------
Loans, net 822,573 718,764 793,759
Excess of cost over net assets
of purchased subsidiaries 9,870 10,700 10,077
Premises and equipment 17,203 16,491 16,980
Other assets 14,680 14,713 16,880
--------- --------- ---------
$1,225,760 $1,161,670 $1,210,556
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand deposits $83,743 $81,966 $87,985
Interest-bearing transaction accounts 239,473 239,458 243,910
Savings deposits 88,297 110,773 98,571
Time deposits 608,621 560,155 568,117
--------- --------- ---------
1,020,134 992,352 998,583
Federal funds purchased 12,100 14,800 41,500
Other short-term borrowings 61,138 23,225 43,067
Long-term borrowings 9,026 15,710 9,536
Other liabilities 8,320 8,832 7,607
--------- --------- ---------
Total liabilities 1,110,718 1,054,919 1,100,293
Stockholders' Equity
Common stock 6,443 6,393 6,422
Surplus 35,306 34,118 34,859
Retained earnings 75,769 66,465 73,739
Unrealized net gain (loss) on
securities held for sale (2,343) (67) (4,624)
Debt on ESOP shares (133) (158) (133)
--------- --------- ---------
115,042 106,751 110,263
--------- --------- ---------
$1,225,760 $1,161,670 $1,210,556
========= ========= =========
Fair value of securities held
for investment $188,285 $239,141 $200,092
Common shares issued and outstanding 8,247 8,181 8,220
See accompanying notes to consolidated financial statements. 3
Three Months Ended
March 31,
CONSOLIDATED STATEMENTS OF INCOME 1995 1994
_______________________________________________________________________________
(in thousands, except per share data)
INTEREST INCOME
Interest on short-term investments $18 $95
Taxable interest on securities 4,151 4,351
Nontaxable interest on securities 1,030 1,113
Interest and fees on loans 17,911 14,357
------ ------
23,110 19,916
INTEREST EXPENSE
Interest on deposits 10,535 8,336
Other interest expense 1,198 584
------ ------
11,733 8,920
------ ------
Net Interest Income 11,377 10,996
Provision for Loan Losses 443 519
------ ------
Net Interest Income after
Provision for Loan Losses 10,934 10,477
Noninterest Income 1,605 1,612
Noninterest Expense 8,314 8,011
------ ------
Income Before Income Tax Expense 4,225 4,078
Income Tax Expense 1,208 1,246
------ ------
NET INCOME $3,017 $2,832
====== ======
Net Income per Common Share
and Common Share Equivalent $0.36 $0.34
Cash Dividend per Common Share 0.120 0.105
Average Common Shares and Common
Share Equivalents Outstanding 8,484 8,441
See accompanying notes to consolidated financial statements. 4
Three Months Ended
March 31,
CONSOLIDATED STATEMENTS OF CASH FLOWS 1995 1994
_______________________________________________________________________________
(dollars in thousands)
OPERATING ACTIVITIES
Net income $3,017 $2,832
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 662 593
Net (discount accretion) premium
amortization 156 539
Provision for loan losses 443 519
Net (increase) decrease in loans held for sale (46) (520)
Provision for deferred income taxes (88) (46)
Other, net 1,721 1,835
------ ------
Net Cash Provided by Operating Activities 5,865 5,752
INVESTING ACTIVITIES
Net decrease in Federal funds sold 0 1,000
Proceeds from sales of securities
held for sale 0 2,654
Proceeds from maturities of securities
held for sale 0 5,400
Proceeds from maturities of investment
securities 12,525 8,528
Principal collected on mortgage-backed
securities held for sale 1,387 10,092
Principal collected on mortgage-backed
investment securities 3,392 15,175
Purchase of securities held for sale (575) (32,725)
Purchase of investment securities 0 (2,272)
Net increase in loans (29,212) (25,296)
Purchases of premises and equipment (659) (240)
------ ------
Net Cash Used by Investing Activities (13,142) (17,684)
See accompanying notes to consolidated financial statements. 5
Three Months Ended
March 31,
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED 1995 1994
_______________________________________________________________________________
(dollars in thousands)
FINANCING ACTIVITIES
Net increase (decrease) in deposits 21,550 (543)
Net increase in repurchase agreements 4,571 3,323
Net increase (decrease) in Federal funds purchased (29,400) 2,200
Net increase in short-term borrowings 13,500 0
Proceeds from notes payable borrowings 140 1,289
Repayments of notes payable (650) (2,135)
Proceeds from issuance of common stock 315 114
Cash dividends paid (833) (995)
------ ------
Net Cash Provided by Financing Activities 9,193 3,253
------ ------
Cash and Cash Equivalents
Increase (Decrease) 1,916 (8,679)
Beginning of Year 39,333 42,591
------ ------
End of Period $41,249 $33,912
====== ======
SUPPLEMENTAL DISCLOSURES
Cash paid for interest expense $11,412 $9,003
Cash paid for income tax 0 86
NONCASH INVESTING AND FINANCING TRANSACTIONS
Other real estate transferred to (from) loans, net 0 144
Dividends reinvested 154 114
See accompanying notes to consolidated financial statements. 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______________________________________________________________________________
NOTE A - BASIS OF PRESENTATION
The accompanying consolidated financial statements are unaudited and should be
read in conjunction with the notes to the consolidated financial statements
contained in the 1994 annual report on Form 10-K. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the periods
ended March 31, 1995 are not necessarily indicative of the results that may be
expected for the year ending December 31, 1995.
NOTE B - SECURITIES HELD FOR SALE AND INVESTMENT SECURITIES
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
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.
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
_______________________________________________________________________________
NOTE C - LOAN REVENUES
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.
NOTE D - 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 asso-
ciated 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. Manage-
ment's approach provides for general and specific allowances and is based upon
current economic conditions, past losses, collection experience, risk charac-
teristics 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.
The Company adopted Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" (FAS 114) and Statement of
Financial Accounting Standards No. 118, "Accounting by Creditors for Impairment
of a Loan - Income Recognition and Disclosures" (FAS 118) effective for the year
beginning January 1, 1995. As a result of applying FAS 114, as amended by FAS
118, certain impaired loans subject to the statements are reported 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. There was no financial impact
of the adoption of FAS 114 and FAS 118 in the first quarter of 1995.
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
_______________________________________________________________________________
The Company recognizes interest income on nonaccrual impaired loans equal to the
amount of interest received in cash. All changes in the present value of
estimated future cash flows are recorded as an adjustment to the allowance for
loan losses and ultimately the provision for loan losses. No interest income is
recognized for changes in present value attributable to the passage of time. At
March 31, 1995, the total recorded investment in all impaired loans as defined
in FAS 114 and the related allowance for loss, and for the three months ended
March 31, 1995, the average recorded investment in impaired loans and the
related amount of interest income recognized (all cash basis) are as follows:
Recorded Allowance Average Interest
Impaired Loans investment for loss investment recognized
_______________________________________________________________________________
(in thousands)
As of and for the quarter
ended March 31, 1995 $910 $332 $918 $19
NOTE E - NET INCOME PER COMMON SHARE AND COMMON SHARE EQUIVALENT
Net income per common share and common share equivalent is determined by divid-
ing net income by the weighted average number of common shares actually out-
standing and common stock equivalents pertaining to common stock options. The
average number of shares outstanding including common stock equivalents for the
three months ended March 31, 1995 and 1994 were 8,483,531 and 8,441,251,
respectively. Common stock equivalents have no material dilutive effect.
NOTE F - CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all cash and due from banks to be cash equivalents.
NOTE G - BUSINESS COMBINATIONS
On March 10, 1994, the Company consummated the acquisition of First Kentucky
Bancorp, Inc. (First Kentucky) and First Kentucky Federal Savings Bank, a
wholly-owned subsidiary of First Kentucky. First Kentucky's six locations are
immediately east of the market area served by the Company's other subsidiary
banks, and at March 31, 1995, had total assets of approximately $177.0 million.
The acquisition has been accounted for as a pooling of interest, and
accordingly, the accompanying consolidated financial statements have been
restated. A total of 929,794 shares of the Company's common stock was issued in
this business combination.
On October 7, 1994, the Company consummated the acquisition of Libsab Bancorp,
Inc. (Libsab) and Liberty Bank & Trust, a wholly-owned subsidiary of Libsab.
Liberty Bank's three locations are part of the market area served by the
Company's other subsidiary banks, and at March 31, 1995, had total assets of
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
_______________________________________________________________________________
approximately $147.2 million. The acquisition has been accounted for as a
pooling of interest, and accordingly, the accompanying consolidated financial
statements have been restated. A total of 1,077,853 shares of the Company's
common stock was issued in this business combination.
The following table shows the results of operations of the previously separate
enterprises for the period prior to combination:
Peoples Pooled
Results of Operations First affiliates Combined
_______________________________________________________________________________
(in thousands)
1994 Three-month period
Total revenue $12,357 $4,719 $17,076
Net income 1,758 475 2,233
Merger expenses of approximately $314,000 related to pooling of interest acquis-
itions were charged to expense during 1994. The after-tax impact of these
expenses on earnings per common share and common share equivalent was $0.04.
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
_______________________________________________________________________________
Headquartered in Paducah, Kentucky, Peoples First Corporation (Company) is a
multi-bank and unitary savings and loan holding company. Through 26 banking
offices, the Company serves primarily the western Kentucky and contiguous
interstate area. The purpose of this discussion and analysis is to provide
financial statement readers with information relevant to understanding and
assessing the financial condition and results of operations of Peoples First
Corporation (Company).
EARNING ASSETS
Average earning assets of the Company for the first three months of 1995 in-
creased 4.7%, or $51.1 million to $1,145.4 million from $1,094.3 million for the
first three months of 1994. This compares to average earning asset growth of
5.3% for the first quarter of 1994 over the first quarter of 1993. A consist-
ently favorable ratio of average earning assets to average total assets has been
achieved. The ratio was 95.1% and 94.4% for the first three months of 1995 and
1994, respectively.
Loans are the Company's primary earning asset. Management has focused on
increasing lending activity and loan demand has been strong. Average loans for
the first quarter of 1995 were 14.9% greater than average loans for the first
quarter of 1994. Prior to 1993, loans had been a decreasing portion of earning
assets. Average loans for the first three months of 1995 were 71.6% of total
average earning assets, compared to 65.2% during the first three months of 1994.
Management attributes the current reversal of the declining loan composition
trend to their focus on improving the earning asset composition of all the
banks, the Company's desire for promininence in area lending and a slowed growth
of deposits.
The Company primarily directs lending activities to its regional market from
which deposits are drawn. Management has focused on retail lending and the
growth of residential real estate mortgage loans over the last two years.
A portion of the proceeds from the sale and maturity of debt securities and the
principal collected on mortgage-backed securities was used to fund loans. The
Company maintains a portfolio of securities held for sale as a partial source of
available funding for loan growth.
11
Table 1 March 31, December 31,
Types of Loans 1995 1994 1994
_______________________________________________________________________________
(in thousands)
Commercial, financial
and agricultural $114,517 $120,147 $111,929
Real estate
Construction 15,931 11,215 19,421
Residential mortgage 330,385 275,721 318,551
Commercial mortgage 146,337 129,115 139,629
Installment loans to
individuals 231,291 196,428 219,050
Consumer revolving credit 6,903 4,667 6,599
Loans held for sale 201 1,024 156
Other 1,787 2,356 1,952
------- ------- -------
847,352 740,673 817,287
Unearned income (12,327) (10,691) (11,340)
------- ------- -------
$835,025 $729,982 $805,947
======= ======= =======
FUNDING
Average deposits, which management relies on as a stable source of funding, of
the Company for the first three months of 1995 increased 1.5%, or $15.2 million
to $1,004.7 million from $989.5 million for 1994. Local markets for deposits
are highly competitive. During periods of slow local deposit growth, management
partially relies on brokered deposits and other short-term borrowings to fund
loan growth. Brokered deposits amounted to $21.5 million, $19.2 million and
$21.4 million at March 31, 1995 and 1994 and December 31, 1994, respectively.
Average Federal funds purchased were $27.4 million for the first quarter of
1995, up from $14.6 million for the first quarter of 1994. Average short-term
borrowings were $47.9 million for the first quarter of 1995, up from $22.8
million for the first quarter of 1994.
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
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 March 31, 1995 remains relatively low,
improving slightly since December 31, 1994. Diversification within the loan
portfolio is an important means of reducing inherent lending risks. At March
31, 1995, 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.
12
The Company discontinues the accrual of interest on loans which become ninety
days past due as to principal or interest, or when in the opinion of management
the collection of interest is unlikely, unless the loans are adequately secured
and in the process of collection. Other real estate owned is carried at the
lower of cost or fair value less estimated disposal costs, if any. A loan is
classified as a renegotiated loan when the interest rate is materially reduced
or the term is extended beyond the original maturity date because of the
inability of the borrower to service the debt under the original terms.
Management continues to exert efforts to monitor and minimize nonperforming
assets even though the nonperforming totals are significantly lower than peer
bank holding company ratios. Significant focus on underwriting standards is
maintained by management and the subsidiary bank boards.
Table 2 March 31, December 31,
Nonperforming Assets 1995 1994 1994
_______________________________________________________________________________
(in thousands)
Nonaccrual loans $893 $868 $531
Other real estate owned 956 2,134 1,569
Renegotiated loans 2,718 2,971 2,741
----- ----- -----
$4,567 $5,973 $4,841
===== ===== =====
Loans past due ninety days and still
accruing interest $1,513 $379 $1,838
Ratios:
Nonperforming assets to total
loans and other real estate 0.55% 0.82% 0.60%
Allowance for loan losses to
nonperforming assets 273% 160% 252%
Internal credit review procedures are designed to alert management of possible
credit problems which would create serious doubts as to the future ability of
borrowers to comply with loan repayment terms. At March 31, 1995, loans with a
total principal balance of $13.9 million have been identified that may become
nonperforming in the future, compared to $14.8 million at December 31, 1994.
Performance of borrowers has been aided by the relatively low interest carrying
costs. Potential problem loans are not included in nonperforming assets since
the borrowers currently meet all applicable loan agreement terms.
Nonperforming assets at March 31, 1995 were 0.55% of total loans and other real
estate, down from 0.60% at December 31, 1994. A small number of loans and one
tract of undeveloped land in Nashville, Tennessee, represent most of the
nonperforming balance for the last two years.
13
CAPITAL RESOURCES AND DIVIDENDS
The current economic and regulatory environment places increased emphasis on
capital strength. Stockholders' equity was 9.4% of assets at March 31, 1995, up
from 9.2% at March 31, 1994. Exclusive of the $2.3 million decrease in the
unrealized net loss on securities held for sale, net of applicable income taxes,
stockholders' equity increased $2.5 million, or 8.8% (annualized), during the
first three months of 1995 due to a 66.7% earnings retention rate and the sale
of common stock through shareholder and employee plans ($468,171). This
compares to an increase, exclusive the $1.9 million increase in the unrealized
net loss on securities held for sale, net of applicable income taxes, of $2.3
million, or 9.0% (annualized), during the same 1994 period when the earnings
retention rate was 69.1% and proceeds from the sale of common stock through
shareholder and employee plans was $271,671.
The quarterly dividend was raised to $0.105 per share in the third quarter of
1993 and to $0.120 per share in the third quarter of 1994 in an attempt to reach
a dividend payout ratio greater than 30% of earnings. A 5% stock dividend
payable June 13, 1995 was declared during the second quarter. 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 March 31, 1995, approximately
$14.4 million, compared to $15.6 million at March 31, 1994, in retained earnings
of subsidiary banks were available for dividend payments to the Company without
regulatory approval or without reducing capital of the respective banks below
minimum standards. Capital ratios of all of the Company's subsidiaries are in
excess of applicable regulatory capital ratios. At March 31, 1995 and December
31, 1994, the Company and the banks' total capital and leverage ratios were as
follows:
Total Leverage Ratio
Table 3 Mar 31, Dec 31, Mar 31, Dec 31,
Risk-Based Capital 1995 1994 1995 1994
_______________________________________________________________________________
Company 14.30% 14.31% 8.99% 8.82%
Peoples First National
Bank 13.51 13.59 9.18 9.00
Liberty Bank & Trust 16.32 15.77 9.30 9.27
First Kentucky FSB 20.06 20.05 8.07 7.89
Regulatory minimum 8.00 8.00 4.00 4.00
Bank regulatory agencies' minimum capital guidelines assign relative measures of
credit risk to balance sheet assets and off-balance sheet exposures. Based upon
the nature and makeup of their current businesses and growth expectations,
management expects all of the reporting entities' capital ratios to continue to
exceed regulatory minimums.
14
RESULTS OF OPERATIONS
Earnings per share for the first three months of 1995 increased 5.9% to $0.36,
from $0.34 for the same 1994 period. The increase is attributable to nonre-
curring acquisition costs of $0.04 per share in 1994.
Return on average stockholders' equity for the first three months of 1995 and
1994 was 10.94% and 10.78%, respectively. Return on average assets for the
first three months of 1995 and 1994 was 1.02% and 0.99%, respectively.
NET INTEREST INCOME
The amount by which interest earned on assets exceeds the interest paid on sup-
porting funds, constitutes the primary source of income for the Company. For
the three months ended March 31, 1995, net interest income (TE) increased 2.6%,
or $0.3 million to $11.9 million as compared to $11.6 million for the three
months ended March 31, 1994. All of 1995's increase is attributable to growth
of average earning assets. A small amount of 1994's increase was attributable
to improved margins.
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 to date was unfavorably affected in 1995 to a
greater extent than 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.
Net interest income on a tax-equivalent basis as a percent of average earning
assets was 4.21% and 4.28% for the three months ended March 31, 1995 and 1994,
respectively. Management has significantly increased the amount of loans
outstanding while decreasing lower yielding debt securities during the last two
years. For the three months ended March 31, 1995, interest earned on loans was
4.14% greater than the average funding cost, down from 4.41% for the three
months ended March 31, 1994. Aggressive pricing of loans during the past year
has stimulated demand and retarded margins. Margins in 1993, and in 1994 to a
lesser extent, were unfavorably affected by the purchase accounting recognition
of interest income on certain investment securities at market yields. Net
interest income margins continue to benefit from a favorable change in the mix
of earning assets offset by an unfavorable change in the mix of funding sources.
15
Table 4
Net Interest Income Analysis Average Average
Three months ended March 31, 1995 volume Interest rate
_______________________________________________________________________________
(dollars in thousands)
Loans $819,996 $17,937 8.87%
Securities 324,159 5,666 7.09
Other interest earning assets 1,283 18 5.69
--------- ------
1,145,438 23,621 8.36
Time deposits 586,278 7,856 5.43
All other interest bearing deposits 335,337 2,683 3.24
Other interest bearing liabilities 83,548 1,194 5.80
--------- ------
$1,005,163 11,733 4.73
------ ----
Net interest income (TE) spread $11,888 3.63%
====== ====
Net interest income (TE) as a percent 4.21%
of average interest-earning assets ====
Table 5
Net Interest Income Analysis Average Average
Three months ended March 31, 1994 volume Interest rate
_______________________________________________________________________________
(dollars in thousands)
Loans $713,446 $14,382 8.18%
Securities 368,778 6,000 6.60
Other interest earning assets 12,053 95 3.20
--------- ------
1,094,277 20,477 7.59
Time deposits 560,800 5,997 4.34
All other interest bearing deposits 344,208 2,339 2.76
Other interest bearing liabilities 54,716 585 4.34
--------- ------
$959,724 8,921 3.77
------ ----
Net interest income (TE) spread $11,556 3.82%
====== ====
Net interest income (TE) as a percent 4.28%
of average interest-earning assets ====
16
PROVISION FOR LOAN LOSSES
A significant factor in the Company's past and future operating results is the
level of the provision for loan losses. Management desires to provide assurance
through sufficient provision for loan losses that future earnings will be less
susceptible to changing economic cycles. The provision for loan losses amounted
to $443,000 for the three months ended March 31, 1995, a decrease of $75,882 or
14.6% when compared to $518,882 for the three months ended March 31, 1994. The
decline in the 1995 provision for loan losses was influenced by low levels of
net charge-offs and nonperforming assets. The annualized provision for loan
losses as a percentage of average loans was 0.22% for the three months ended
March 31, 1995, down from 0.23% and 0.38% for the years ended December 31, 1994
and 1993, respectively. Levels of providing for loan losses reflect, among
other things, management's evaluation of potential problem loans. Further,
management has focused on retail lending and the growth of residential real
estate mortgage loans over the last two years. These areas of lending have
historically low loss experience.
Net chargeoffs as a percentage of average loans were 0.09% and 0.01% for the
three months ended March 31, 1995 and 1994, respectively, periods of unusally
low net chargeoffs. 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
1.49% of outstanding loans at March 31, 1995, which approximates the average
during the last five years. The March 31, 1995 allowance is 273% compared to
252% at December 31, 1994, of nonperforming assets and is maintained at a level
which management considers adequate to absorb estimated potential losses in the
loan portfolio, after reviewing the individual loans and in relation to risk
elements in the portfolios and giving consideration to the prevailing economy
and anticipated changes.
Three Months Ended
Table 6 March 31,
Allowance for Loan Losses 1995 1994
__________________________________________________________________
(dollars in thousands)
Balance at beginning of period $12,188 $10,715
Provision charged to expense 443 519
Loans charged off (279) (148)
Recoveries of chargeoffs 100 132
------ ------
Net loans charged off (179) (16)
------ -----
Balance at end of period $12,452 $11,218
====== ======
Annualized Ratios:
Provision for loan losses
to average loans 0.22% 0.29%
Net chargeoffs to
average loans 0.09 0.01
Allowance for loan losses
to period end loans 1.49 1.54
17
NONINTEREST INCOME
Noninterest income amounted to $1,605,382 for the three months ended March 31,
1995, compared to $1,611,980 for the three months ended March 31, 1994. Service
charges on deposit accounts, the largest component of noninterest income,
remained approximately the same for the first three months of 1995 and 1994.
The 83.5% increase in insurance commissions for the first three quarters of 1995
over 1994 is attributable to greater opportunities resulting from the
significant increase in consumer loans as well as better penetration of this
product to consumer loan customers. Fee income from secondary-market mortgage
loan services during 1995 is lower than 1994 due to reduced home refinancing.
The relative improvement in net interest income slightly exceeds the growth in
fee income. Noninterest income, excluding securities gains, was 12.4% of total
net interest income plus noninterest income for the three months ended March 31,
1995, compared to 12.8% for the three months ended March 31, 1994.
Three Months Ended
Table 7 March 31,
Noninterest Income 1995 1994
__________________________________________________________________
(in thousands)
Services charges on deposits $862 $874
Net securities gains 0 4
Trust fees 277 304
Insurance commissions 167 91
Other income 299 339
----- -----
$1,605 $1,612
===== =====
Annualized Ratio:
Noninterest income
to average assets 0.54% 0.56%
NONINTEREST EXPENSE
During the first three months of 1995, it required more noninterest expense
(overhead) to produce total net interest income plus noninterest income
(revenue). The ratio of overhead to revenue was 64.04% for the three months
ended March 31, 1995, compared to 63.54% for the three months ended March 31,
1994. During the first quarter of 1994, management changed its strategic plans
regarding the approach to productivity gains. Management shifted its focus from
controlling the rate of increase of noninterest expense to gain more employee
productivity, to increasing revenue volumes to gain operational ratio
efficiencies. There is a constant process of evaluation to attempt to reach
the optimum balance between revenue and overhead.
The ratio of personnel expense has increased as a percentage of average total
assets and was 1.37% for the three months ended March 31, 1995, compared to
1.27% for the three months ended March 31, 1994. Management expects a
double-digit percentage increase in personnel and equipment expenses for 1995 as
a result of their current focus on increasing revenue volumes. The Company has
made investments in facilities and equipment as technology has advanced and the
18
need to leverage personnel costs has intensified. Two new branch locations are
scheduled to be opened during the next two quarters. One of the operating
subsidiaries will be combined into the lead bank during the third quarter of
1995 to allow the personnel at all locations to better focus on quality customer
service and increasing the volume of business as well as reducing a small amount
of redundant costs.
The Company's bank subsidiaries are required to pay deposit insurance assess-
ments to the FDIC, to maintain significant noninterest-bearing balances with the
Federal Reserve, and to pay fees to regulatory agencies for periodic examina-
tions by the agencies. The 3.3% increase in assessments for deposit insurance
for the three months ended March 31, 1995 from the same 1994 period, is
attributable to increased deposit levels. Beginning in 1993, the assessments
were based not only on deposits but also on the risk characteristics of the
individual financial institutions. All of the Company's subsidiaries received
the lowest deposit assessment rate from the FDIC. Recent governmental
discussions have included indications that future FDIC assessment rates could
be significantly lower than the Company's current rate which is equal to 0.23%
of applicable deposits.
Three Months Ended
Table 8 March 31,
Noninterest Expense 1995 1994
__________________________________________________________________
(in thousands)
Salaries $3,413 $2,964
Employee benefits 649 668
Occupancy expense 410 418
Equipment expense 440 381
FDIC insurance expense 569 551
Data processing expense 532 491
Bank share taxes 343 340
Goodwill amortization 207 207
Other expense 1,751 1,991
------ ------
$8,314 $8,011
====== ======
Annualized Ratios:
Overhead ratio 64.04% 63.54%
Noninterest expense
to average assets 2.80 2.80
During the last three quarters of 1994, additional data processing expense costs
were incurred in connection with the consolidation of five subsidiary banks
into one bank. Routine data processing expense should level off or slightly
decline in 1995 from 1994 levels after system conversions are complete.
Bankshare taxes imposed by the State of Kentucky have been increasing and are
expected to continue to increase in future years. Kentucky has raised the
assessment level and is attempting to significantly increase this taxation,
which is based upon net income of the subsidiaries.
19
During 1994, the Company was involved in two pooling-of-interests acquisitions.
Included in other noninterest expense for the three months ended March 31, 1994
was approximately $314,000 of professional fees relating to the mergers which
were completed in the first and fourth quarters of 1994. Several components of
other noninterest expense have increased primarily as a result of costs asso-
ciated with expanding customer volumes and marketing.
INCOME TAXES
The decrease in income tax expense for the three months ended March 31, 1995
from the comparable 1994 period, is attributable to nondeductible organizational
costs associated with two acquisitions during the three months ended March 31,
1994. The effective tax rate decreased, and was 28.6% for the three months
ended March 31, 1995, compared to 30.6% for the three months ended March 31,
1994. The Company manages the effective tax rate to some degree, based upon
changing tax laws, particularly new alternative minimum tax provisions, the
availability and price of nontaxable investment securities and other portfolio
considerations.
LIQUIDITY AND INTEREST-RATE SENSITIVITY
The Company's objective of liquidity management is to ensure the ability to
access funding which enables each bank to efficiently satisfy the cash flow
requirements of depositors and borrowers. Asset/Liability management (ALM)
involves the funding and investment strategies necessary to maintain an
appropriate balance between interest sensitive assets and liabilities as well as
to assure adequate liquidity. The Company's ALM committee monitors funds
available from a number of sources to meet its objectives. The primary source
of liquidity for the banks, in addition to loan repayments, is their debt
securities portfolios. Debt securities classified as held for sale are those
that the Company intends to use as part of its asset/liability management and
that may be sold prior to maturity in response to changes in interest rates,
resultant prepayment risks and other factors. The Company's access to the re-
tail deposit market through individual banks located in nine different counties
has been a stable source of funds. Additional funds for liquidity are available
by borrowing of Federal funds from correspondent banks, Federal Home Loan Bank
borrowings and brokered deposits. Various types of analyses are performed to
ensure adequate liquidity, and to evaluate the desirability of the relative
interest rate sensitivity of assets and liabilities. In the past, as was
typical for most financial institutions, the Company's cash flows provided by
financing activities, primarily through core deposit generation, generally
greatly exceeded cash flows from operations and were used to fund investing
activities. During the past two years, due to strong loan demand, financing
activities funding was partially derived from increased levels of brokered
deposits and short-term borrowings. 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
20
prior to maturity. The primary objective of the ALM Committee is to optimize
earnings results, while controlling interest rate risks within internal policy
constraints. The subsidiary banks and the Company collectively measure their
level of earnings exposure to future interest rate movements. Currently, the
Company does not employ interest rate swaps, financial futures or options to
affect interest rate risks. Management expects that a slightly greater amount
of assets will reprice than liabilities during the second quarter 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. Management has slightly increased the net asset sensitivity
during the last year. At March 31, 1995, approximately $31.6 million more
assets are scheduled to reprice than liabilities in the following six-month
period, compared to approximately ($21.3) million at March 31, 1994.
21
PART II
_______________________________________________________________________________
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders
(a) The regular annual meeting of the shareholders of Peoples First
Corporation was held April 27, 1995, at the Curris Center at
Murray State University in Murray, Kentucky.
(b) The Corporation's Board of Directors consists of 19 members in
three classes. Directors are usually elected to three-year
terms, and ordinarily one class of directors is elected at each
annual meeting. Cumulative voting applies in the election of
directors. The following eight nominees were elected to the board
of directors for the terms and by the votes indicated below:
Term For Against
Nominee Expires Votes Votes
Gathiel D. Baker 1998 6,949,951 4,930
Joe Dick 1998 6,857,851 4,930
William R. Hancock 1998 6,929,440 4,930
James T. Holloway 1996 6,993,778 4,930
Robert P. Meriwether 1998 6,883,449 4,930
Joe Harry Metzger 1998 6,945,947 4,930
Jerry L. Page 1998 6,930,107 4,930
C. Steve Story 1998 6,958,480 4,930
Eleven other directors continued their terms of office after
the meeting. Five directors, Allan B. Kleet, Rufus E. Pugh,
Mary Warren Sanders, Victor F. Speck, Jr. and Neal H. Ramage
continue in office until 1996. Six additional directors,
Walter L. Apperson, William R. Dibert, R. E. Fairhurst, Jr.,
Dennis W. Kirtley, Aubrey W. Lippert and Allan Rhodes, Jr.
continue in office until 1997.
(c) Shareholders ratified the Board of Director's appointments to
the Audit Committee. The Audit Committee, which is composed
entirely of nonmanagement directors, reviews the audit plans and
the results of audits of the Corporation and subsidiary banks
performed by the Corporation's internal audit department and
independent certified public accountants, reviews the adequacy
of internal controls and reviews the accounting principles em-
ployed in financial reporting. The appointments of R. E.
Fairhurst, Jr., William Rowland Hancock, Allan Rhodes, Jr.,
22
Mary Warren Sanders and Victor F. Speck, Jr. were ratified
by the following vote:
For: 6,898,933 Against: 4,518 Abstain: 28,291
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10.4) Employment agreement among the Company, Liberty Bank
& Trust Co. and C. Steve Story is herein incorporated
by reference to Exhibit 99.1 of Form S-4, registration
#33-54535 as filed with the Securities and Exchange
Commission on July 12, 1994.
(27.1) Financial Data Schedules
(b) Reports on Form 8-K
Peoples First Corporation filed a current report on Form
8-K on April 28, 1995, reporting the April 27, 1995 press
release announcement of the declaration of a 5% stock
dividend payable June 13, 1995.
23
SIGNATURES
_______________________________________________________________________________
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, therunto duly authorized.
PEOPLES FIRST CORPORATION
05/12/95 /s/ Aubrey W. Lippert
Aubrey W. Lippert
President and Chairman
of the Board
05/12/95 /s/ Allan B. Kleet
Allan B. Kleet
Principal Financial Officer
24
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
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