UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, For the Quarter Ended September 30, 1996
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 0-16839
PEOPLES FIRST CORPORATION
(Exact name of registrant as specified in its charter)
Kentucky 61-1023747
(State or other jurisdiction of (I R S Employer
incorporation or organization) Identification No.)
100 South Fourth Street
P. O. Box 2200
Paducah, Kentucky 42002-2200
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 441-1200
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing require-
ments for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the Registrant's only class of stock as of
September 30, 1996: Common stock, no par value - 9,513,152 shares outstanding.
INDEX Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1996,
September 30, 1995 and December 31, 1995 3
Consolidated Statements of Income - Three and Nine
Months Ended September 30, 1996 and 1995 4
Consolidated Statement of Changes in Stockholders'
Equity - Nine Months Ended September 30, 1996 5
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 28
Item 2. Changes in Securities 28
Item 3. Defaults on Senior Securities 28
Item 4. Submission of Matters to a Vote of Securities Holders 28
Item 5. Other Information 28
Item 6. Exhibits and Reports on Form 8-K 28
Signatures 29
2
September 30, December 31,
CONSOLIDATED BALANCE SHEETS 1996 1995 1995
_______________________________________________________________________________
(in thousands)
ASSETS
Cash and due from banks $42,474 $28,334 $37,524
Securities held for sale 177,053 143,655 146,322
Securities held for investment 130,708 169,996 160,320
Loans 1,016,122 897,381 914,497
Allowance for loan losses (14,665) (12,885) (13,371)
--------- --------- ---------
Loans, net 1,001,457 884,496 901,126
Excess of cost over net assets
of purchased subsidiaries 10,830 9,455 9,248
Premises and equipment 19,866 17,938 18,226
Other assets 17,838 15,129 14,830
--------- --------- ---------
$1,400,226 $1,269,003 $1,287,596
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand deposits $86,843 $78,684 $86,360
Interest-bearing transaction accounts 317,086 256,901 291,539
Savings deposits 87,847 85,932 83,607
Time deposits 608,091 601,241 585,598
--------- --------- ---------
1,099,867 1,022,758 1,047,104
Short-term borrowings 132,026 102,439 93,469
Long-term borrowings 14,420 7,817 7,757
Other liabilities 13,043 12,228 11,094
--------- --------- ---------
Total liabilities 1,259,356 1,145,242 1,159,424
Stockholders' Equity
Common stock 7,432 6,821 7,207
Surplus 60,329 43,286 53,269
Retained earnings 73,314 73,788 66,878
Unrealized net gain (loss) on
securities held for sale (199) (26) 926
Debt on ESOP shares (6) (108) (108)
--------- --------- ---------
140,870 123,761 128,172
--------- --------- ---------
$1,400,226 $1,269,003 $1,287,596
========= ========= =========
Fair value of securities held
for investment $133,383 $173,457 $165,042
Common shares issued and outstanding 9,513 9,168 9,225
See accompanying notes to consolidated financial statements. 3
<TABLE>
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Three Months Ended Nine Months Ended
September 30, September 30,
CONSOLIDATED STATEMENTS OF INCOME 1996 1995 1996 1995
____________________________________________________________________________________________
(in thousands, except per share data)
INTEREST INCOME
Interest on short-term investments $15 $49 $84 $107
Taxable interest on securities 4,005 3,998 11,877 12,173
Nontaxable interest on securities 954 997 2,906 3,040
Interest and fees on loans 22,381 20,347 64,211 57,480
------ ------ ------ ------
27,355 25,391 79,078 72,800
INTEREST EXPENSE
Interest on deposits 11,848 11,732 34,545 33,758
Other interest expense 1,808 1,519 4,669 4,144
------ ------ ------ ------
13,656 13,251 39,214 37,902
------ ------ ------ ------
Net Interest Income 13,699 12,140 39,864 34,898
Provision for Loan Losses 588 452 1,742 1,343
------ ------ ------ ------
Net Interest Income after
Provision for Loan Losses 13,111 11,688 38,122 33,555
Noninterest Income 2,197 2,082 6,293 5,844
Noninterest Expense 9,821 7,715 26,477 24,302
------ ------ ------ ------
Income Before Income Tax Expense 5,487 6,055 17,938 15,097
Income Tax Expense 1,700 1,894 5,640 4,510
------ ------ ------ ------
NET INCOME $3,787 $4,161 $12,298 $10,587
====== ====== ====== ======
Net Income per Common Share $0.40 $0.44 $1.30 $1.13
Cash Dividend per Common Share 0.160 0.143 0.463 0.360
Average Common Shares Outstanding 9,445 9,371 9,460 9,342
</TABLE>
See accompanying notes to consolidated financial statements. 4
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Unrealized
CONSOLIDATED STATEMENTS OF CHANGES net gain
IN STOCKHOLDERS' EQUITY Common Retained (loss) on ESOP
(unaudited) stock Surplus earnings securities debt Total
______________________________________________________________________________________________________________________
(in thousands, except per data)
BALANCE AT JANUARY 1, 1996 $7,207 $53,269 $66,878 $926 ($108) $128,172
Net income 12,298 12,298
Cash dividends declared
Common ($0.463 per share) (4,266) (4,266)
Stock issued pursuant to shareholder
and employee plans 49 1,257 1,306
Common stock repurchased (58) (1,596) (1,654)
Stock issued in acquisition 234 5,803 6,037
Reduction of ESOP debt 102 102
Change in unrealized net gain
(loss) on securities held for sale (1,125) (1,125)
------ ------ ------ ------ ------ -------
BALANCE AT SEPTEMBER 30, 1996 $7,432 $60,329 $73,314 ($199) ($6) $140,870
====== ====== ====== ====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements. 5
Nine Months Ended
September 30,
CONSOLIDATED STATEMENTS OF CASH FLOWS 1996 1995
_______________________________________________________________________________
(dollars in thousands)
OPERATING ACTIVITIES
Net income $12,298 $10,587
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,259 2,012
Net (discount accretion) premium
amortization 516 698
Provision for loan losses 1,742 1,343
Net (increase) decrease in loans held for sale (72) 74
Provision for deferred income taxes 284 941
Other, net (601) 2,631
------ ------
Net Cash Provided by Operating Activities 16,426 18,286
INVESTING ACTIVITIES
Proceeds from maturities of securities
held for sale 11,557 12,086
Proceeds from maturities of securities
held for investment 21,724 0
Principal collected on mortgage-backed
securities held for sale 13,355 8,433
Principal collected on mortgage-backed
investment securities 15,531 33,294
Purchase of securities held for sale (52,373) (27,178)
Purchase of investment securities (4,686) 0
Net increase in loans (55,351) (92,174)
Purchases of premises and equipment (1,921) (2,362)
Net cash received in acquisition
of subsidiary 1,185 0
------ ------
Net Cash Used by Investing Activities (50,979) (67,901)
continued
See accompanying notes to consolidated financial statements. 6
Nine Months Ended
September 30,
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED 1996 1995
_______________________________________________________________________________
(dollars in thousands)
FINANCING ACTIVITIES
Net increase in deposits 10,233 24,175
Net increase in short-term borrowings 34,306 17,872
Proceeds from long-term borrowings 0 140
Repayments of long-term borrowings (422) (1,859)
Proceeds from issuance of common stock 568 1,046
Repurchase of common stock (1,654) 0
Cash dividends paid (3,528) (2,758)
------ ------
Net Cash Provided by Financing Activities 39,503 38,616
------ ------
Cash and Cash Equivalents
Decrease 4,950 (10,999)
Beginning of Year 37,524 39,333
------ ------
End of Period $42,474 $28,334
====== ======
SUPPLEMENTAL DISCLOSURES
Cash paid for interest expense $39,272 $34,497
Cash paid for income tax 6,824 3,971
NONCASH INVESTING AND FINANCING TRANSACTIONS
Other real estate transferred to (from) loans, net (68) (20)
Dividends reinvested 738 530
See accompanying notes to consolidated financial statements. 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______________________________________________________________________________
NOTE A - BASIS OF PRESENTATION
Peoples First Corporation (Company) through its subsidiaries, Peoples First
National Bank and Trust Company, First Kentucky Federal Savings Bank and
Guaranty 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 accompanying consolidated
financial statements are unaudited and should be read in conjunction with the
notes to consolidated financial statements contained in the 1995 annual report
on Form 10-K. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the periods ended September 30, 1996 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1996.
NOTE B - SECURITIES HELD FOR SALE AND INVESTMENT SECURITIES
At acquisition, securities are classified into one of three categories: trading,
held for sale or investment. Transfers of debt securities between categories
are recorded at fair value at the date of transfer. Unrealized gains or losses
associated with transfers of debt securities from the investment to the held for
sale category are recorded and maintained as a separate component of stock-
holders' equity. The unrealized gains or losses included as a separate
component of stockholders' equity for debt securities transferred to the
investment from the held for sale category are maintained and amortized into
earnings over the remaining life of the debt securities as an adjustment to
yield in a manner consistent with the amortization or accretion of premiums or
discounts on the associated securities.
Trading securities are bought and held principally with the intention of selling
them in the near term. The Company currently has no trading securities.
Securities that are being held for indefinite periods of time, including secur-
ities that management intends to use as a part of its asset/liability strategy,
or that may be sold in response to changes in interest rates, changes in prepay-
ment risk, to meet liquidity needs, the need to increase regulatory capital or
other similar factors, are classified as securities held for sale and are stated
at fair value. Fair value is based on market prices quoted in financial
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
_______________________________________________________________________________
publications or other independent sources. Net unrealized gains or losses are
excluded from earnings and reported, net of applicable income taxes, as a
separate component of stockholders' equity until realized. Securities for which
the Company has the ability and positive intent to hold until maturity are
classified as investment securities and are carried at cost, adjusted for
amortization of premiums and accretion of discounts, which are recognized as
adjustments to interest income on the level-yield method.
Realized gains or losses on securities held for sale or investment are accounted
for using the specific security. Mortgage-backed securities represent a
significant portion of the security portfolios. Amortization of premiums and
accretion of discounts on mortgage-backed securities are analyzed in relation to
the corresponding prepayment rates, both historical and estimated, using a
method which approximates the level-yield method.
NOTE C - LOAN REVENUES
Loans receivable held for investment are carried at cost, as the Company has the
ability and it is management's intention to hold them to maturity. Interest on
commercial and real estate mortgage loans is accrued if deemed collectible and
credited to income based upon the principal amount outstanding. Consumer
installment loans include a significant number of loans made on a discount
basis. The unearned discount attributable to these loans is credited to income
using a method which approximates the level yield method. Mortgage loans
originated principally under programs with the Government National Mortgage
Association (GNMA) or the Federal National Mortgage Association (FNMA) and held
for sale are carried at the lower of cost or market value.
The Company evaluates the collectibility of both contractual interest and
contractual principal of all receivables when assessing the need for a loss
accrual. When in the opinion of management the collection of interest on a loan
is unlikely or when either principal or interest is past due over 90 days, that
loan is generally placed on nonaccrual status and interest is not recognized
unless received in cash. When a loan is placed in nonaccrual status, accrued
interest for the current period is reversed and charged against earnings and
accrued interest from prior periods is charged against the allowance for loan
losses. A loan remains on nonaccrual status until the loan is current as to
payment of both principal and interest and/or the borrower demonstrates the
ability to pay and remain current.
The Company became subject to Statement of Financial Accounting Standards No.
122, "Accounting for Mortgage-Servicing Rights", (FAS 122) effective for the
year beginning January 1, 1996. FAS 122 requires a mortgage banking enterprise
that acquires mortgage servicing rights through either purchase or origination
of mortgage loans and sells or securitizes those loans with servicing rights
retained to allocate the total cost of the mortgage loans to the mortgage
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
_______________________________________________________________________________
servicing rights and the loans (without the mortgage servicing rights) based on
their relative fair values if it is practical to estimate those fair values.
FAS 122 had no effect on the consolidated financial statements other than
required disclosure since loans sold with retained servicing rights are an
immaterial amount.
NOTE D - ALLOWANCE FOR LOAN LOSSES
The allowance is increased by provisions for loan losses charged to operations
and is maintained at a level adequate to absorb estimated credit losses asso-
ciated with the loan portfolio, including binding commitments to lend and
off-balance sheet credit instruments. At the end of each quarter, or more
frequently if warranted, management uses a systematic, documented approach in
determining the appropriate level of the allowance for loan losses. Manage-
ment's approach provides for general and specific allowances and is based upon
current economic conditions, past losses, collection experience, risk charac-
teristics of the loan portfolio, assessment of collateral values and such other
factors which in management's judgement deserve current recognition in
estimating potential loan losses. The Company recognizes interest income on
nonaccrual impaired loans equal to the amount of interest received in cash.
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. Information regarding impaired loans at
September 30, 1996, September 30, 1995 and December 31, 1995 is as follows:
September 30, December 31,
Impaired Loans 1996 1995 1995
________________________________________________________________________________
(in thousands)
Balance of impaired loans $1,795 $2,260 $4,109
Less portion for which no allowance
for loan losses is allocated 0 0 308
------ ------ ------
Portion of impaired loan balance for
which an allowance for loan losses
is allocated $1,795 $2,260 $3,801
====== ====== ======
Portion of allowance for loan losses
allocated to the impaired loan balance $581 $451 $829
====== ====== ======
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
_______________________________________________________________________________
Nine Months Ended
September 30,
Impaired Loans 1996 1995
_______________________________________________________________________________
(in thousands)
Average investment in impaired loans $3,516 $2,341
Interest income recognized on
impaired loans 257 154
Interest income recognized on
impaired loans on cash basis 0 0
NOTE E - INTANGIBLE ASSETS
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 consolidated statements 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 $3.8
million at September 30, 1996, $3.0 million at September 30, 1995 and $3.2
million December 31, 1995. Amortization expense was $634,708 and $622,389,
respectively, for the nine months ended September 30, 1996 and 1995.
Included in other assets on the consolidated balance sheets, are core deposit
intangibles arising from a purchase acquisition. Currently, amortization of the
intangible asset is provided on an accelerated basis over ten years.
The Company adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", (FAS 121) effective for the year beginning January 1, 1996.
FAS 121 requires the recognition of a loss on impaired assets when the carrying
amount of the asset may not be recoverable. This statement applies to assets
other than loans, which are covered under FAS 114 which the Company adopted in
1995. Management periodically evaluates whether events or circumstances have
occurred that would result in impairment in the value or life of goodwill or
other intangibles. Management considers an intangible to be potentially
impaired if internal management reports for respective business units show a net
loss before amortization of intangibles. The recoverability of the asset is
then evaluated using undiscounted cash flow projections. The Company's adoption
of FAS 121 had no effect on the consolidated financial statements other than
required disclosure.
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
_______________________________________________________________________________
NOTE F - 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. At September 30, 1996, a total of 218,813 shares
are reserved for future grants of options. Outstanding stock options are
considered common stock equivalents in the computation of net income per common
share.
The Company adopted Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation", (FAS 123) effective for the year
beginning January 1, 1996. FAS 123 defines the accounting available for
employee stock compensation plans. The statement defines a fair value based
method of accounting for an employee stock option and permits companies to
switch to this method to record compensation costs for new and modified employee
stock options. The Company elected to continue to apply APB Opinion 25 and
related interpretations to account for the Company's Option Plan. Accordingly,
consistent with previous Company accounting practices, no compensation cost is
recognized in the consolidated statements of income for employee stock options.
NOTE G - PER COMMON SHARE DATA
Share and per share information have been adjusted to give effect to 5% stock
dividends declared in April 1995 and January 1996. Net income per common share
is determined by dividing net income by the weighted average number of common
shares outstanding and common stock equivalents pertaining to common stock
options. The average number of shares outstanding including common stock
equivalents for the nine months ended September 30, 1996 and 1995 were 9,459,505
and 9,341,988 respectively, and for the three months ended September 30, 1996
and 1995, were 9,444,517 and 9,371,285, respectively. Common stock equivalents
have no material dilutive effect.
NOTE H - CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all cash and due from banks to be cash equivalents.
12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
_______________________________________________________________________________
NOTE I - BUSINESS COMBINATIONS
On August 30, 1996, the Company consummated the acquisition of Guaranty Federal
Savings Bank (Guaranty FSB) of Clarksville, Tennessee. The Company acquired all
of the outstanding stock of Guaranty FSB in exchange for 300,002 shares of the
Peoples First Corporation common stock. Guaranty FSB's three locations are
immediately southeast of the market area served by the Company's other
subsidiary banks. Immediately prior to the acquisition, Guaranty FSB had total
assets of approximately $57.9 million. The acquisition was accounted for using
the purchase method of accounting. The results of operations of Guaranty FSB
are included in the accompanying consolidated financial statements subsequent to
the acquisition date and the excess of cost over fair value of the net assets
acquired, $2.2 million, is being amortized over fifteen years on a straight-line
basis.
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
_______________________________________________________________________________
Peoples First Corporation (Company) is a multi-bank and unitary savings and loan
holding company registered with the Federal Reserve Board. Through 25 banking
offices, the Company serves primarily the western Kentucky and surrounding
interstate area. The Company is headquartered in Paducah, Kentucky.
Management's discussion and analysis includes forward-looking statements. Many
factors affect the Company's financial position and profitability, including
changes in economic conditions, the volatility of interest rates, political
events and competition from other providers of financial services. Because
these factors are unpredictable and beyond the Company's control, earnings may
fluctuate from period to period. The purpose of this discussion and analysis is
to provide financial statement readers with information relevant to under-
standing and assessing the financial condition and results of operations of
Peoples First Corporation.
The Company operates principally in a single business segment offering general
commercial and savings bank services. Commercial banking services, mortgage
banking and consumer financing are all activities the Company considers to be
their one business segment. Table 1 provides certain subsidiary, parent company
and consolidated information as of and for the period ended September 30, 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Table 1
Disaggregated Data First Parent Co
As of and for the nine months Peoples Kentucky Guaranty and elim- Consol-
ended September 30, 1996 Bank FSB FSB nations dated
__________________________________________________________________________________________________________
(dollars in thousands)
Net income $12,108 $655 ($142) ($323) $12,298
Average assets 1,136,486 169,782 6,620 204 1,313,092
Return on average equity 14.20% 5.45% nm 12.43%
Average equity / assets 10.02 9.45 9.70 10.07
Net interest margin 4.58 3.42 3.21 4.42
Provision for loan losses /
average loans 0.26 0.13 0.13 0.25
Allowance for loan loss /
loans outstanding 1.54 0.84 1.02 1.44
Overhead ratio 0.52 0.76 nm 0.56
</TABLE>
EARNING ASSETS
Average earning assets of the Company for the first nine months of 1996
increased 6.3%, or $73.9 million to $1,248.5 million from $1,174.6 million for
the first nine months of 1995. This compares to average earning asset growth of
6.0%, or $66.2 million for the first nine months of 1995 over the first nine
months of 1994. A consistently favorable ratio of average earning assets to
14
average total assets has been achieved. The ratio was 95.1% for the first nine
months of both 1996 and 1995. Loans are the Company's primary earning asset and
management believes the Company should be a prominent lender. Average loans for
the first nine months of 1996 were 75.1% of total average earning assets, up
from 72.6% for the first nine months of 1995. Loan growth, while still strong,
has slowed from previous levels. Average loans for the first three quarters of
1996 increased 9.9%, or $84.6 million to $937.9 million from $853.3 million for
the first three quarters of 1995. Average loans for the first three quarters of
1995 increased 14.8%, or $109.8 million from $743.5 million for the first three
quarters of 1994. The Company primarily directs lending activities to its
regional market. The largest increase was in residential real estate mortgage
which grew $54.2 million during the twelve-month period ended September 30,
1996. Strong consumer loan demand and commercial real estate lending accounted
for the remainder of customer loan growth.
Table 2 September 30, December 31,
Types of Loans 1996 1995 1995
________________________________________________________________________________
(in thousands)
Commercial, financial
and agricultural $117,103 $120,027 $113,929
Real estate
Construction 29,526 17,183 19,386
Residential mortgage 409,840 355,615 364,607
Commercial mortgage 167,036 151,782 158,429
Installment loans to
individuals 287,960 258,439 260,724
Consumer revolving credit 8,983 7,094 8,231
Loans held for sale 780 82 708
Other 1,239 1,136 1,463
--------- --------- ---------
1,022,467 911,358 927,477
Unearned income (6,345) (13,977) (12,980)
--------- --------- ---------
$1,016,122 $897,381 $914,497
========= ========= =========
FUNDING
Core deposits, which management relies on as the most important and stable
source of funding, of the Company for the first nine months of 1996 increased
5.8%, or $59.9 million to $1,088.9 million from $1,029.0 million for 1995. Core
deposits are considered by management to include demand deposits, interest-
bearing transaction accounts, saving deposits and time deposits under $100,000.
Management anticipates an increasing need to rely on more volatile purchased
liabilities due to both the highly competitive local deposit market and systemic
banking trends. The Company's subsidiaries have obtained various short-term and
long-term advances from the Federal Home Loan Bank (FHLB) under Blanket
Agreements for Advances and Security Agreements (Agreements). The Agreements
entitle the banks to borrow additional funds from the FHLB to fund mortgage loan
programs and satisfy other funding needs.
15
<TABLE>
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Three Months Ended Nine Months Ended
Table 3 September 30, September 30,
Average Interest-bearing Liabilities 1996 1995 1996 1995
____________________________________________________________________________________________
(Averages, in thousands)
Total interest-bearing liabilities $1,118,197 $1,049,653 $1,088,853 $1,029,002
Percent of total interest-bearing
liabilities
Interest-bearing core deposits 79.8% 80.5% 81.0% 81.3%
CDs of $100,000 or more 6.4 7.1 6.0 7.1
Brokered deposits 1.9 2.5 2.2 2.3
Short-term borrowings 10.9 9.1 9.8 8.3
Long-term borrowings 0.9 0.8 0.8 0.8
Other 0.1 0.1 0.1 0.1
</TABLE>
NONPERFORMING ASSETS AND RISK ELEMENTS
The Company's process for monitoring loan quality includes detailed, monthly
analyses of delinquencies, nonperforming assets and potential problem loans of
each subsidiary bank. Management extensively monitors credit policies,
including policies related to appraisals, assessing the financial condition of
borrowers, restrictions on out-of-area lending and avoidance of loan
concentrations.
The level of nonperforming assets at September 30, 1996 remains relatively low.
Diversification within the loan portfolio is an important means of reducing
inherent lending risks. At September 30, 1996, 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, or when in the opinion of management
the collection of interest is unlikely, unless the loans are adequately secured
and in the process of collection. Other real estate owned is carried at the
lower of cost or fair value less estimated disposal costs, if any. A loan is
classified as a renegotiated loan when the interest rate is materially reduced
or the term is extended beyond the original maturity date because of the
inability of the borrower to service the debt under the original terms.
Nonperforming assets at September 30, 1996 were 1.02% of total loans and other
real estate, up slightly from prior periods. One loan, in the process of
collection, that is secured by a hotel, accounted for the increase in loans past
due 90 days or more. Management continues to exert efforts to monitor and
minimize nonperforming assets even though the nonperforming totals are
significantly lower than peer bank holding company ratios.
Significant focus on underwriting standards is maintained by management.
Internal credit review procedures are designed to alert management of possible
credit problems which would create serious doubts as to the future ability of
16
borrowers to comply with loan repayment terms. At September 30, 1996, loans
with a total principal balance of $15.1 million have been identified that may
become nonperforming in the future, compared to $12.8 million at December 31,
1995. Potential problem loans are not included in nonperforming assets since
the borrowers currently meet all applicable loan agreement terms.
Table 4 September 30, December 31,
Nonperforming Assets 1996 1995 1995
_______________________________________________________________________________
(in thousands)
Nonaccrual loans $2,947 $1,315 $1,817
Loans past due 90 days or more 4,542 1,580 1,471
Other real estate owned 111 661 644
Renegotiated loans 2,746 2,909 2,874
------ ------ ------
$10,346 $6,465 $6,806
====== ====== ======
Ratios:
Nonperforming assets to total
loans and other real estate 1.02% 0.72% 0.74%
Allowance for loan losses to
nonperforming assets 142% 199% 196%
The banking industry is currently experiencing an increase in consumer
delinquencies and chargeoffs. Management expects the Company's credit quality
to decline somewhat during the next year, due to cyclical deterioration of
consumer credit quality.
CAPITAL RESOURCES AND DIVIDENDS
The current economic and regulatory environment places increased emphasis on
capital strength. Stockholders' equity was 10.1% of assets at September 30,
1996, up from 10.0% at December 31, 1995. Exclusive of the $1.1 million
unrealized net loss on securities held for sale, net of applicable income taxes,
and the third quarter acquisition, stockholders' equity increased $7.8 million,
or 8.2% (annualized), during the first nine months of 1996. The increase was
due to a 64.4% earnings retention rate and the sale of common stock through
shareholder and employee plans ($1.3 million), offset by the repurchase of $1.7
million of the Company's common stock. This compares to an increase, exclusive
of the $4.6 million unrealized net gain on securities held for sale, net of
applicable income taxes, of $8.9 million, or 10.4% (annualized), during the same
1995 period when the earnings retention rate was 68.1% and proceeds from the
sale of common stock through shareholder and employee plans was $1.6 million.
The board of directors frequently increases the quarterly cash dividend. The
quarterly cash dividend was raised to $0.109 per share in the third quarter of
1994, to $0.143 per share in the third quarter of 1995, to $0.160 per share in
the second quarter of 1996 and to $0.200 per share in the fourth quarter of
1996. Stock dividends of 5% were declared in April 1995 and in January 1996.
17
The board of directors approved the purchase of up to 400,000 shares of the
Company's common stock in the open market. At September 30, 1996, a total of
73,850 shares had been purchased. The Company's capital policies are designed
to retain sufficient amounts for healthy financial ratios and to maintain, at a
minimum, a capital position that meets the federal regulators' well capitalized
classification.
Subsidiary bank dividends are the principal source of funds for the Company's
payment of dividends to its stockholders. At September 30, 1996, approximately
$25.3 million, compared to $19.3 million at September 30, 1995, in retained
earnings of subsidiary banks were available for dividend payments to the Company
without regulatory approval or without reducing capital of the respective banks
below minimum standards. Capital ratios of all of the Company's subsidiaries
are in excess of applicable regulatory capital ratios. At September 30, 1996
the Company and each of the subsidiaries' capital positions met the federal
regulators "well capitalized" classification.
Total Leverage Ratio
Table 5 Sep 30, Dec 31, Sep 30, Dec 31,
Risk-Based Capital 1996 1995 1996 1995
_______________________________________________________________________________
Company 14.98% 14.41% 9.70% 9.30%
Peoples First National
Bank 14.33 13.71 9.46 9.29
First Kentucky FSB 20.66 20.08 9.70 8.74
Guaranty FSB 12.38 12.83 5.45 5.63
Regulatory minimum 8.00 8.00 4.00 4.00
Bank regulatory agencies' minimum capital guidelines assign relative measures of
credit risk to balance sheet assets and off-balance sheet exposures. Based upon
the nature and makeup of their current businesses, growth expectations, stock
repurchase program and dividend increases, management expects all of the
reporting entities' capital ratios to continue to exceed regulatory minimums.
RESULTS OF OPERATIONS
Net income was $12.3 million for the first nine months of 1996, up 16.0% from
$10.6 million for the first nine months of 1995. Net income for the third
quarter of 1996, which included a $1.3 million pretax charge related to the
recapitalization of the FDIC insurance funds, was $3.8 million, down 9.5% from
$4.2 million for the third quarter of 1995. Net income per common share was
$1.30 for the first nine months of 1996, up 15.0% from $1.13 for the first nine
months of 1995. Net income per common share for the third quarter of 1996 was
$0.40, down 9.1% from $0.44 for the third quarter of 1995. Results in the first
three quarters of 1996 were impacted by increased interest margins partially
offset with a higher provision for loan losses, improved noninterest income and
increased deposit insurance expense.
18
Return on average stockholders' equity for the first nine months of 1996 and
1995 was 12.43% and 12.17%, respectively. Return on average assets for the
first nine months of 1996 and 1995 was 1.25% and 1.15%, respectively. Return on
average stockholders' equity for the three months ended September 30, 1996 and
1995 was 11.06% and 13.63%, respectively. Return on average assets for the
three months ended September 30, 1996 and 1995 was 1.12% and 1.31%,
respectively.
NET INTEREST INCOME
The primary source of income for the Company remains the amount by which
interest earned on assets exceeds the interest paid on supporting funds. The
two important factors that determine net interest income are the volume of
earning assets and the margin earned thereon. For the nine months ended
September 30, 1996, net interest income, on a tax-equivalent (TE) basis,
increased 13.5%, or $4.9 million to $41.3 million as compared to $36.4 million
for the nine months ended September 30, 1995. Volume of earning assets and
margin improvement contributed approximate equal amounts to the increased net
interest income.
Although the subsidiary banks generally maintain a relatively balanced position
between volumes of rate-repricing assets and liabilities to guard against
adverse effects to net interest income from possible fluctuations in interest
rates, net interest income was unfavorably affected in 1995 by interest rate
caps on a significant portion of residential mortgage loans that repriced less
quickly than the average liability funding rate during the same period.
Management has significantly increased the amount of loans outstanding while
decreasing lower yielding debt securities during the last two years. For 1996,
management is attempting to balance volume increases and loan pricing to a
greater degree.
Net interest income (TE) as a percent of average earning assets was 4.42% and
4.14% for the nine months ended September 30, 1996 and 1995, respectively.
Interest earned on loans was 4.34% greater than the average funding cost, up
from 4.10% for the nine months ended September 30, 1995. Net interest income
margins continue to benefit from a favorable change in the mix of earning assets
and funding sources. The highest cost funding source, time deposits, was 53.5%
of all interest-bearing liabilities for the first nine months of 1996, down from
58.3% for the first nine months of 1995. Competitively priced short-term money
market accounts partially contributed to customer choices.
19
Table 6
Net Interest Income Analysis Average Average
Nine months ended September 30, 1996 volume Interest rate
_______________________________________________________________________________
(dollars in thousands)
Loans $937,948 $64,268 9.15%
Securities 308,144 16,128 6.99
Other interest earning assets 2,359 84 4.76
--------- ------
1,248,451 80,480 8.61
Time deposits 582,160 24,247 5.56
All other interest bearing deposits 389,996 10,298 3.53
Other interest bearing liabilities 116,697 4,669 5.34
--------- ------
$1,088,853 39,214 4.81
------ ----
Net interest income (TE) spread $41,266 3.80%
====== ====
Net interest income (TE) as a percent 4.42%
of average interest-earning assets ====
Table 7
Net Interest Income Analysis Average Average
Nine months ended September 30, 1995 volume Interest rate
_______________________________________________________________________________
(dollars in thousands)
Loans $853,264 $57,544 9.02%
Securities 318,761 16,633 6.98
Other interest earning assets 2,538 107 5.64
--------- ------
1,174,563 74,284 8.46
Time deposits 599,724 25,416 5.67
All other interest bearing deposits 334,611 8,342 3.33
Other interest bearing liabilities 94,667 4,144 5.85
--------- ------
$1,029,002 37,902 4.92
------ ----
Net interest income (TE) spread $36,382 3.54%
====== ====
Net interest income (TE) as a percent 4.14%
of average interest-earning assets ====
20
Table 8
Net Interest Income Analysis Average Average
Three months ended September 30, 1996 volume Interest rate
_______________________________________________________________________________
(dollars in thousands)
Loans $971,491 $22,399 9.17%
Securities 307,135 5,396 6.99
Other interest earning assets 1,334 15 4.47
--------- ------
1,279,960 27,810 8.64
Time deposits 590,052 8,300 5.60
All other interest bearing deposits 395,434 3,548 3.57
Other interest bearing liabilities 132,711 1,808 5.42
--------- ------
$1,118,197 13,656 4.86
------ ----
Net interest income (TE) spread $14,154 3.78%
====== ====
Net interest income (TE) as a percent 4.40%
of average interest-earning assets ====
Table 9
Net Interest Income Analysis Average Average
Three months ended September 30, 1995 volume Interest rate
_______________________________________________________________________________
(dollars in thousands)
Loans $881,774 $20,369 9.16%
Securities 314,416 5,458 6.89
Other interest earning assets 3,438 49 5.65
--------- ------
1,199,628 25,876 8.56
Time deposits 605,143 8,826 5.79
All other interest bearing deposits 340,164 2,906 3.39
Other interest bearing liabilities 104,346 1,519 5.78
--------- ------
$1,049,653 13,251 5.01
------ ----
Net interest income (TE) spread $12,625 3.55%
====== ====
Net interest income (TE) as a percent 4.18%
of average interest-earning assets ====
21
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 for the
first nine months of 1996 was increased to $1.7 million from $1.3 million for
the first nine months of 1995. The increase in the 1996 provision for loan
losses was influenced by the growth in outstanding loans and net loan charge-
offs. The annualized provision for loan losses as a percentage of average loans
was 0.25% for the nine months ended September 30, 1996, the same as for the year
ended December 31, 1995 and up slightly from 0.23% for the year ended December
31, 1994. Levels of providing for loan losses reflect, among other things, the
amount of net loan chargeoffs and management's evaluation of potential problem
loans.
Net loan chargeoffs over the last three years are at levels below previous
trends. Net chargeoffs as a percentage of average loans were 0.13% for the
nine-month period ending September 30, 1996, up slightly from 0.10% for the same
1995 period. Net chargeoffs as a percent of average loans were 0.21% for the
five-year period ended December 31, 1995. Substantially all of the net
chargeoffs for 1996 were related to loans other than commercial loans, compared
to less than one-half for 1995. The allowance for loan losses was 1.44% of
outstanding loans at September 30, 1996, which approximates the average during
the last five years. The September 30, 1996 allowance is 142% compared to 196%
at December 31, 1995, of nonperforming assets and is maintained at a level which
management considers adequate to absorb estimated potential losses in the loan
portfolio, after reviewing the individual loans and in relation to risk elements
in the portfolios and giving consideration to the prevailing economy and
anticipated changes. The allowance coverage of nonperforming assets is
currently higher than in the past principally due to one past due loan that is
in the process of collection.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
Table 10 September 30, September 30,
Allowance for Loan Losses 1996 1995 1996 1995
____________________________________________________________________________________________
(dollars in thousands)
Balance at beginning of period $13,915 $12,518 $13,371 $12,188
Allowance associated with loans acquired 481 --- 481 ---
Provision charged to expense 588 452 1,742 1,343
Loans charged off (640) (155) (1,522) (866)
Recoveries of chargeoffs 321 70 593 220
------ ------ ------ ------
Net loans charged off (319) (85) (929) (646)
------ ------ ------ ------
Balance at end of period $14,665 $12,885 $14,665 $12,885
====== ====== ====== ======
Annualized Ratios:
Provision for loan losses
to average loans 0.24% 0.20% 0.25% 0.21%
Net chargeoffs to
average loans 0.13 0.04 0.13 0.10
Allowance for loan losses
to period end loans 1.44 1.44 1.44 1.44
</TABLE> 22
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
two years. Noninterest income amounted to $6,292,594 for the nine months ended
September 30, 1996, a 7.7% increase compared to $5,844,316 for the nine months
ended September 30, 1995. Service charges on deposit accounts, the largest
component of noninterest income, increased 6.6% due to more uniform application
of charges.
Approximately one-half of the increase in trust fees is attributable to timing
of certain fees for estates and other services. Insurance commissions for the
first three quarters of 1995 were significantly up from prior periods and
impacted by special promotions. Relatively low long-term fixed mortgage rates
at the beginning of 1996 provided greater opportunities for fee income from
secondary-market mortgage loan services than in 1995. Prior to the second
quarter of 1995, the Company originated and retained student loans for its loan
portfolio. After that time, loans were originated and sold to produce fee
income. The current year is the second full year the Company has made available
investment brokerage services and property and casualty insurance to customers.
The relative improvement in fee income approximates the growth in net interest
income. Noninterest income, excluding securities gains and losses, was 13.2% of
total net interest income (TE) plus noninterest income for the first nine months
of 1996 and 13.5% for the same 1995 period. Management plans to continue to
seek ways to increase fee income from services.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
Table 11 September 30, September 30,
Noninterest Income 1996 1995 1996 1995
____________________________________________________________________________________________
(in thousands)
Service charges on deposits $1,056 $983 $2,998 $2,813
Net securities gains (losses) 0 6 (4) 178
Trust fees 317 354 989 885
Insurance commissions 140 174 453 506
Bankcard fees 209 174 581 469
Other income 475 391 1,276 993
----- ----- ----- -----
$2,197 $2,082 $6,293 $5,844
===== ===== ===== =====
Annualized Ratio:
Noninterest income
to average assets 0.65% 0.65% 0.64% 0.63%
</TABLE>
NONINTEREST EXPENSE
At the beginning of 1995, management implemented a restructuring plan to control
the rate of increase of noninterest expense. As part of the plan, six of the
previously separate corporate subsidiaries were consolidated into one bank to
allow the personnel at all locations to better focus on quality customer service
23
and increasing the volume of business as well as reducing a small amount of
redundant costs. The plan provided for the reduction of the number of employees
by approximately 4% and targeted an expense reduction of $1.0 million. While
focused on expenses, the plan encompassed increased revenue volumes designed to
gain some operational ratio efficiencies. The restructuring plan has been
partially successful. During the first nine months of 1996, it required less
noninterest expense (overhead) to produce total net interest income (TE) plus
noninterest income (revenue) due mainly to improved net interest margins. The
ratio of overhead, exclusive of deposit insurance expense, to revenue was 52.46%
for the nine months ended September 30, 1996, compared to 54.77% for the nine
months ended September 30, 1995. There is a constant process of evaluation to
reach the optimum balance between revenue and overhead.
The ratio of personnel expense has slightly decreased as a percentage of average
total assets and was 1.24% for the nine months ended September 30, 1996,
compared to 1.29% for the nine months ended September 30, 1995. Blanket
restraints were imposed on salary increases at the beginning of 1996. Staffing
levels have been creeping up. Management attributes this to the increasing need
for qualified employees. At September 30, 1996 the number of full-time
equivalent employees was 503, up from 490 at December 31, 1995. Technology
has advanced and the need to leverage personnel costs has intensified. For
1996, management expects double-digit percentage increases in equipment and data
processing expenses due to implementation of new systems.
The Company has made purchases amounting to approximately $7.1 million for
facilities and equipment during the last two and one-half years and outsourced
some processes. Management is attempting to increase customers volumes and
leverage personnel expense through the use of additional technology and plans to
continue to purchase technology for new product delivery systems.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
Table 12 September 30, September 30,
Noninterest Expense 1996 1995 1996 1995
____________________________________________________________________________________________
(in thousands)
Salaries $3,476 $3,333 $10,327 $10,057
Employee benefits 573 594 1,891 1,884
Occupancy expense 471 512 1,373 1,366
Equipment expense 548 462 1,582 1,351
Deposit insurance expense 1,350 36 1,529 1,174
Data processing expense 668 559 1,981 1,660
Bank share taxes 391 341 1,158 1,026
Goodwill amortization 220 207 635 622
Other expense 2,124 1,671 6,001 5,162
------ ------ ------ ------
$9,821 $7,715 $26,477 $24,302
====== ====== ====== ======
Annualized Ratios:
Overhead ratio 60.06% 52.46% 55.67% 57.55%
Noninterest expense
to average assets 2.90 2.43 2.69 2.63
</TABLE> 24
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). Assessments for deposit insurance were
$1,529,223 and $1,173,799 for the nine months ended September 30, 1996 and 1995,
respectively. The increase is attributable to a special third quarter charge
related to recapitalizing the SAIF, offset by a 1995 reduction in the BIF rate.
The Company's lead bank pays deposit insurance premiums to the BIF and the
Company's other two subsidiaries pay insurance premiums to the SAIF based on a
rate applied to their respective assessable deposits. The Company's subsidi-
aries received the lowest applicable deposit assessment rates from the FDIC for
substantially all deposits based upon the subsidiaries risk characteristics.
The purpose of the SAIF recapitalization was to provide additional financing and
for interest payments on the Financing Corporation (FICO) bonds issued in
connection with earlier Congressional efforts to support the then failing thrift
industry. There is a prospective benefit associated with the SAIF recapitali-
zation since insurance rates on SAIF deposits will be reduced in 1997.
Management expects the level of deposit insurance expense to be insignificant
in 1997.
Due to management's focus on limiting the increase in staff, coupled with
outsourcing some functions, particularly related to credit card operations, data
processing expense for the first three quarters of 1996 was 19.3% higher than
the first three quarters of 1995. Bankshare taxes imposed by the State of
Kentucky have been increasing and are expected to continue to increase in future
years. Kentucky has raised the assessment level and is attempting to
significantly increase this taxation, which is based upon net income of the
subsidiaries.
INCOME TAXES
The increase in income tax expense for the three and nine month periods ended
September 30, 1996 from comparable 1995 periods, is attributable to higher
operating earnings and a higher effective tax rate. The Company's effective tax
rate was 31.4% and 29.9% for the nine-month period ended September 30, 1996 and
1995, respectively. Operating earnings are now at a level that the 1% federal
income tax rate increase mandated by the Omnibus Budget Reconciliation Act of
1993 is applicable. The effective tax rate also increased due to the continued
decline in tax-exempt income. 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 investment securities and
other portfolio considerations.
Several income tax acts were passed into law in 1996. One provision of the 1996
tax acts that affects the Company's savings bank subsidiaries is the repeal of
their preferential bad debt treatment. The percent-of-taxable-income method for
computing additions to the bad debt reserves is eliminated for tax years
beginning after 1995. The new law also requires savings banks to recapture a
portion of their bad debt reserves added since 1987. Since these provisions
relate to temporary differences, there is no direct impact on the Company's
results of operations. The result of the 1996 tax laws will be to slightly
increase the Company's deferred tax assets on the balance sheet.
25
LIQUIDITY AND INTEREST-RATE SENSITIVITY
The Company's objective of liquidity management is to ensure the ability to
access funding which enables each bank to efficiently satisfy the cash flow
requirements of depositors and borrowers. Asset/Liability management (ALM)
involves the funding and investment strategies necessary to maintain an
appropriate balance between interest sensitive assets and liabilities as well as
to assure adequate liquidity. The Company's ALM committee monitors funds
available from a number of sources to meet its objectives. The primary source
of liquidity for the banks, in addition to loan repayments, is their debt
securities portfolios. Debt securities classified as held for sale are those
that the Company intends to use as part of its asset/liability management and
that may be sold prior to maturity in response to changes in interest rates,
resultant prepayment risks and other factors. The Company's access to the re-
tail deposit market through individual banks located in nine different counties
has been a stable source of funds. Additional funds for liquidity are available
by borrowing of Federal funds from correspondent banks, Federal Home Loan Bank
borrowings and brokered deposits. Various types of analyses are performed to
ensure adequate liquidity, and to evaluate the desirability of the relative
interest rate sensitivity of assets and liabilities. In the past, as was
typical for most financial institutions, the Company's cash flows provided by
financing activities, primarily through core deposit generation, generally
greatly exceeded cash flows from operations and were used to fund investing
activities. During the past two years, due to strong loan demand, financing
activities funding was partially derived from increased levels of short-term
borrowings. Management considers current liquidity positions of the subsidiary
banks to be adequate to meet depositor and borrower needs.
Because banks must assume interest rate risks as part of their normal
operations, 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.
Currently, the Company does not employ interest rate swaps, financial futures or
options to affect interest rate risks. The September 30, 1996 cumulative gap at
one year between rate sensitive assets and liabilities is slightly less
sensitive to rising interest rates than at December 31, 1995.
26
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Table 13
Interest Rate Sensitivity
Analysis 1-91 92-184 185 days Total at Over
September 30, 1996 Days Days to 1 year 1 year 1 year Total
_________________________________________________________________________________________________________
(in thousands)
Rate Sensitive Assets
Securities, at cost
U.S. treasury
and agencies $10,702 $3,481 $3,227 $17,410 $52,592 $70,002
Mortgage-backed 12,237 10,404 11,849 34,490 127,697 162,187
Municipal bonds 1,053 100 1,421 2,574 59,091 61,665
Other 9,682 0 0 9,682 4,524 14,206
------- ------- ------- ------- ------- ---------
33,674 13,985 16,497 64,156 243,904 308,060
Loans 285,670 135,292 262,050 683,012 333,110 1,016,122
------- ------- ------- ------- ------- ---------
319,344 149,277 278,547 747,168 577,014 1,324,182
Rate Sensitive Liabilities
Deposits
Transaction and savings 170,898 0 0 170,898 234,035 404,933
Time 149,116 129,652 118,226 396,994 211,097 608,091
Short-term borrowings 126,704 2,431 2,891 132,026 0 132,026
Long-term borrowings 2,675 1,199 1,566 5,440 8,980 14,420
------- ------- ------- ------- ------- ---------
449,393 133,282 122,683 705,358 454,112 1,159,470
------- ------- ------- ------- ------- ---------
Period Gap ($130,049) $15,995 $155,864 $41,810 $122,902 $164,712
======= ======= ======= ======= ======= =========
Cumulative Gap at 09/30/96 ($130,049) ($114,054) $41,810 $41,810 $164,712 $164,712
Cumulative Gap at 12/31/95 ($100,928) ($19,511) $97,825 $97,825 $157,766 $157,766
</TABLE>
27
PART II
_______________________________________________________________________________
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27.1) Financial Data Schedules (SEC use only)
(b) Reports on Form 8-K
Peoples First Corporation filed a current report on Form 8-K
on September 4, 1996, reporting the August 30, 1996 press
release announcement of the consummation of the acquisition
of a savings bank with total assets of $56 million.
28
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
11/08/96 /s/ Aubrey W. Lippert
Aubrey W. Lippert
President and Chairman
of the Board
11/08/96 /s/ Allan B. Kleet
Allan B. Kleet
Principal Accounting Officer
29
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> Sep-30-1996
<CASH> 42,474
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 177,053
<INVESTMENTS-CARRYING> 130,708
<INVESTMENTS-MARKET> 133,383
<LOANS> 1,016,122
<ALLOWANCE> 14,665
<TOTAL-ASSETS> 1,400,226
<DEPOSITS> 1,099,867
<SHORT-TERM> 132,026
<LIABILITIES-OTHER> 13,043
<LONG-TERM> 14,420
<COMMON> 7,432
0
0
<OTHER-SE> 133,438
<TOTAL-LIABILITIES-AND-EQUITY> 1,400,226
<INTEREST-LOAN> 64,211
<INTEREST-INVEST> 14,783
<INTEREST-OTHER> 84
<INTEREST-TOTAL> 79,078
<INTEREST-DEPOSIT> 34,545
<INTEREST-EXPENSE> 39,214
<INTEREST-INCOME-NET> 39,864
<LOAN-LOSSES> 1,742
<SECURITIES-GAINS> (4)
<EXPENSE-OTHER> 26,477
<INCOME-PRETAX> 17,938
<INCOME-PRE-EXTRAORDINARY> 17,938
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,298
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
<YIELD-ACTUAL> 4.42
<LOANS-NON> 2,947
<LOANS-PAST> 4,542
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 15,100
<ALLOWANCE-OPEN> 13,371
<CHARGE-OFFS> 1,522
<RECOVERIES> 593
<ALLOWANCE-CLOSE> 14,665
<ALLOWANCE-DOMESTIC> 14,665
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
