__________________________________________________________________________
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, 1995
[ ] 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 requirements 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, 1996: Common stock, no par value - $189,522,000.
The number of shares outstanding of the Registrant's only class of stock as of
February 16, 1996: Common stock, no par value - 9,243,808 shares outstanding.
Documents Incorporated by Reference
Portions of Peoples First Corporation's definitive proxy statement dated
March 15, 1996 are incorporated into Part III.
______________________________________________________________________1
INDEX
Page
_______________________________________________________________________________
PART I.
Item 1. Business 3
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Securities Holders 14
PART II.
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 60
PART III.
Item 10. Directors and Executive Officers of the Registrant 61
Item 11. Executive Compensation 62
Item 12. Security Ownership of Certain Beneficial Owners
and Management 62
Item 13. Certain Relationships and Related Transactions 62
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 62
Signatures 64
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
one 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 two wholly owned subsidiaries:
The Peoples First National Bank & Trust Company of Paducah ("Peoples Bank") in
McCracken, Marshall, Ballard, Livingston, Calloway and Graves Counties; and,
First Kentucky Federal Savings Bank of Central City in Muhlenberg, Ohio, McLean
and Butler Counties. 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 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, Bank of Murray in 1992 and Liberty Bank and Trust in 1994. 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 1,025,098 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
bank.
Dividends from Peoples Bank and First Kentucky FSB (collectively the "banks")
are the principal source of cash flow 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 $896.9 million at December 31, 1995 and is the first or
second largest commercial banking operation in each of the five counties it
operates. At December 31, 1995, Peoples Bank had 426 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
3
the primary source of operating income. First Kentucky FSB had total deposits
of $151.3 million at December 31, 1995 and is largest financial institution
headquartered in their immediate West-Central Kentucky market area. At December
31, 1995, First Kentucky FSB had 64 full-time equivalent 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 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 Bank Insurance Fund of the Federal Deposit Insurance
Corporation (FDIC). As such, they are subject to regulation by these federal
agencies. 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.
4
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) 1995 1994 1993
_______________________________________________________________________________
INTEREST-EARNING ASSETS
Short-term investments $2,877 $3,831 $10,579
Taxable securities 251,107 285,242 318,861
Non-taxable securities 64,835 69,731 71,001
Loans (1) 865,707 755,314 660,345
--------- --------- ---------
1,184,526 1,114,118 1,060,786
NONINTEREST-EARNING ASSETS
Cash and due from banks 33,515 34,878 33,974
Allowance for loan losses (12,691) (11,524) (9,827)
Other assets 40,582 40,800 41,542
--------- --------- ---------
$1,245,932 $1,178,272 $1,126,475
========= ========= =========
INTEREST-BEARING LIABILITIES
Transaction accounts $253,689 $235,918 $228,146
Savings deposits 87,618 106,891 105,191
Time deposits 598,514 567,438 555,689
Short-term borrowings 86,400 51,489 31,761
Long-term borrowings 7,946 13,644 17,956
Other liabilities 1,292 1,201 944
--------- --------- ---------
1,035,459 976,581 939,687
NONINTEREST-BEARING LIABILITIES
Demand deposits 82,752 85,307 78,178
Other liabilities 9,176 8,391 9,471
STOCKHOLDERS' EQUITY 118,545 107,993 99,139
--------- --------- ---------
$1,245,932 $1,178,272 $1,126,475
========= ========= =========
(1) Nonperforming loans are included in
average loans
5
B. ANALYSIS OF NET INTEREST EARNINGS For the Year Ended December 31,
(in thousands) 1995 1994 1993
_______________________________________________________________________________
INTEREST INCOME
Short-term investments $160 $169 $335
Taxable securities 16,082 17,493 20,006
Non-taxable securities (TE) (2) 5,847 6,302 6,487
Loans (TE) (2) 78,573 62,520 56,178
------ ------ ------
100,662 86,484 83,006
INTEREST EXPENSE
Transaction accounts 9,101 6,970 5,854
Saving deposits 2,460 2,996 3,980
Time deposits 34,047 25,744 25,927
Short-term borrowings 4,939 2,169 1,026
Long-term borrowings 515 900 1,150
Other liabilities 90 76 60
------ ------ ------
51,152 38,855 37,997
------ ------ ------
NET INTEREST INCOME (TE) (2) 49,510 47,629 45,009
TE Basis Adjustment (1,916) (2,080) (2,161)
------ ------ ------
NET INTEREST EARNINGS $47,594 $45,549 $42,848
====== ====== ======
(2) Tax equivalent (TE) interest income is based
upon a Federal income tax rate of 35%.
6
B. AVERAGE YIELDS AND RATES PAID For the Year Ended December 31,
1995 1994 1993
_______________________________________________________________________________
AVERAGE YIELDS FOR INTEREST-EARNING ASSETS
Short-term investments 5.56% 4.41% 3.17%
Taxable securities 6.40% 6.13% 6.27%
Non-taxable securities (TE) (2) 9.02% 9.04% 9.14%
Loans (TE) (1) (2) 9.08% 8.28% 8.51%
All interest-earning assets 8.50% 7.76% 7.82%
AVERAGE RATES FOR INTEREST-BEARING LIABILITIES
Transaction accounts 3.59% 2.95% 2.57%
Saving deposits 2.81% 2.80% 3.78%
Time deposits 5.69% 4.54% 4.67%
Short-term borrowings 5.72% 4.21% 3.23%
Long-term borrowings 6.48% 6.60% 6.40%
Other liabilities 6.97% 6.33% 6.36%
All interest-bearing liabilities 4.94% 3.98% 4.04%
---- ---- ----
NET INTEREST-RATE SPREAD (TE) (2) 3.56% 3.78% 3.78%
==== ==== ====
NET YIELD ON INTEREST-EARNING ASSETS 4.18% 4.28% 4.24%
==== ==== ====
(1) Nonperforming loans are included in
average loans
(2) Tax equivalent (TE) interest income is based
upon a Federal income tax rate of 35%.
7
C. FOR THE LAST TWO FISCAL YEARS
CHANGES ATTRIBUTABLE TO VOLUME AND RATE Change Due to Due to
(in thousands) 1995/1994 Volume Rate (3)
_______________________________________________________________________________
INTEREST INCOME
Short-term investments ($9) ($42) $33
Taxable securities (1,411) (2,093) 682
Non-taxable securities (TE) (2) (455) (442) (13)
Loans (1) (2) 16,053 9,138 6,915
------
14,178 5,465 8,713
INTEREST EXPENSE
Transaction accounts 2,131 525 1,606
Saving deposits (536) (540) 4
Time deposits 8,303 1,410 6,893
Short-term borrowings 2,770 1,471 1,299
Long-term borrowings (385) (376) (9)
Other liabilities 14 6 8
------
12,297 2,343 9,954
------ ------ ------
NET INTEREST EARNINGS (TE) (2) $1,881 $3,122 ($1,241)
====== ====== ======
(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.
8
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 (2,513) (2,109) (404)
Non-taxable securities (TE) (2) (185) (116) (69)
Loans (TE) (1) 6,342 8,079 (1,737)
------
3,478 4,173 (695)
INTEREST EXPENSE
Transaction accounts 1,116 199 917
Saving deposits (984) 64 (1,048)
Time deposits (183) 548 (731)
Short-term borrowings 1,143 637 506
Long-term borrowings (250) (276) 26
Other liabilities 16 16 (0)
------
858 1,492 (634)
------ ------ ------
NET INTEREST INCOME (TE) (2) $2,620 $2,681 ($61)
====== ====== ======
(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
II. Security Portfolios
A. Footnote 4 to the Consolidated Financial Statements included herein on page
41 presents the book value as of the end of 1995 and 1994 of securities by
type of security.
B. Footnote 4 to the Consolidated Financial Statements included herein on page
41 presents the amortized cost, estimated market value and the weighted average
yield of securities at December 31, 1995, by contractual maturity range.
C. As of December 31, 1995, 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 19
presents the amount of all loans in various categories as of the end of 1995
and 1994.
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, 1995:
Loan Portfolio Maturities 1 year 1 to 5 Over
December 31, 1995 or less years 5 years Total
_______________________________________________________________________________
(in thousands)
Commercial, financial
and agricultural $56,579 $33,956 $23,394 $113,929
Real estate construction 17,989 555 842 19,386
------- ------- ------- -------
$74,568 $34,511 $24,236 $133,315
======= ======= ======= =======
The amounts of these loans due after one year which have predetermined rates
and adjustable rates are $19.0 million and $39.7 million, respectively.
C. Risk Elements
1. The table of Nonperforming Assets in MDA included herein on page 21 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, 1991 through 1995, 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:
10
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Interest Income on Nonaccrual
and Restructured Loans
Year ended December 31, 1995 1994 1993 1992 1991
________________________________________________________________________________
(in thousands)
Contractual interest $421 $209 $407 $434 $584
Interest recognized 351 192 279 173 462
</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, 1995, loans
with a total principal balance of $14.3 million had been identified that may
become nonperforming in the future, compared to $14.8 million at December 31,
1994.
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, 1995, a total of $3.5 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, 1995, 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.
11
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, 1995, 1994, 1993, 1992
and 1991:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Analysis of the Allowance
for Loan Losses
Year ended December 31, 1995 1994 1993 1992 1991
________________________________________________________________________________
(in thousands)
Balance at beginning of
year $12,188 $10,715 $8,606 $6,420 $5,880
Balance of subsidiary bank
at acquisition -- -- -- 1,485 --
Provision charged to
expense 2,167 1,723 2,541 3,246 2,338
Loan charge-offs
Commercial, financial
and agricultural (450) (248) (463) (1,893) (794)
Real estate mortgage (225) (81) (240) (440) (714)
Installment loans (540) (279) (317) (516) (448)
Consumer revolving
credit (92) (78) (24) (58) (63)
------ ------ ------ ------ ------
(1,307) (686) (1,044) (2,907) (2,019)
Loan charge-off recoveries
Commercial, financial
and agricultural 133 339 376 187 85
Real estate mortgage 63 9 110 33 27
Installment loans 117 76 122 137 103
Consumer revolving
credit 10 12 4 5 6
------ ------ ------ ------ ------
323 436 612 362 221
------ ------ ------ ------ ------
Net loan charge-offs (984) (250) (432) (2,545) (1,798)
------ ------ ------ ------ ------
Balance at end of year $13,371 $12,188 $10,715 $8,606 $6,420
====== ====== ====== ====== ======
Year end balance of loans $914,497 $805,947 $704,037 $625,278 $486,576
Average loans outstanding 865,707 755,314 660,345 568,477 477,162
Allowance / year end loans 1.46% 1.51% 1.52% 1.38% 1.32%
Provision / net chargeoffs 220.22% 689.20% 588.19% 127.54% 130.03%
Nonperforming assets 5,335 4,841 6,088 7,803 8,070
Potential problem loans 14,300 14,800 22,400 16,284 21,456
</TABLE>
12
B. The following tables present a breakdown of the allowance for loan losses
at December 31, 1995, 1994, 1993, 1992 and 1991:
<TABLE>
<CAPTION>
Allocation of the Allowance
for Loan Losses
December 31, 1995 1994 1993 1992 1991
____________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $2,951 $5,899 $5,186 $4,014 $2,891
Real estate mortgage 5,632 3,691 3,245 2,515 1,719
Consumer loans 4,549 2,402 2,112 1,927 1,690
Consumer revolving credit 239 196 172 150 120
------ ------ ------ ------ ------
$13,371 $12,188 $10,715 $8,606 $6,420
====== ====== ====== ====== ======
Percent of Loans in Each
Category to Total Loans
December 31, 1995 1994 1993 1992 1991
____________________________________________________________________________________________
(in thousands)
Commercial, financial
and agricultural 12.5% 13.9% 16.9% 19.5% 22.6%
Real estate mortgage
Construction 2.1% 2.4% 1.7% 0.9% 0.9%
Residential mortgage 39.9% 39.5% 38.3% 38.7% 39.5%
Commercial mortgage 17.3% 17.3% 18.1% 16.6% 12.4%
Consumer loans 28.0% 26.6% 24.6% 23.6% 24.0%
Other 0.2% 0.3% 0.4% 0.7% 0.6%
----- ----- ----- ----- -----
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 5 and 7 present the average amount of and the average
rate paid for the years ended December 31, 1995, 1994 and 1993.
C. Foreign Deposits
The Company had no foreign deposits during the past three years.
13
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, 1995, of $100,000 or more by maturity:
Maturity of $100,000 Time Deposits
December 31, 1995
_______________________________________________________________________________
(in thousands)
Maturing 3 months or less $19,379
Maturing over 3 months through 6 months 13,580
Maturing over 6 months through 12 months 22,713
Maturing over 12 months 40,423
------
$96,095
======
For the Year Ended December 31,
VI. RETURN ON EQUITY AND ASSETS 1995 1994 1993
_______________________________________________________________________________
1. Return on average assets 1.19% 1.11% 1.14%
2. Return on average equity 12.46% 12.15% 12.92%
3. Dividend payout ratio 31.85% 29.08% 26.28%
4. Equity to assets ratio 9.51% 9.17% 8.80%
VII. SHORT-TERM BORROWINGS
A. Footnote 7 to the Consolidated Financial Statements included herein on page
47 presents for each category of short-term borrowings, the amounts outstanding
at the end of the reported periods, the weighted average interest rate, the
maximum 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 bank.
Item 3. LEGAL PROCEEDINGS - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
14
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". Share and per share
information have been adjusted to give effect to the two-for-one stock split
on January 4, 1994 and 5% stock dividends declared on April 19, 1995 and
January 17, 1996. The high and low stock prices and the quarterly dividends
declared on the Company's common stock for each quarter of 1995 and 1994 are as
follows:
High and Low Stock Prices First Second Third Fourth
Dividends Declared quarter quarter quarter quarter
_______________________________________________________________________________
High 1995 $18.14 $18.33 $21.67 $22.38
Low 1995 15.65 15.95 17.38 20.00
Cash dividends declared 0.109 0.109 0.143 0.143
High 1994 $25.85 $23.13 $22.22 $19.73
Low 1994 21.32 19.95 19.05 14.74
Cash dividends declared 0.095 0.095 0.109 0.109
Holders
The approximate number of holders of registrant's only class of common stock
as of February 16, 1996, was 2,827.
15
<TABLE>
<CAPTION>
Item 6. SELECTED FINANCIAL DATA
December 31, 1995 1994 1993 1992 1991
____________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C> <C> <C>
Interest-Earning Assets
Loans, net of allowance $901,126 $793,759 $693,322 $616,671 $480,157
Securities 306,642 333,527 375,366 394,383 274,095
Short-term investments 0 0 3,100 15,525 9,650
--------- --------- --------- --------- ---------
1,207,768 1,127,286 1,071,788 1,026,579 763,902
Cash and due from banks 37,524 39,333 42,591 44,548 42,434
Premises and equipment 18,226 16,980 16,698 16,490 12,876
Other assets 24,078 26,957 25,429 26,803 13,579
--------- --------- --------- --------- ---------
$1,287,596 $1,210,556 $1,156,506 $1,114,420 $832,791
========= ========= ========= ========= =========
Liabilities and Stockholders' Equity
Interest-bearing deposits $960,744 $910,598 $906,646 $898,285 $680,901
Noninterest-bearing deposits 86,360 87,985 86,250 78,643 52,852
Federal funds purchased 15,100 41,500 12,600 0 0
Short-term borrowings 78,369 43,067 19,902 19,606 25,395
Long-term borrowings 7,757 9,536 16,555 16,137 335
Other liabilities 11,094 7,607 8,182 8,095 6,987
--------- --------- --------- --------- ---------
1,159,424 1,100,293 1,050,135 1,020,766 766,470
Stockholders' equity 128,172 110,263 106,371 93,654 66,321
--------- --------- --------- --------- ---------
$1,287,596 $1,210,556 $1,156,506 $1,114,420 $832,791
========= ========= ========= ========= =========
____________________________________________________________________________________________
As more fully explained in Note 2. to the consolidated financial statements,
additional banking organizations were acquired in 1994 and 1992.
16
Year ended December 31, 1995 1994 1993 1992 1991
____________________________________________________________________________________________
(in thousands except per share data)
Results of Operations
Interest income $98,746 $84,404 $80,845 $79,839 $73,331
Interest expense 51,152 38,855 37,997 42,768 45,086
------ ------ ------ ------ ------
Net interest income 47,594 45,549 42,848 37,071 28,245
Provision for loan losses 2,167 1,723 2,541 3,246 2,338
Net interest income after ------ ------ ------ ------ ------
provision for loan losses 45,427 43,826 40,307 33,825 25,907
Noninterest income 8,037 7,101 6,683 6,696 4,740
Noninterest expense 32,251 32,337 29,373 25,942 19,674
------ ------ ------ ------ ------
Income before tax expense 21,213 18,590 17,617 14,579 10,973
Income tax expense 6,446 5,465 4,807 4,074 2,766
------ ------ ------ ------ ------
Net Income $14,767 $13,125 $12,810 $10,505 $8,207
====== ====== ====== ====== ======
Average shares outstanding 9,383 9,302 9,321 8,603 7,336
Net income per common share $1.57 $1.41 $1.37 $1.23 $1.05
Cash dividends per common
share 0.50 0.41 0.36 0.33 0.28
</TABLE>
______________________________________________________________________________
Shares outstanding and per share amounts have been adjusted for a two-for-one
stock split on January 4, 1994 and 5% stock dividends on April 19, 1995 and
January 17, 1996.
As more fully explained in Note 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.
17
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 Company operates principally in a single business segment offering general
commercial and savings bank services. The following table provides certain
subsidiary, parent company and consolidated information for 1995:
<TABLE>
<CAPTION>
Table 1
Disaggregated Data First Parent Co
As of and for the year Peoples Kentucky and elimi- Consol-
ended December 31, 1995 Bank FSB nations idated
____________________________________________________________________________________________
(dollars in thousands)
<S> <C> <C> <C> <C>
Net income $13,601 $1,712 ($546) $14,767
Average assets 1,069,827 176,356 (251) 1,245,932
Return on average equity 13.02% 12.23% 12.46%
Average equity / assets 9.77 7.94 9.51
Net interest margin 4.37 3.12 4.18
Provision for loan losses /
average loans 0.27 0.08 0.25
Allowance for loan loss /
loans outstanding 1.52 0.94 1.46
Overhead ratio 0.55 0.56 0.56
</TABLE>
EARNING ASSETS
Average earning assets of the Company for 1995, increased 6.3%, or $70.4 million
to $1,184.5 million from $1,114.1 million for 1994. This compares to growth of
earning assets, excluding the purchase of three branch bank locations in 1992,
of 5.0% and 3.4%, for 1994 and 1993, respectively. Loan growth during the last
three years has been partially funded with reductions in 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 95.1% for 1995, compared to 94.6% and 94.2% for 1994 and 1993, respectively.
Loans are the Company's primary earning asset. Management believes the Company
should be a prominent lender. Average loans for 1995 increased 14.6%, or
$110.4 million, to $865.7 million. Internal average loan growth for 1994 and
1993 was 14.4% and 8.6%, respectively. The changing mix of earning assets was
favorable during the last two years. Average loans for 1995 were 73.1% of
18
of total average earning assets, compared to 67.8% and 62.2% during 1994 and
1993, respectively. Prior to 1993, loans had been a decreasing portion of
earning assets. Management's desire for promininence in area lending and a
slowed growth of deposits used for investment in securities has lead to the
improved earning asset composition.
Table 2
Average Earning Assets
Year ended December 31, 1995 1994 1993
_______________________________________________________________________________
(dollars in thousands)
Total average earning assets $1,184,526 $1,114,118 $1,060,786
Percent of average earning assets
Average loans 73.1% 67.8% 62.2%
Average securities 26.7 31.9 36.8
Average other earning assets 0.2 0.3 1.0
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>
Table 3
Types of Loans
December 31, 1995 1994 1993 1992 1991
____________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural $113,929 $111,929 $118,906 $122,188 $109,986
Real estate
Construction 19,386 19,421 12,255 5,472 4,524
Residential mortgage 364,607 318,551 269,265 242,134 191,985
Commercial mortgage 158,429 139,629 127,666 103,808 60,308
Consumer, net 255,975 214,309 173,191 147,413 116,891
Loans held for sale 708 156 504 1,241 --
Other 1,463 1,952 2,250 3,022 2,882
------- ------- ------- ------- -------
$914,497 $805,947 $704,037 $625,278 $486,576
======= ======= ======= ======= =======
</TABLE>
A portion of the proceeds from the sale and maturity of securities and the
principal collected on mortgage-backed securities was used to fund loan growth.
Average securities decreased $39.0 million during 1995 and $34.9 million during
1994. The Company maintains a portfolio of securities held for sale as an
available source of funding for loan growth. U. S. treasury and agency
obligations represent approximately 75.5% of the securities portfolios at
December 31, 1995.
19
At December 31, 1995, mortgage-backed securities which included Real Estate
Mortgage Investment Conduit (REMIC) and CMO instruments were approximately 51.8%
of the securities portfolios, compared to approximately 46.0% at December 31,
1994. The REMIC issues are 100% U. S. agencies issues. The CMO issues are
marketable, collateralized mortgage obligations backed by agency-pooled
collateral or whole-loan collateral. All nonagency issues held are currently
rated AA or AAA by either Standard & Poors or Moody's. Approximately 19.4% of
the mortgage-backed securities are floating-rate issues, the majority being
indexed to the Constant Maturity Treasury index. Management's normal practice
is to purchase securities at or near par value to reduce risk of premium
write-offs resulting from unexpected prepayments.
At December 31, 1995, the Company did not have any structured notes (as
currently defined by regulatory agencies) in the securities portfolios since
management believes the uncertainty of cash flows from these securities, which
are driven by interest-rate movements, could expose the Company to greater
market risk than traditional securities.
FUNDING
Average 1995 deposits increased 2.7%, or $27.0 million to $1,022.6 million from
$995.6 million for 1994. Local markets for deposits are competitive. Core
deposits, the Company's most important and stable funding source, are a
decreasing portion of average interest-bearing liabilities. The core deposit
base is supplemented with brokered deposits, short-term and long-term borrowings
to fully fund loan growth. Average brokered deposits amounted to $24.7 million,
$22.1 million and $8.0 million for the years ended December 31, 1995, 1994 and
1993, respectively. Average short-term and long-term borrowings were $94.3
million for 1995, up from $65.1 million for 1994 and $49.7 million for 1993.
Table 4
Average Interest-bearing Liabilities 1995 1994 1993
_______________________________________________________________________________
(dollars in thousands)
Total average interest-bearing
liabilities $1,035.5 $976.6 $939.7
Percent of average total interest-
bearing liabilities
Average core deposits 88.4% 90.9% 93.8%
Average short-term borrowings 8.3 5.3 3.4
Average long-term borrowings 0.8 1.4 1.9
Management anticipates an increasing need to rely on more volatile purchased
liabilities. The Company's subsidiary banks 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 subsidiary banks to borrow additional funds from the FHLB to fund
mortgage loan programs and satisfy other funding needs.
20
NONPERFORMING ASSETS AND RISK ELEMENTS
As illustrated in Table 5, nonperforming assets, which include nonperforming
loans and foreclosed property, have generally declined over the last three
years. Nonperforming assets as a percentage of total loans and other real
estate declined to 0.58% at December 31, 1995 compared to 0.60% and 0.86% at
December 31, 1994 and 1993, respectively. A small number of loans and one tract
of undeveloped land, portions of which have been sold, represent most of the
nonperforming balance for the last three years. The decline in nonperforming
assets reflects good economic conditions in the area and the Company's
comphrehensive loan administration and workout procedures. Also,
diversification within the loan portfolio is an important means of reducing
inherent lending risks. At December 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.
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.
<TABLE>
<CAPTION>
Table 5
Nonperforming Assets
December 31, 1995 1994 1993 1992 1991
____________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $1,817 $531 $835 $3,883 $3,536
Renegotiated loans 2,874 2,741 2,995 1,259 1,296
Other real estate owned 644 1,569 2,258 2,661 3,238
----- ----- ----- ----- -----
$5,335 $4,841 $6,088 $7,803 $8,070
===== ===== ===== ===== =====
Nonperforming assets as a
percent of total loans
and other real estate 0.58% 0.60% 0.86% 1.24% 1.65%
Loans past due ninety
days and still accruing
interest $1,471 $1,838 $503 $389 $408
Allowance for loan losses
coverage of nonperform-
ing assets 251% 252% 176% 110% 80%
</TABLE>
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. A 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
21
would create serious doubts as to the future ability of borrowers to comply with
loan repayment terms. At December 31, 1995, loans with a total principal
balance of $14.3 million have been identified that may become nonperforming in
the future, compared to $14.8 million at December 31, 1994 and $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.
CAPITAL RESOURCES AND DIVIDENDS
The Company's strong capital position and overall financial strength provide
flexibility when management evaluates opportunities to improve stockholder
value. Stockholders' equity was 10.0% of assets at December 31, 1995, an
increase from 9.1% at December 31, 1994. Exclusive of unrealized net gain and
loss on securities held for sale, net of applicable income taxes, stockholders'
equity increased $12.4 million, or 10.8%, during 1995, and increased $10.4
million, or 9.9%, during 1994. The capital base has been strengthened through
earnings retention and issuance of common stock through various shareholder and
employee plans. The earnings retention rate, which the board of directors
adjusts through declaration of cash dividends, was 68.2% for 1995, 70.9% for
1994 and 73.7% for 1993. Proceeds from the sale of common stock through
shareholder and employee plans amounted to $2.2 million in 1995, $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 1995 stockholders' equity was increased by $5.6 million, for 1994
was decreased by $6.5 million and for 1993 was increased by $1.9 million to
record the change during the year in the fair value of securities held for sale.
The board of directors develops and reviews the capital goals and policies of
the consolidated entity and each of the subsidiary banks. The Company's capital
policies are designed to retain sufficient amounts for healthy financial ratios,
considering future planned asset growth and to leverage stockholders' equity to
a desirable degree. Subsidiary bank dividends are the principal source of funds
for the Company's payment of dividends to its stockholders. At December 31,
1995, approximately $23.9 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.
The board of directors raised the quarterly dividend to $0.109 per share in
the third quarter of 1994 and to $0.143 per share in the third quarter of 1995.
Stock dividends of 5% were declared in April 1995 and in Janaury 1996. On
Janaury 17, 1996, the board of directors approved the purchase of up to 400,000
shares of the Company's common stock in the open market during the following
eighteen to twenty-four month period. Shares acquired may be used in
conjunction with the Company's stock dividend program.
An important measure of capital adequacy of a banking institution is its
risk-based capital ratios. 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'
risk-based capital ratios to continue to exceed regulatory minimums. At
December 31, 1995 and 1994, the Company and the subsidiary banks' ratios were as
follows:
22
<TABLE>
<CAPTION>
Table 6
Risk-based capital Total Tier I Leverage ratio
December 31, 1995 1994 1995 1994 1995 1994
_________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Company 14.24% 14.31% 13.00% 13.05% 9.30% 8.82%
Peoples First National Bank 13.53 13.87 12.28 12.62 9.29 9.04
First Kentucky Federal
Savings Bank 20.08 20.05 18.98 18.90 8.74 7.89
</TABLE>
RESULTS OF OPERATIONS
Net income increased 13.0% in 1995, reaching a record level of $14.8 million,
compared to an increase of 2.3% in 1994 when net income totaled $13.1 million.
On a per common share basis, net income increased 11.3% to $1.57 per share for
the year ended December 31, 1995, compared to an increase of 2.9% to $1.41 per
share for the year ended December 31, 1994. Net income per common share for the
fourth quarter of 1995 increased 18.9% to $0.44 from $0.37 for the fourth
quarter of 1994. The earnings increases were primarily due to increased
interest income due in part to strong loan demand in 1995 and 1994. Reductions
in deposit insurance expense due to the level of FDIC capitalization and the
absence of acquisition related expense contributed to the 1995 earnings
increase. Earnings performance for 1994 was negatively impacted by
transaction costs of approximately $0.06 per share related to two acquisitions
completed during the year.
Return on average stockholders' equity for the years ended December 31, 1995,
1994 and 1993 was 12.46%, 12.15% and 12.92%, respectively. Return on average
assets for the years ended 1995, 1994 and 1993 was 1.19%, 1.11% and 1.14%,
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.
Measured on a fully taxable equivalent (TE) basis, net interest income for the
year ended December 31, 1995, increased 4.0%, or $1.9 million to $49.5 million
compared to $47.6 million for 1994. For the year ended December 31, 1994, net
interest income (TE) increased 5.8%, or $2.6 million from $45.0 million for
1993. As expected, 1995's increase is attributable to growth in the volume of
average earning assets while the net interest margin decreased 10 basis points
from 1994. Substantially all of 1994's increase is attributable to growth in
the volume of average earning assets. Net interest income (TE) as a percent of
average earning assets was 4.18%, 4.28% and 4.24% for the years ended December
31, 1995, 1994 and 1993, respectively.
The Company's concentration in residential real estate loans, competition for
increased loan volumes and reliance on time deposits and non-core funding
results in narrower interest spreads. The subsidiary banks generally maintain a
relatively balanced position between volumes of rate-repricing assets and
23
liabilities to guard to some degree against adverse effects to net interest
income from possible fluctuations in interest rates. 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. The provision for loan losses amounted
to $2.2 million for 1995, an increase of 29.4% compared to $1.7 million in 1994,
which was a decrease of 32.0% compared to $2.5 million in 1993. The 1995
increase was required to reflect the growth in outstanding loans and chargeoffs.
The 1994 decrease was influenced by declines in net charge-offs, nonperforming
assets and potential problem loans. The provision for loan losses as a
percentage of average loans was 0.25% for the year ended December 31, 1995, up
from 0.23% for the year ended December 31, 1994 and compared to 0.38% for the
year ended December 31, 1993.
Net loan chargeoffs over the last three years were at levels below historical
trends. Net chargeoffs for 1995 were $1.0 million compard to $0.3 million for
1994 and $0.4 million for 1993. As a percentage of average loans, net
chargeoffs were 0.11% for 1995, up from 0.03% for 1994 and 0.07% for 1993,
periods of unusually low net chargeoffs. Net chargeoffs as a percent of average
loans were 0.21% for the five-year period ended December 31, 1995. The
allowance for loan losses 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. At December 31, 1995, the allowance for loan losses is 1.46% of
outstanding loans compared 1.51% of outstanding loans at December 31, 1994. The
December 31, 1995 allowance is 251% of nonperforming assets compared to 252% at
December 31, 1994.
NONINTEREST INCOME
Fees from traditional deposit services as well as revenues from insurance,
brokerage activities and other commission business have been increased by
management's focus on improving all areas of noninterest income during the last
three years. Noninterest income amounted to $8.0 million in 1995, a 12.7%
increase compared to $7.1 million in 1994 which was an increase of 6.0% compared
to $6.7 million in 1993. Excluding net securities gains, the 1995 and 1994
increases were more comparable and were 11.6% and 9.1%, repectively.
Service charges on deposit accounts, the largest component of noninterest
income, increased 4.1% in 1995 and 11.2% in 1994. Net gains of $178,143,
$62,309 and $230,642, were recognized in 1995, 1994 and 1993, respectively.
Securities held for sale, primarily mortgage-backed securities, totaling $12.1
million, $11.9 million and $21.9 million, respectively, 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
The Company has shown small growth in the amount of trust assets managed. Fees
from personal and pension lines of business for the last three years have been
relatively the same. The 41.3% and 48.3% increases in insurance commissions in
1995 and 1994, over prior respective years, are 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 1995 and 1994 were lower
than 1993 due to the unusually large amount of home refinancing in 1993. In
1995, the Company sold its student loan portfolio and changed to a fee income
program from the previous practice of originating and holding the loans. The
Company made available two new financial services during 1994 to bank customers.
Management believes that investment brokerage services and property and casualty
insurance products made available in 1994 will generate a higher level of fees
in 1996 than in the first two introductory years. The relative improvement in
fee income is slightly more than the growth in net interest income. Noninterest
income excluding securities gains was 13.7% of total net tax-equivalent interest
income plus noninterest income for 1995, compared to 12.9% for 1994 and 12.5%
for 1993. Management expects this trend to continue into 1996.
NONINTEREST EXPENSE
After rising in 1994, the ratio of noninterest expense net of noninterest income
exclusive of securities gains to average total assets fell in 1995. The ratio
was 1.96% for 1995, 2.15% for 1994 and 2.03% for 1993. Since internal asset
growth has slowed, management continues to focus on controlling the rate of
increase of noninterest expense by reconfiguring certain functions to gain more
employee productivity. The Company consolidated six of the previously
separate corporate subsidiaries into one bank during 1995 and 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.
Noninterest expense decreased 0.3% in 1995 due to reduced deposit insurance
rates and the absence of merger-related professional fees. This compares to an
increase of 10.1% in 1994 when all categories of noninterest expense rose.
Salaries and employee benefits increased 6.0% in 1995, compared to 6.3% in
1994. Staffing levels were approximately the same at December 31, 1995 and
1993. The Company has made investments in facilities and equipment of
approximately $6.9 million during the last three years as technology has
advanced and the need to leverage personnel costs has intensified. Occupancy
expense increased 5.5% in 1995 and 6.2% in 1994. Equipment expense increased
13.2% in 1995 and 16.2% in 1994 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 a five year or
shorter period. Management plans to continue to invest in techology for new
product delivery systems.
The Federal Deposit Insurance Corporation (FDIC) currently administers two
separate deposit insurance funds, the Bank Insurance Fund (BIF) and the Savings
Association Insurance Fund (SAIF). The BIF and SAIF were established primarily
25
to insure the depositors of insured banks and savings associations and to
finance the resolution of failed institutions. The Company's lead bank
subsidiary pays deposit insurance premiums to the BIF and the Company's other
subsidiary pays deposit insurance premiums to the SAIF based on a rate applied
to their respective assessable deposits. Beginning in 1993, the assessments
were based not only on deposits but also on the risk characteristics of the
individual financial institutions. Both of the Company's subsidiaries received
the lowest applicable deposit assessment rates from the FDIC.
Assessments for deposit insurance were $1.3 million, $2.3 million and $2.1
million in 1995, 1994 and 1993, respectively. The decrease in FDIC insurance
expense is attributable to a BIF refund and rate reduction. During September
1995, as a result of the stability of the commercial bank industry and the level
of insurance fund reserves, the FDIC refunded the lead bank a portion of the
deposit-insurance premiums paid and reduced rates. The Company accounted for
the BIF refund in the third quarter when received as a component of operating
income.
Congress is considering a variety of legislation that will recapitalize the SAIF
through a special assessment on the assessable deposits of SAIF member
institutions such as the Company's savings association subsidiary. At December
31, 1995, the Company had not accrued a liability for the potential special
assessment. The expense for any special assessment will be recorded as a
component of operating income in the period of the enacted legislation.
Management estimates the special assessment will be between $1.2 million and
$1.5 million and payable in the second quarter of 1996. The legislation may
provide for lower premiums following the special assessment. For 1996,
management currently believes lower BIF and SAIF rates will generally offset the
expense of the anticipated special SAIF assessment.
Increased data processing expense is attributable to a greater volume of activ-
ity, the outsourcing of a portion of some functions and one-time system
conversion costs incurred mainly in 1994. The increase was 5.7% in 1995 and
13.2% in 1994. Some reduction in Kentucky Bankshare taxes occurred in 1995 due
to the consolidation of the six separate banking corporations. Kentucky has
raised the assessment level and has been attempting to significantly increase
this taxation, which is based upon net income and capital of the subsidiaries.
The Company's bank subsidiaries are required to to maintain significant
noninterest-bearing balances with the Federal Reserve and to pay fees to
regulatory agencies for periodic examinations by the agencies.
During 1994, the Company completed two pooling-of-interest acquisitions.
Included in other noninterest expense for 1994 and 1993 is approximately
$561,000 and $145,000, respectively, of professional fees related to these
acquisitions.
INCOME TAXES
Increases in income tax expense are attributable to higher operating earnings
and higher effective tax rates. The Company's effective income tax rate was
30.4%, 29.4% and 27.3%, for the years ended December 31, 1995, 1994 and 1993,
26
respectively. The 1% federal income tax rate increase mandated by the Omnibus
Budget Reconciliation Act of 1993 and a continued decline in the amount of
tax-exempt income as a percentage of operating income has increased the
effective rate. Also increasing the rate for 1994 was nondeductible
organizational costs associated with two mergers. 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
of liquidity for the banks, in addition to loan repayments, is their debt
securities portfolios. 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 locations in twelve 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. 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. A balance-sheet
analysis is conducted to determine the impact on net interest income for the
following twelve months under several interest-rate scenarios. One scenario
uses current rates at December 31, 1995 and holds the rates and volumes constant
for the simulation. When this projection is subjected to immediate and parallel
shifts in interest rates (rate shocks) of 200 basis points, both rising and
falling, the annual impact of the rate shock at December 31, 1995 on the
Company's projected net interest income margin was less than five basis points.
Currently, the Company does not employ interest rate swaps, financial futures or
options to affect interest rate risks.
27
<TABLE>
<CAPTION>
Table 7
Interest Rate Sensitivity
Analysis 1-91 92-183 184 days Total at Over
December 31, 1995 Days Days to 1 year 1 year 1 year Total
_________________________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Rate Sensitive Assets
Securities, at cost
U.S. treasury
and agencies $4,005 $10,070 $24,716 $38,791 $33,473 $72,264
Mortgage-backed 18,795 20,876 25,298 64,969 92,979 157,948
Municipal bonds 680 520 2,579 3,779 58,790 62,569
Other 7,574 0 0 7,574 4,884 12,458
------- ------- ------- ------- ------- ---------
31,054 31,466 52,593 115,113 190,126 305,239
Loans 265,046 131,474 212,285 608,805 305,692 914,497
------- ------- ------- ------- ------- ---------
296,100 162,940 264,878 723,918 495,818 1,219,736
Rate Sensitive Liabilities
Deposits
Transaction and savings 135,873 0 0 135,873 239,273 375,146
Time 197,277 78,892 120,107 396,276 189,322 585,598
Short-term borrowings 63,780 2,430 27,259 93,469 0 93,469
Long-term borrowings 98 201 136 435 7,322 7,757
------- ------- ------- ------- ------- ---------
397,028 81,523 147,502 626,053 435,917 1,061,970
------- ------- ------- ------- ------- ---------
Period Gap ($100,928) $81,417 $117,376 $97,865 $59,901 $157,766
======= ======= ======= ======= ======= =========
Cumulative Gap at 12/31/95 ($100,928) ($19,511) $97,865 $97,865 $157,766 $157,766
Cumulative Gap at 12/31/94 ($49,560) $5,222 $125,934 $125,934 $141,779 $141,779
</TABLE>
Management made the following assumptions in preparing the Interest Rate
Sensitivity Analysis:
1 Assets and liabilities are generally scheduled according to their
earliest repricing dates regardless of their contractual maturities.
2 Nonaccrual loans are included in the rate-sensitive category.
3 The scheduled maturities of mortgage-backed securities assume
principal prepayments on dates estimated by management, relying
primarily on current and concensus interest-rate forecasts in
conjunction with historical prepayment schedules.
4 Transaction and savings deposits that have no contractual maturities
are scheduled according to management's best estimate of their re-
pricing in response to changes in market rates.
28
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 are 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, 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.
29
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Reports
_______________________________________________________________________________
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, 1995 and 1994, 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, 1995.
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, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
January 26, 1996
30
December 31, December 31,
CONSOLIDATED BALANCE SHEETS 1995 1994
________________________________________________________________________________
(in thousands)
ASSETS
Cash and due from banks $37,524 $39,333
Securities held for sale 146,322 129,682
Securities held for investment 160,320 203,845
Loans 914,497 805,947
Allowance for loan losses (13,371) (12,188)
--------- ---------
Loans, net 901,126 793,759
Excess of cost over net assets
of purchased subsidiaries 9,248 10,077
Premises and equipment 18,226 16,980
Other assets 14,830 16,880
--------- ---------
$1,287,596 $1,210,556
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand deposits $86,360 $87,985
Interest-bearing transaction accounts 291,539 243,910
Savings deposits 83,607 98,571
Time deposits 585,598 568,117
--------- ---------
1,047,104 998,583
Short-term borrowings 93,469 84,567
Long-term borrowings 7,757 9,536
Other liabilities 11,094 7,607
--------- ---------
Total liabilities 1,159,424 1,100,293
Stockholders' Equity
Common stock 7,207 6,422
Surplus 53,269 34,859
Retained earnings 66,878 73,739
Unrealized net gain (loss) on
securities held for sale 926 (4,624)
Debt on ESOP shares (108) (133)
--------- ---------
128,172 110,263
--------- ---------
$1,287,596 $1,210,556
========= =========
Fair value of securities held for investment $165,042 $200,092
Common shares issued and outstanding 9,225 9,062
See accompanying notes to consolidated financial statements. 31
Year Ended December 31,
CONSOLIDATED STATEMENTS OF INCOME 1995 1994 1993
________________________________________________________________________________
(in thousands except per share data)
INTEREST INCOME
Interest on short-term investments $160 $169 $335
Taxable interest on securities 16,082 17,493 20,006
Nontaxable interest on securities 4,017 4,305 4,413
Interest and fees on loans 78,487 62,437 56,091
------ ------ ------
98,746 84,404 80,845
INTEREST EXPENSE
Interest on deposits 45,608 35,710 35,761
Other interest expense 5,544 3,145 2,236
------ ------ ------
51,152 38,855 37,997
------ ------ ------
Net Interest Income 47,594 45,549 42,848
Provision for Loan Losses 2,167 1,723 2,541
------ ------ ------
Net Interest Income after
Provision for Loan Losses 45,427 43,826 40,307
Noninterest Income 8,037 7,101 6,683
Noninterest Expense 32,251 32,337 29,373
------ ------ ------
Income Before Income Tax Expense 21,213 18,590 17,617
Income Tax Expense 6,446 5,465 4,807
------ ------ ------
NET INCOME $14,767 $13,125 $12,810
====== ====== ======
Net Income per Common Share $1.57 $1.41 $1.37
Cash Dividends per Common Share 0.50 0.41 0.36
See accompanying notes to consolidated financial statements. 32
<TABLE>
<CAPTION>
Unrealized net
gain (loss) Debt on
CONSOLIDATED STATEMENTS OF CHANGES Common Retained on securities ESOP
IN STOCKHOLDERS' EQUITY stock Surplus earnings held for sale shares Total
______________________________________________________________________________________________________________________
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 $6,343 32,715 54,849 (203) 93,704
Net income 12,810 12,810
Cash dividends declared
Common stock ($0.36 per share) (2,452) (2,452)
By pooled companies prior to merger (791) (791)
Common 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 stock ($0.41 per share) (3,231) (3,231)
By pooled companies prior to merger (906) (906)
Common 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
Net income 14,767 14,767
Cash dividends declared ($0.50 per share) (4,604) (4,604)
Common stock dividends declared 665 16,359 (17,024) 0
Common stock issued pursuant to
shareholder and employee plans 120 2,051 2,171
Reduction of ESOP debt 25 25
Change in unrealized net gain
(loss) on securities held for sale 5,550 5,550
------ ------ ------ ------ ------ -------
BALANCE AT DECEMBER 31, 1995 $7,207 $53,269 $66,878 $926 ($108) $128,172
====== ====== ====== ====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements. 33
<TABLE>
<CAPTION>
Year Ended December 31,
CONSOLIDATED STATEMENTS OF CASH FLOWS 1995 1994 1993
_____________________________________________________________________________________________
(in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $14,767 $13,125 $12,810
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,752 2,557 2,337
Net (discount accretion) premium
amortization 953 1,372 2,352
Provision for loan losses 2,167 1,723 2,541
Net (increase) decrease in loans
held for sale (553) 348 737
Provision for deferred income taxes (316) (932) (1,312)
Other, net 2,449 1,812 1,489
------ ------ ------
Net Cash Provided by Operating
Activities 22,219 20,005 20,954
INVESTING ACTIVITIES
Net decrease in short-term investments 0 3,100 12,425
Proceeds from sales of securities
held for sale 12,086 11,885 21,897
Proceeds from maturities, calls and
prepayments of securities held for sale 4,000 14,100 2,950
Proceeds from maturities, calls and
prepayments of securities held for investment 30,307 35,853 51,836
Principal collected on mortgage-backed
securities held for sale 9,045 22,686 17,537
Principal collected on mortgage-backed
securities held for investment 14,332 21,514 30,218
Purchase of securities held for sale (33,033) (39,854) (40,432)
Purchase of securities held for investment (1,775) (35,448) (64,185)
Net increase in loans (109,011) (102,714) (80,647)
Purchases of premises and equipment (3,190) (2,018) (1,661)
------ ------ ------
Net Cash Used by Investing Activities (77,239) (70,896) (50,062)
continued
See accompanying notes to consolidated financial statements. 34
CONSOLIDATED STATEMENTS OF Year Ended December 31,
CASH FLOWS - CONTINUED 1995 1994 1993
_____________________________________________________________________________________________
(in thousands)
FINANCING ACTIVITIES
Net increase in deposits $48,521 $5,687 $15,967
Net increase in other short-term borrowings 8,903 52,065 12,891
Proceeds from long-term borrowings 139 5,177 9,692
Repayments of long-term borrowings (1,919) (12,196) (9,255)
Proceeds from issuance of common stock 1,418 495 661
Cash dividends paid (3,851) (3,595) (2,805)
------ ------ ------
Net Cash Provided by Financing Activities 53,211 47,633 27,151
------ ------ ------
Cash and Cash Equivalents
Decrease (1,809) (3,258) (1,957)
Beginning of Year 39,333 42,591 44,548
------ ------ ------
End of Year $37,524 $39,333 $42,591
====== ====== ======
SUPPLEMENTAL DISCLOSURES
Cash paid for interest expense $48,642 $38,409 $38,435
Cash paid for income taxes 5,558 6,556 6,508
NONCASH INVESTING AND FINANCING TRANSACTIONS
Other real estate transferred
to (from) loans, net (30) 84 544
Dividends reinvested 753 542 438
</TABLE>
See accompanying notes to consolidated financial statements. 35
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Peoples First Corporation (Company) through its subsidiaries, Peoples First
National Bank and Trust Company and First Kentucky Federal Savings Bank,
operates principally in a single business segment offering 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. Estimates and
assumptions involve future events and may change.
The more significant accounting 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 acquired subject to
purchase accounting are included from the dates of acquisition. In accordance
with purchase accounting, assets and liabilities of purchased companies are
stated at fair values, less accumulated amortization and depreciation since the
dates 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
36
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 securities held for investment 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.
Certain changes in circumstances and other events that are isolated,
nonrecurring and unusual for the Company that could not have been reasonably
anticipated may cause the Company to change its intent to hold a certain
security to maturity without necessarily calling into question its intent to
hold other securities for investment.
Realized gains or losses on securities held for sale or investment are accounted
for using the specific security. A decline in the fair value of any security
held for sale or investment below cost that is deemed other than temporary
results in a charge to earnings and the establishment of a new cost basis for
the 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.
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 loss
recognition. 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. 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.
37
The Company recognizes interest income on nonaccrual impaired loans equal to the
amount of interest received, if any, 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.
During May 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights", (FAS 122) which requires that a mortgage banking enterprise recognize
as separate assets the rights to service mortgage loans for others at the
orgination or purchase date of the loans when the enterprise has definitive
plans to sell or securitize the loans and retain the mortgage servicing rights,
assuming the fair value of the loans and servicing rights may be practically
estimated. Otherwise, servicing rights should be recognized when the underlying
loans are sold or securitized, using an allocation of total cost of the loans
based on the relative fair values at the date of sale. FAS 122 also requires an
assessment of capitalized mortgage servicing rights for impairment to be based
on the current fair value of those rights. FAS 122 is required to be applied
prospectively in fiscal years beginning after December 15, 1995. The Company
does not believe FAS 122 will have a material effect on its financial position.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses 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. The allowance for loan losses is
decreased by charge offs, net of recoveries. 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 loan loss experience, 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.
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, by allocating a portion of the
allowance for loan losses to such loans. If these allocations cause the
allowance for loan losses to be increased, such increase is recorded as
provision for loan losses. No adjustment to the provision for loan losses was
required due to the adoption of FAS 114 and FAS 118 in the first quarter of
1995.
38
EXCESS OF COST OVER NET ASSETS OF PURCHASED SUBSIDIARIES
Net assets of subsidiaries acquired in purchase transactions are recorded at
fair value at the date of acquisition. The excess of cost over net assets
acquired is amortized by systematic charges in the statement of income over the
period benefited. Management evaluates the periods of amortization continually
to determine whether later events and circumstances warrant revised estimates.
Currently, amortization is provided on a straight-line basis over fifteen years.
Accumulated amortization was $3.2 million at December 31, 1995 and $2.4
million at December 31, 1994 and amortization expense was $829,884 for each of
the years ended December 31, 1995, 1994 and 1993.
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.
FINANCIAL INSTRUMENTS
During October 1994, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments" (FAS 119). FAS
119 requires disclosure about the amounts, nature and terms of derivative
financial instruments that are not subject to FAS 105, "Disclosure of
Information about Financial Instruments with Off-Balance Sheet Risks and
Financial Instruments with Concentrations of Credit Risk". FAS 119 requires
that a distinction be made between financial instruments held or issued for
trading purposes and financial instruments held or issued for purposes other
than trading.
FAS 119 was effective for financial statements issued for fiscal years after
December 31, 1994. The Company's adoption of FAS 119 had no effect on the
consolidated financial statements other than the required disclosure with
respect to fixed rate loan commitments.
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
39
differences between the carrying values of assets and liabilities for financial
reporting purposes and the values 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, provision 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.
PER COMMON SHARE DATA
Share and per share information have been adjusted to give effect to stock
splits and stock dividends in the three years ended December 31, 1995, including
the 5% stock dividend declared in Janaury 1996, and payable in March 1996. Net
income per common share is determined by dividing net income by the weighted
average number of common shares actually outstanding and common stock
equivalents pertaining to common stock options. The average number of shares
outstanding including common stock equivalents for 1995, 1994 and 1993 were
9,382,546, 9,302,057 and 9,321,178, 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
cash and due from banks and highly liquid securities puchased with a maturity
of three months or less to be cash equivalents.
RECLASSIFICATIONS
Certain amounts in the 1994 and 1993 consolidated financial statements have been
reclassified to conform with the 1995 presentation. The reclassifications had
no effect on previously reported stockholders' equity or net income.
2. BUSINESS COMBINATIONS
During the three year period ended December 31, 1995, the Company was a party to
two 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. The Company acquired all of the
outstanding shares of First Kentucky in exchange for 1,025,098 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
consolidated financial satements for December 31, 1993 include the accounts of
First Kentucky for their fiscal year ended September 30, 1993. For the year
ended December 31, 1994, consolidated retained earnings were increased $334,814
due to the change in First Kentucky's year end 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. Immediately prior the
acquisition, First Kentucky had total assets of approximately $176.8 million.
40
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
1,188,333 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. During 1995, Liberty Bank & Trust was merged into Peoples First National
Bank and Trust Company. Immediately prior to the acquisition, Libsab had total
assets of approximately $141.9 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 period 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
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 $0.06 and $0.02 for
1994 and 1993, respectively.
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, 1995
and 1994 were $11.5 million and $8.2 million, respectively.
4. SECURITIES HELD FOR SALE AND INVESTMENT
The amortized cost and fair value of securities held for sale as of
December 31, 1995 and 1994 are summarized as follows:
Gross Gross
Securities Held For Sale Amortized unrealized unrealized Fair
December 31, 1995 cost gains losses value
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies $48,370 $467 ($116) $48,721
Mortgage-backed securities 84,591 1,220 (273) 85,538
Federal Home Loan Bank
stock 10,534 105 0 10,639
Federal Reserve Bank stock 1,424 0 0 1,424
------- ------- ------- -------
$144,919 $1,792 ($389) $146,322
======= ======= ======= =======
41
Gross Gross
Securities Held For Sale Amortized unrealized unrealized Fair
December 31, 1994 cost gains losses value
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies $58,891 $0 ($3,321) $55,570
Mortgage-backed securities 69,304 39 (3,663) 65,680
Federal Home Loan Bank
stock 8,248 0 (60) 8,188
Federal Reserve Bank stock 244 0 0 244
------- ------- ------- -------
$136,687 $39 ($7,044) $129,682
======= ======= ======= =======
The amortized cost and fair value of securities held for investment as of
December 31, 1995 and 1994 are summarized as follows:
Securities Gross Gross
Held for Investment Amortized unrealized unrealized Fair
December 31, 1995 cost gains losses value
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies $23,894 $187 ($13) $24,068
Mortgage-backed securities 73,357 891 (88) 74,160
State and political
subdivisions 62,569 3,843 (102) 66,310
Other 500 4 0 504
------- ------- ------- -------
$160,320 $4,925 ($203) $165,042
======= ======= ======= =======
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 (3,481) 84,355
State and political
subdivisions 67,334 1,579 (1,329) 67,584
Other 2,999 3 (22) 2,980
------- ------- ------- -------
$203,845 $1,618 ($5,371) $200,092
======= ======= ======= =======
Proceeds from sales of securities during 1995, 1994 and 1993 were $12,085,690,
$11,885,303 and $21,897,188, respectively. Gross gains of $178,143, $62,309 and
$252,056 and gross losses of $0, $0 and $21,414 were realized on those sales
during 1995, 1994 and 1993, respectively.
42
The amortized cost, estimated fair value and the weighted average yield of
securities held for sale and held for investment at December 31, 1995, 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 presented for mortgage-backed securities, as these securities are
particularly exposed to prepayments. Management evaluates, on an ongoing
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 Weighted
Maturity Distribution Amortized Fair average
December 31, 1995 cost value yield
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies
1 year or less $19,931 $20,001 6.04%
Over 1 through 5 years 28,439 28,720 5.70
Mortgage-backed securities 84,591 85,538 6.53
Federal Home Loan Bank
stock 10,534 10,639 7.13
Federal Reserve Bank stock 1,424 1,424 6.00
------- -------
$144,919 $146,322 6.29%
======= =======
Securities Held for Investment Weighted
Maturity Distribution Amortized Fair average
December 31, 1995 cost value yield
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies
1 year or less $18,860 $18,998 6.46%
Over 1 through 5 years 5,034 5,070 6.00
Mortgage-backed securities 73,357 74,160 6.62
State and political sudivisions
1 year or less 3,779 3,803 6.18
Over 1 through 5 years 18,976 19,979 6.13
Over 5 through 10 years 25,389 27,385 6.54
Over 10 years 14,425 15,143 5.75
Other
1 year or less 100 100 8.25
Over 10 years 400 404 8.65
------- -------
$160,320 $165,042 6.43%
======= =======
43
At December 31, 1995 and 1994, securities with carrying values of approxi-
mately $145.1 million and $135.4 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 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, 1995
and 1994, total loans to any group of customers engaged in similar activities
and having similar economic characteristics, as defined by standard industrial
classifications, did not exceed 10% of total loans, although the geographical
concentration is a necessary factor for regional banks.
Major classification of loans are as follows:
December 31, 1995 1994
_______________________________________________________________________________
(in thousands)
Commercial, financial and agricultural $113,929 $111,929
Real estate
Construction 19,386 19,421
Residential mortgage 364,607 318,551
Commercial mortgage 158,429 139,629
Consumer, net of unearned income of $12,980 and
$11,340 at December 31, 1995 and 1994
255,975 214,309
Loans held for sale 708 156
Other 1,463 1,952
------- -------
$914,497 $805,947
======= =======
44
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 borrower.
Collateral varies but may include accounts receivable, inventory, property,
plant and equipment, income producing commercial properties, real estate and
other property owned by the borrowers.
Activity in the allowance for loan losses was as follows for the three-year
period ended December 31, 1995:
Allowance for Loan Losses
Year Ended December 31, 1995 1994 1993
_______________________________________________________________________________
(in thousands)
Balance at beginning of year $12,188 $10,715 $8,606
Provision charged to expense 2,167 1,723 2,541
Loans charged off (1,307) (686) (1,044)
Recoveries of loans
previously charged off 323 436 612
------ ------ ------
Net loans charged off (984) (250) (432)
------ ------ ------
Balance at end of year $13,371 $12,188 $10,715
====== ====== ======
Nonaccrual and renegotiated loans totaled $4.7 million and $3.3 million at
December 31, 1995 and 1994, respectively. Beginning in 1995, loans except,
large groups of smaller-balance homogeneous loans, for which the full collection
of principal and interest is not probable, or a delay in payments is expected,
are evaluated for impairment. The Company measures and reports impaired loans
that are within the scope of FAS 114 at either the present value of expected
future cash flows discounted at the loan's effective rate, the market price of
the loan, or fair value of the underlying collateral if the loan is collateral
dependent. Prior accounting did not discount cash flows and only considered
loss of principal, not loss of interest, when measuring troubled loans.
Information regarding impaired loans at December 31, 1995 is as follows:
45
Impaired Loans
December 31, 1995
__________________________________________________________________
(in thousands)
Balance of impaired loans $4,109
Less portion for which no allowance
for loan losses is alloacated 308
------
Portion of impaired loan balance for
which an allowance for loan losses
is allocated $3,801
======
Portion of allowance for loan losses
allocated to the impaired loan balance $829
======
Information regarding impaired loans is as follows for the year ended
December 31, 1995:
Impaired Loans
Year Ended December 31, 1995
__________________________________________________________________
(in thousands)
Average investment in impaired loans $4,258
Interest income recognized on
impaired loans 378
Interest income recognized on
impaired loans on cash basis 0
Certain officers and directors of the Company 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 time for
comparable transactions with other customers and did not involve more than the
normal risk of collectibility. The activity of these loans during the years
ended December 31, 1995 and 1994 is summarized below:
Loans to Officers and Directors
Year Ended December 31, 1995 1994
_______________________________________________________________________________
(in thousands)
Balance at beginning of year $11,825 $20,663
Additions 2,165 4,230
Repayments (631) (1,087)
Changes in officer and director status 86 (11,981)
------ ------
Balance at end of year $13,445 $11,825
====== ======
46
6. PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
December 31, 1995 1994
_______________________________________________________________________________
(in thousands)
Land $2,394 $2,264
Buildings 18,421 17,502
Equipment 12,432 11,157
Leasehold improvements 985 1,084
Construction in progress 764 156
------ ------
34,996 32,163
Accumulated depreciation and amortization (16,770) (15,183)
------ ------
$18,226 $16,980
====== ======
The amount of depreciation and amortization related to premises and equipment
that was charged to operating expenses in 1995, 1994 and 1993 was $1,857,202,
$1,650,659 and $1,426,263, respectively.
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 1995 1994 1993
________________________________________________________________________________
(dollars in thousands)
Federal funds purchased
Average balance $13,414 $21,171 $10,980
Year end balance 15,100 41,500 12,600
Highest month-end balance 35,000 41,500 23,700
Average interest rate 6.07% 4.63% 3.23%
Year end interest rate 5.60% 6.12% 3.30%
Repurchase agreements
Average balance $25,794 $22,702 $20,781
Year end balance 23,869 21,567 19,902
Highest month-end balance 32,120 24,090 22,883
Average interest rate 4.64% 3.50% 3.23%
Year end interest rate 4.05% 4.08% 3.27%
Short-term FHLB advances
Average balance $46,733 $7,581 $0
Year end balance 54,500 21,500 0
Highest month-end balance 54,500 21,500 0
Average interest rate 6.19% 5.18% --
Year end interest rate 5.85% 6.16% --
47
At December 31, 1995, the subsidiary banks had total lines-of-credit for Federal
funds purchased from unaffiliated banks of $54.0 million, of which $38.9 million
was undrawn and available.
8. LONG-TERM BORROWINGS
Information pertaining to long-term borrowings is summarized below:
December 31, 1995 1994
__________________________________________________________________
(in thousands)
Parent Company
Bank loan for subsidiary acquisition $0 $1,530
Subsidiaries
Federal Home Loan Bank advances 7,649 7,873
Employee Stock Ownership Plan debt 108 133
------ ------
$7,757 $9,536
====== ======
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, payable quarterly at
the lender's prime rate, was adjustable on a daily basis (8.50% at December 31,
1994). The note provided for quarterly principal payments of $261,604 and a
final maturity in May 2004. The Company retired the debt during 1995.
The subsidiary banks obtain various short-term and long-term advances from the
FHLB under Blanket Agreements for Advances and Security Agreements (Agreements).
The Agreements entitle the subsidiary 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, 1995, all 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, other securities in the approximate amount of
$13.0 million and certain single-family first mortgage loans in the approximate
amount of $269.0 million. 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 $7.5
million at December 31, 1995. 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
an unaffiliated 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 stock of the subsidiary. Interest is payable quarterly at the lender's
prime rate less 0.50% which can be adjusted daily (9.75% at December 31, 1995
and 9.50% at December 31, 1994). The note provides for annual principal
payments of $25,357 and a final maturity in May 2001.
48
Annual minimum principal repayment requirements for long-term borrowings for the
years 1996 through 2000 are $435,350, $470,913, $426,343, $459,106 and $468,359,
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.
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, 1995 and 1994 are summarized as follows:
Financial Instruments with
Off-Balance-Sheet Risk
December 31, 1995 1994
_______________________________________________________________________________
(in thousands)
Contractual commitments to extend credit $115,788 $101,132
Standby letters of credit 10,894 4,327
Of the total commitments to extend credit at December 31, 1995 and 1994, $99,072
and $0, respectively, 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 $215,360, $201,696 and $208,983 for the years ended
1995, 1994 and 1993, respectively. The ESOP's investments include 307,142 and
281,348 shares of the Company's common stock at December 31, 1995 and 1994,
respectively.
49
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, 1995, 1994 and 1993, the Company's required matching contribution
amounted to $243,924, $225,583 and $184,472, respectively. Employees have
several investment options in which contributions may be invested.
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) and First Kentucky Federal Savings Bank (First Federal) as soon as
reasonably practicable. Liberty's and First Federal's defined benefit
retirement plans will be terminated. Liberty's employees became 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 Service and Department of
Labor requirements are met. The plan terminations should have no material
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 retired employee's
expense. There was no cost for employee benefits for retired employees in 1995,
1994 and 1993.
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.
50
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
1,146,600 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
payment month. At December 31, 1995 and 1994, 791,189 shares and 859,625
shares were reserved for issuance under the DRIP. Shares issued under the DRIP
totaled 68,436, 44,781 and 37,388 shares in 1995, 1994 and 1993, 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. Currently, no compensation cost is recognized for
the Company's Option Plan. Outstanding stock options are considered common
stock equivalents in the computation of net income per common share.
<TABLE>
<CAPTION>
-------- 1995 -------- -------- 1994 -------- -------- 1993 --------
Number Option Number Option Number Option
Stock Option Plan Activity of shares price of shares price of shares price
_______________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 574,137 $4.54-$22.68 492,773 $4.54-$15.31 417,825 $4.54- $11.22
Granted 41,475 22.38 99,225 17.69- 22.68 98,123 14.74- 15.31
Exercised (108,839) 6.92- 14.74 (13,892) 4.54- 14.74 (16,119) 6.72- 11.22
Expired (23,858) 8.50- 22.68 (3,969) 14.74- 22.68 (7,056) 6.77- 11.22
------- ------- -------
Outstanding at end of year 482,915 $4.54-$22.68 574,137 $4.54-$22.68 492,773 $4.54-$15.31
======= ======= =======
Exercisable at end of year 275,956 303,796 223,367
Reserved for future grant 183,198 184,568 35,082
</TABLE>
During October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (FAS 123). For fiscal years beginning after December 15, 1995,
FAS 123 requires new footnote disclosures about stock compensation awards based
upon their fair value on the date granted. FAS 123 also permits companies to
switch to the fair value method to record compensation costs for new and
modified employee stock options. The footnote disclosure requirements include
provisions to show pro forma net income and net income per share as if the fair
value accounting had been adopted. The Company plans to continue its current
51
accounting practices and not elect to recognize compensation costs in the
consolidated statements of income. Pro forma disclosures will be provided in
1996.
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 cash dividends by the Company to its shareholders, are
subject to various national and/or state regulatory restrictions. At December
31, 1995, total retained earnings of the Company's direct subsidiaries was
approximately $75.1 million, of which $23.9 million was available for payment of
dividends without approval by the applicable regulatory authority.
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,
1995 and 1994, 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, 1995 1994 1993
_______________________________________________________________________________
(in thousands)
Current taxes $6,762 $6,397 $6,119
Deferred taxes (316) (932) (1,312)
----- ----- -----
Income tax expense $6,446 $5,465 $4,807
===== ===== =====
52
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, 1995 1994 1993
_______________________________________________________________________________
(in thousands)
Tax computed at statutory rates $7,425 $6,407 $6,020
Increase (decrease) in taxes
resulting from:
Tax-exempt income (1,328) (1,413) (1,562)
Goodwill amortization 290 290 290
Other, net 59 181 59
----- ----- -----
Income tax expense $6,446 $5,465 $4,807
===== ===== =====
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:
December 31, 1995 1994
_______________________________________________________________________________
(in thousands)
Deferred tax assets:
Allowance for loan losses $4,272 $3,824
Deferred compensation 431 424
Other real estate owned 181 171
Unrealized security loss -- 1,650
Other 74 105
----- -----
4,958 6,174
Deferred tax liabilities:
Unrealized security gain (125) --
Accrued interest income (89) (93)
Premises and equipment (1,335) (1,314)
Other (453) (352)
----- -----
(2,002) (1,759)
----- -----
Net deferred tax assets $2,956 $4,415
===== =====
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
53
taxes have been provided for approximately $2.6 million of income at December
31, 1995 and 1994 which represents allocations for bad debt deductions for tax
purposes only. Under existing tax regulations, 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.
13. CONTINGENCIES
LEGAL PROCEEDINGS
In the ordinary course of business, there are various legal proceedings pending
against the Company and its subsidiaries. Management, after consultation with
legal counsel, is of the opinion that the ultimate resolution of these
precedings will have no material effect on the consolidated financial condition
or results of operations of the Company.
14. SUPPLEMENTAL INCOME STATEMENT INFORMATION
Details of noninterest income and noninterest expense are as follows:
Year Ended December 31, 1995 1994 1993
_______________________________________________________________________________
(in thousands)
Noninterest Income
Service charges on deposits $3,831 $3,680 $3,308
Net securities gains 178 62 231
Trust department fees 1,220 1,181 1,199
Insurance commissions 664 470 317
Bankcard fees 658 546 533
Other income 1,486 1,162 1,095
----- ----- -----
$8,037 $7,101 $6,683
===== ===== =====
Year Ended December 31, 1995 1994 1993
_______________________________________________________________________________
(in thousands)
Noninterest Expense
Salaries $13,302 $12,370 $11,591
Employee benefits 2,411 2,450 2,348
Occupancy expense 1,769 1,677 1,579
Equipment expense 1,885 1,665 1,433
FDIC insurance expense 1,338 2,250 2,135
Data processing expense 2,338 2,212 1,954
Bankshare taxes 1,349 1,365 1,253
Goodwill amortization 830 830 830
Other expense 7,029 7,518 6,250
------ ------ ------
$32,251 $32,337 $29,373
====== ====== ======
54
15. PARENT COMPANY FINANCIAL INFORMATION
Following are condensed balance sheets of Peoples First Corporation (parent
company only) as of December 31, 1995 and 1994, and the related condensed
statements of income and cash flows for the years ended 1995, 1994 and 1993:
Condensed Balance Sheets
December 31, 1995 1994
__________________________________________________________________
(in thousands)
ASSETS
Cash in subsidiary bank $797 $492
Investment in subsidiaries 127,105 111,302
Other assets 556 276
------- -------
$128,458 $112,070
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Note payable $0 $1,530
Other liabilities 286 277
------- -------
Total liabilities 286 1,807
Stockholders' equity
Common stock 7,207 6,422
Surplus 53,269 34,859
Retained earnings 66,878 73,739
Unrealized net gain (loss) on
securities held for sale 926 (4,624)
Debt on ESOP shares (108) (133)
------- -------
128,172 110,263
------- -------
$128,458 $112,070
======= =======
Common shares issued and outstanding 9,225 9,062
55
Condensed Statements of Income
Year Ended December 31, 1995 1994 1993
_______________________________________________________________________________
(in thousands)
INCOME
Dividends from subsidiaries $5,078 $10,878 $5,752
Other income 3 11 7
------ ------ ------
5,081 10,889 5,759
EXPENSE
Interest expense 44 385 745
Legal and accounting fees 284 571 335
Other expense 378 654 450
------ ------ ------
706 1,610 1,530
------ ------ ------
Income before income tax benefit
and equity in undistributed
income of subsidiaries 4,375 9,279 4,229
Income tax benefit 164 385 434
Income before equity in ------ ------ ------
undistributed income
of subsidiaries 4,539 9,664 4,663
Equity in undistributed
income of subsidiaries 10,228 3,461 8,147
------ ------ ------
NET INCOME $14,767 $13,125 $12,810
====== ====== ======
56
Condensed Statement of Cash Flows
Year Ended December 31, 1995 1994 1993
_______________________________________________________________________________
(in thousands)
OPERATING ACTIVITIES
Net income $14,767 $13,125 $12,810
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed
income of subsidiaries (10,228) (3,461) (8,147)
Amortization and other, net (271) 134 (16)
Net Cash Provided by ------ ------ ------
Operating Activities 4,268 9,798 4,647
FINANCING ACTIVITIES
Proceeds from notes payable 0 3,800 6,200
Repayments of notes payable (1,530) (11,859) (8,712)
Proceeds from issuance of common stock 1,418 495 299
Cash dividends paid (3,851) (2,698) (2,012)
------ ------ ------
Net Cash Used by Financing Activities (3,963) (10,262) (4,225)
Net Increase (Decrease) in Cash 305 (464) 422
and Cash Equivalents
Cash and Cash Equivalents at
Beginning of Year 492 956 534
------ ------ ------
Cash and Cash Equivalents at End of
Year $797 $492 $956
====== ====== ======
SUPPLEMENTAL DISCLOSURES
Cash paid for interest expense $53 $405 $716
Cash received for income taxes (345) (711) (365)
NONCASH INVESTING AND FINANCING TRANSACTIONS
Dividends reinvested 753 542 438
57
16. 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, ACCRUED INTEREST PAYABLE
AND SHORT-TERM BORROWINGS
The carrying amount reported for cash, due from banks, accrued interest receiv-
able, 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
Loan balances are 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.
DEPOSITS
The fair value for demand deposits and interest-bearing deposits with no fixed
maturity date is considered to be equal to the amount payable on demand or
maturity 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
The fair value of long-term borrowings is based on a discounted cash flow
analysis with a discount rate based on current incremental borrowing rates for
similar types of arrangements.
58
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 $100,000 for 1995 and 1994.
The book values and estimated fair values for financial instruments as of
December 31, 1995 and 1994 are reflected below.
Financial Instruments
December 31, 1995 Book value Fair value
_______________________________________________________________________________
(in thousands)
Financial Assets
Cash and due from banks $37,524 $37,524
Securities held for sale 146,322 146,322
Securities held for investment 160,320 165,042
Loans, net 901,126 944,922
Accrued interest receivable 9,392 9,392
Financial Liabilities
Deposits 1,047,104 1,055,235
Short-term borrowings 93,469 93,469
Long-term borrowings 7,757 7,721
Accrued interest payable 6,875 6,875
Financial Instruments
December 31, 1994 Book value Fair value
_______________________________________________________________________________
(in thousands)
Financial Assets
Cash and due from banks $39,333 $39,333
Securities held for sale 129,682 129,682
Securities held for investment 203,845 200,092
Loans, net 793,759 777,877
Accrued interest receivable 8,627 8,627
Financial Liabilities
Deposits 998,583 996,989
Short-term borrowings 84,567 84,567
Long-term borrowings 9,536 9,536
Accrued interest payable 4,454 4,454
59
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the years ended December 31, 1995, 1994 and 1993 and in the subsequent
interim period, there has been no change in, or disagreements on accounting
matters with, the Company's independent auditors.
60
PART III
Item 10. DIRECTORS AND EXECUTIVE 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 25, 1996, is incorporated herein by reference.
The following table provides information as of December 31, 1995, 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 201,407(1)
age 55 President and Chief
Executive of the registrant;
Chairman of the Board of
Peoples Bank
Allan B. Kleet, Principal Accounting Officer, 1986 67,616(2)
age 47 Treasurer and Director of
the registrant
George Shaw, Director, President and Chief 1993 5,181(3)
age 50 Executive Officer of Peoples
Bank; formerly President and
Chief Executive Officer of
Bowling Green Bank & Trust
Company (1982-05/93)
(1) Represents 2.2% of the class of stock. Includes 119,621 shares subject to
currently exercisable stock options and 20,463 shares held in Mr. Lippert's
ESOP account for which he has voting but no dispositive power.
(2) Represents less than 1.0% of the class of stock. Includes 675 shares
held individually by Mr. Kleet's wife, 62,511 shares subject to currently
exercisable stock options and 2,917 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 4,961 shares
subject to currently exercisable stock options.
61
Item 11. EXECUTIVE COMPENSATION
The information concerning compensation appearing on pages 9 through 13 of
Peoples First Corporation's definitive proxy statement, filed with the
Securities and Exchange Commission on March 25, 1996, 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 25, 1996, is incorporated herein
by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information on page 7 and 8 of Peoples First Corporation's definitive proxy
statement, filed with the Securities and Exchange Commission on March 25, 1996,
is incorporated herein by reference.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS 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 are incorporated herein by reference to
Exhibit 3(1) to the Registrant's Form 10-K for the year
ended December 31, 1994.
(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.
(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.
62
(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.
(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.
(10.4)Employment agreement among the Company, Liberty Bank
& Trust Co. and 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.
(21) Subsidiaries of Registrant.
(23) Consent of KPMG Peat Marwick LLP, independent public
accountants.
(27) Financial Data Schedules (SEC use only).
(99) Undertakings.
(b) Reports on Form 8-K
Peoples First Corporation filed a current report on Form
8-K dated January 17, 1996 on January 17, 1996 to report the
Board of Director's declaration of a 5% stock dividend payable
March 18, 1996 to shareholders of record on March 18, 1996;
and, the Board of Director's approval of the purchase of up to
400,000 shares of the Company's common stock in the open market.
Peoples First Corporation filed a current report on Form
8-K dated February 20, 1996 on February 22, 1996 to report the
February 20, 1996 signing of a definitive Acquisition Agreement
with Guaranty Federal Savings Bank (Guaranty FSB). The
agreement provides for the acquisition by the Company of 100%
of Guaranty FSB's outstanding capital stock, subject to approval
of the shareholders of Guaranty FSB and regulators.
63
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: 03/20/96 /s/ Aubrey W. Lippert
Aubrey W. Lippert
President and Chairman
of the Board
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 03/20/96
Aubrey W. Lippert of the Board
/s/ Allan B. Kleet Principal Accounting Officer 03/20/96
Allan B. Kleet
/s/ William R. Dibert Director 03/20/96
William R. Dibert
/s/ Joe Dick Director 03/20/96
Joe Dick
/s/ Richard E. Fairhurst, Jr. Director 03/20/96
Richard E. Fairhurst, Jr.
/s/ William Rowland Hancock Director 03/20/96
William Rowland Hancock
/s/ Dennis W. Kirtley Director 03/20/96
Dennis W. Kirtley
64
Signature Title Date
_____________________ ______________________ ________
/s/ Jerry L. Page Director 03/20/96
Jerry L. Page
/s/ Rufus E. Pugh Director 03/20/96
Rufus E. Pugh
/s/ Victor F. Speck, Jr. Director 03/20/96
Victor F. Speck, Jr.
65
INDEX TO EXHIBITS Page
_______________________________________________________________________________
(21) Subsidiaries of Registrant 67
(23) Consent of KPMG Peat Marwick LLP, independent public
accountants 68
(27) Financial Data Schedules (SEC only) 69
(99) Undertakings 71
66
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
67
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 26, 1996, relating to the consolidated balance
sheets of Peoples First Corporation and Subsidiaries as of December 31, 1995 and
1994, 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, 1995, which reports appears in the December 31, 1995 annual
report on Form 10-K of Peoples First Corporation.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
March 20, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 37,524
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 146,322
<INVESTMENTS-CARRYING> 160,320
<INVESTMENTS-MARKET> 165,042
<LOANS> 914,497
<ALLOWANCE> (13,371)
<TOTAL-ASSETS> 1,287,596
<DEPOSITS> 1,047,104
<SHORT-TERM> 93,469
<LIABILITIES-OTHER> 11,094
<LONG-TERM> 7,757
<COMMON> 7,207
0
0
<OTHER-SE> 120,965
<TOTAL-LIABILITIES-AND-EQUITY> 1,287,596
<INTEREST-LOAN> 78,487
<INTEREST-INVEST> 20,259
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 98,746
<INTEREST-DEPOSIT> 45,608
<INTEREST-EXPENSE> 51,152
<INTEREST-INCOME-NET> 47,594
<LOAN-LOSSES> 2,167
<SECURITIES-GAINS> 178
<EXPENSE-OTHER> 3,221
<INCOME-PRETAX> 21,213
<INCOME-PRE-EXTRAORDINARY> 14,767
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,767
<EPS-PRIMARY> 1.57
<EPS-DILUTED> 1.57
<YIELD-ACTUAL> 4.18
<LOANS-NON> 1,817
<LOANS-PAST> 1,471
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 14,300
<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
71
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.
