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, 1996
[ ] 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 14, 1997: Common stock, no par value - $212,877,000.
The number of shares outstanding of the Registrant's only class of stock as of
February 14, 1997: Common stock, no par value - 10,010,958 shares outstanding.
Documents Incorporated by Reference
Portions of Peoples First Corporation's definitive proxy statement dated
March 15, 1997 are incorporated into Part III.
INDEX
Page
PART I.
Item 1. Business 3
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Securities Holders 15
PART II.
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Item 8. Financial Statements and Supplementary Data 30
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 63
PART III.
Item 10. Directors and Executive Officers of the Registrant 64
Item 11. Executive Compensation 65
Item 12. Security Ownership of Certain Beneficial Owners
and Management 65
Item 13. Certain Relationships and Related Transactions 65
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 65
Signatures 67
2
PART I
Item 1. Business
Peoples First Corporation (the "Company"), headquartered in Paducah, Kentucky,
is a bank and 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 and
Northwestern Tennessee through three wholly owned subsidiaries: The Peoples
First National Bank & Trust Company of Paducah ("Peoples Bank") in the
Kentucky counties of McCracken, Marshall, Ballard, Livingston, Calloway and
Graves; First Kentucky Federal Savings Bank of Central City (First Kentucky
FSB) in the Kentucky counties of Muhlenberg, Ohio, McLean and Butler Counties;
and, Guaranty Federal Savings Bank of Clarksville, Tennessee (Guaranty FSB) in
Montgomery County, Tennessee. 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 acquired all of the outstanding shares of First Kentucky
Bancorp, Inc. in exchange for 1,076,353 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 lead subsidiary bank. In 1996, the Company
acquired all of the outstanding shares of Guaranty FSB in exchange for 315,002
shares of Peoples First Corporation common stock. Guaranty FSB's three
locations are immediately southeast of the market area served by the Company's
lead subsidiary bank.
Dividends from Peoples Bank, First Kentucky FSB and Guaranty 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 $925.0 million at December 31, 1996 and is the first or
second largest commercial banking operation in each of the five counties in
which it operates.
3
First Kentucky FSB, organized in 1934, provides a broad array of banking
services to the Western Kentucky region through its main office in Central City,
Kentucky and five branch offices. Residential real estate mortgage lending is
the primary source of operating income. First Kentucky FSB had total deposits
of $147.0 million at December 31, 1996 and is largest financial institution
headquartered in their immediate West-Central Kentucky market area.
Guaranty FSB, organized in 1973, provides a broad array of banking services to
the Northeastern Tennessee region through its main office and two branch offices
in Clarksville. Residential real estate mortgage lending is the primary source
of operating income. Guaranty FSB had total deposits of $43.4 million at
December 31, 1996 and is seventh largest financial institution in Montgomery
County, Tennesse.
At December 31, 1996, the Company had 533 full-time equivalent employees.
Management considers employee relations to be good with all of the employees.
No employees 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 Company 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, it is subject to regulation by these federal
agencies. First Kentucky FSB and Guaranty FSB, are federally chartered savings
associations, subject to the supervision of and are regularly examined by Office
of Thrift Supervision. They are subject to certain reserve
4
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.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA)
was principally designed to deal with the financial crisis involving the thrift
industry and the Federal Savings and Loan Insurance Corporation. FIRREA
contains many provisions which affect banks and bank holding companies. FIRREA
included substantial increases in the enforcement powers available to
regulators. Several civil and criminal penalties were added which address
misconduct and knowingly or recklessly causing a substantial loss to an insured
institution. FIERRA expanded the power of bank holding companies by permitting
them to acquire any savings assocation, including healthy as well as troubled
institutions.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
contained many provisions affecting the banking industry. FDICIA included
provisions, among others to: 1) reform the deposit insurance system, 2)
establish a format for closer monitoring of financial institutions and to enable
prompt corrective action by banking regulators when a financial institution
begins to experience difficulty, 3) establish five capital levels for financial
institutions that would impose more scrutiny and restriction on less capitalized
institutions, 4) require regulators to set operational and managerial standards
for all insured institutions, including limits on excessive compensation to
executive officers, directors and principal shareholders, and establish
standards for loans secured by real estate, 5) adopt certain accounting reforms
and require annual on-site examinations of federally insured institutions and
the ability to require independent audits, 6) restrict state-chartered banks
from engaging in activities not permitted for national banks unless they are
adequately capitalized and have FDIC approval. Further, FDICIA permited the
FDIC to make special assessments on insured depository institutions, in amounts
determined by the FDIC to be necessary to give it adequate assessment income to
repay amounts borrowed from the U.S. Treasury Department and other sources or
for any other purpose the FDIC deems necessary.
Future legislative actions, possibly including restructuring and modernization
of financial institution regulation, could have dramatic effect on the cost of
doing business and competitiveness. The terms or timing of future legislation
or regulatory actions that may be adopted cannot be predicted, accordingly, the
potential effect on the Company is unknown.
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 Company and the
banks.
5
Statistical Disclosures
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates
and Interest Differential
A. AVERAGE BALANCE SHEETS For the Year Ended December 31,
(in thousands) 1996 1995 1994
_______________________________________________________________________________
INTEREST-EARNING ASSETS
Short-term investments $2,512 $2,877 $3,831
Taxable securities 244,917 251,107 285,242
Non-taxable securities 61,734 64,835 69,731
Loans (1) 960,726 865,707 755,314
--------- --------- ---------
1,269,889 1,184,526 1,114,118
NONINTEREST-EARNING ASSETS
Cash and due from banks 35,586 33,515 34,878
Allowance for loan losses (14,066) (12,691) (11,524)
Other assets 44,221 40,582 40,800
--------- --------- ---------
$1,335,630 $1,245,932 $1,178,272
========= ========= =========
INTEREST-BEARING LIABILITIES
Transaction accounts $310,666 $253,689 $235,918
Savings deposits 84,684 87,618 106,891
Time deposits 588,289 598,514 567,438
Short-term borrowings 112,459 86,400 51,489
Long-term borrowings 9,785 7,946 13,644
Other liabilities 1,382 1,292 1,201
--------- --------- ---------
1,107,265 1,035,459 976,581
NONINTEREST-BEARING LIABILITIES
Demand deposits 82,269 82,752 85,307
Other liabilities 11,523 9,176 8,391
STOCKHOLDERS' EQUITY 134,573 118,545 107,993
--------- --------- ---------
$1,335,630 $1,245,932 $1,178,272
========= ========= =========
(1) Nonperforming loans are included in
average loans
6
B. ANALYSIS OF NET INTEREST EARNINGS For the Year Ended December 31,
(in thousands) 1996 1995 1994
_______________________________________________________________________________
INTEREST INCOME
Short-term investments $122 $160 $169
Taxable securities 15,842 16,082 17,493
Non-taxable securities (TE) (2) 5,704 5,847 6,302
Loans (TE) (2) 87,950 78,573 62,520
------- ------- -------
109,618 100,662 86,484
INTEREST EXPENSE
Transaction accounts 11,606 9,101 6,970
Saving deposits 2,422 2,460 2,996
Time deposits 32,874 34,047 25,744
Short-term borrowings 5,958 4,939 2,169
Long-term borrowings 608 515 900
Other liabilities 91 90 76
------- ------- -------
53,559 51,152 38,855
------- ------- -------
NET INTEREST INCOME (TE) (2) 56,059 49,510 47,629
TE Basis Adjustment (1,945) (1,916) (2,080)
------- ------- -------
NET INTEREST EARNINGS $54,114 $47,594 $45,549
======= ======= =======
(2) Tax equivalent (TE) interest income is based
upon a Federal income tax rate of 35%.
7
B. AVERAGE YIELDS AND RATES PAID For the Year Ended December 31,
1996 1995 1994
_______________________________________________________________________________
AVERAGE YIELDS FOR INTEREST-EARNING ASSETS
Short-term investments 4.86% 5.56% 4.41%
Taxable securities 6.47% 6.40% 6.13%
Non-taxable securities (TE) (2) 9.24% 9.02% 9.04%
Loans (TE) (1) (2) 9.15% 9.08% 8.28%
All interest-earning assets 8.63% 8.50% 7.76%
AVERAGE RATES FOR INTEREST-BEARING LIABILITIES
Transaction accounts 3.74% 3.59% 2.95%
Saving deposits 2.86% 2.81% 2.80%
Time deposits 5.59% 5.69% 4.54%
Short-term borrowings 5.30% 5.72% 4.21%
Long-term borrowings 6.21% 6.48% 6.60%
Other liabilities 6.58% 6.97% 6.33%
All interest-bearing liabilities 4.84% 4.94% 3.98%
---- ---- ----
NET INTEREST-RATE SPREAD (TE) (2) 3.79% 3.56% 3.78%
==== ==== ====
NET YIELD ON INTEREST-EARNING ASSETS 4.41% 4.18% 4.28%
==== ==== ====
(1) Nonperforming loans are included in
average loans
(2) Tax equivalent (TE) interest income is based
upon a Federal income tax rate of 35%.
8
C. FOR THE LAST TWO FISCAL YEARS
CHANGES ATTRIBUTABLE TO VOLUME AND RATE Change Due to Due to
(in thousands) 1996/1995 Volume Rate (3)
_______________________________________________________________________________
INTEREST INCOME
Short-term investments ($38) ($20) ($18)
Taxable securities (240) (396) 156
Non-taxable securities (TE) (2) (143) (280) 137
Loans (1) (2) 9,377 8,624 753
------
8,956 7,254 1,702
INTEREST EXPENSE
Transaction accounts 2,505 2,044 461
Saving deposits (38) (82) 44
Time deposits (1,173) (582) (591)
Short-term borrowings 1,019 1,490 (471)
Long-term borrowings 93 119 (26)
Other liabilities 1 6 (5)
------
2,407 3,547 (1,140)
------ ------ ------
NET INTEREST EARNINGS (TE) (2) $6,549 $3,707 $2,842
====== ====== ======
(1) Nonperforming loans are included in average loans.
(2) Tax equivalent (TE) net interest income is based upon a Federal income
tax rate of 35%.
(3) Changes due to both rate and volume are included in due to rate.
9
CHANGES ATTRIBUTABLE TO VOLUME AND RATE Change Due to Due to
(in thousands) 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 (TE) (1) 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 INCOME (TE) (2) $1,881 $3,123 ($1,242)
====== ====== ======
(1) Nonperforming loans are included in average loans.
(2) Tax equivalent (TE) net interest income is based upon a Federal income
tax rate of 35%.
(3) Changes due to both rate and volume are included in due to rate.
10
II. Security Portfolios
A. Footnote 4 to the Consolidated Financial Statements included herein on page
42 presents the book value as of the end of 1996 and 1995 of securities by type
of security.
B. Footnote 4 to the Consolidated Financial Statements included herein on page
42 presents the amortized cost, estimated market value and the weighted average
yield of securities at December 31, 1996, by contractual maturity range.
C. As of December 31, 1996, 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 22
presents the amount of all loans in various categories as of the end of 1996
and 1995.
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, 1996:
Loan Portfolio Maturities 1 year 1 to 5 Over
December 31, 1996 or less years 5 years Total
_______________________________________________________________________________
(in thousands)
Commercial, financial
and agricultural $75,267 $34,642 $10,374 $120,283
Real estate construction 25,527 1,438 2,968 29,933
------- ------- ------- -------
$100,794 $36,080 $13,342 $150,216
======= ======= ======= =======
The amounts of these loans due after one year which have predetermined rates
and adjustable rates are $16.9 million and $32.5 million, respectively.
C. Risk Elements
1. The table of Nonperforming Assets in MDA included herein on page 22 states
the amount of nonaccrual, past due and restructured loans. The following table
states the gross interest income that would have been recorded for the years
ended December 31, 1992 through 1996, if the nonaccrual and renegotiated loans
had been current in accordance with their original terms, and the amount of
interest income that was included in net income for each year:
11
Interest Income on Nonaccrual
and Restructured Loans
Year ended December 31, 1996 1995 1994 1993
_______________________________________________________________________________
(in thousands)
Contractual interest $504 $421 $209 $407
Interest recognized 343 351 192 279
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, 1996, loans with
a total principal balance of $26.4 million had been identified that may become
nonperforming in the future, compared to $14.3 million at December 31, 1995.
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, 1996, a total of $16.9 million of
potential problem loans were to four borrowers.
3. Foreign Outstandings
There were no foreign outstandings at anytime during the last three years.
4. Loan Concentrations
As of December 31, 1996, there was no concentration of loans exceeding 10% of
total loans which are not otherwise disclosed in the Types of Loans table
pursuant to III. A. There were no amounts loaned in excess of 10% of total
loans to a multiple of borrowers engaged in similar activities which would
cause them to be similarly impacted by economic or other conditions. Most
loans are originated in the immediate market area of the banks.
D. Other Interest Bearing Assets
The Company has no other interest earning assets that would be required to
be disclosed under Item III. C.1. or 2. if such assets were loans.
12
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. The following table presents an analysis of loss experience and the allow-
ance for loan losses for the years ended December 31, 1996, 1995, 1994, 1993,
and 1992:
Analysis of the Allowance
for Loan Losses
Year ended December 31, 1996 1995 1994 1993
_______________________________________________________________________________
(in thousands)
Balance at beginning of
year $13,371 $12,188 $10,715 $8,606
Allowance associated with
loans acquired 481 -- -- --
Provision charged to
expense 2,664 2,167 1,723 2,541
Loan charge-offs
Commercial, financial
and agricultural (467) (450) (248) (463)
Real estate mortgage (401) (225) (81) (240)
Consumer loans (1,273) (540) (279) (317)
Consumer revolving
credit (383) (92) (78) (24)
------ ------ ------ ------
(2,524) (1,307) (686) (1,044)
Loan charge-off recoveries
Commercial, financial
and agricultural 556 133 339 376
Real estate mortgage 59 63 9 110
Consumer loans 141 117 76 122
Consumer revolving
credit 47 10 12 4
------ ------ ------ ------
803 323 436 612
------ ------ ------ ------
Net loan charge-offs (1,721) (984) (250) (432)
------ ------ ------ ------
Balance at end of year $14,795 $13,371 $12,188 $10,715
====== ====== ====== ======
Year end balance of loans $1,036,429 $913,789 $805,791 $703,533
Average loans outstanding 960,726 865,707 755,314 660,345
Allowance / year end loans 1.42% 1.46% 1.51% 1.52%
Provision / net chargeoffs 154.79% 220.22% 689.20% 588.19%
Nonperforming assets 12,187 6,806 6,679 6,591
Potential problem loans 26,362 14,300 14,800 22,400
13
B. The following tables present a breakdown of the allowance for loan losses
at December 31, 1996, 1995, 1994, 1993 and 1992:
Allocation of the Allowance
for Loan Losses
December 31, 1996 1995 1994 1993
_______________________________________________________________________________
(in thousands)
Commercial, financial
and agricultural $3,107 $2,951 $3,134 $2,973
Real estate
Construction 150 97 97 61
Residential mortgage 1,612 1,598 1,496 1,285
Commercial mortgage 4,100 3,905 4,050 3,626
Consumer loans 5,326 4,381 3,215 2,598
Consumer revolving credit 500 439 196 172
------ ------ ------ ------
$14,795 $13,371 $12,188 $10,715
====== ====== ====== ======
Percent of Loans in Each
Category to Total Loans
December 31, 1996 1995 1994 1993
_______________________________________________________________________________
(in thousands)
Commercial, financial
and agricultural 11.6% 12.5% 13.9% 16.9%
Real estate mortgage
Construction 2.9% 2.1% 2.4% 1.7%
Residential mortgage 40.7% 39.9% 39.5% 38.3%
Commercial mortgage 16.8% 17.3% 17.3% 18.1%
Consumer loans 27.9% 28.0% 26.6% 24.6%
Other 0.1% 0.2% 0.3% 0.4%
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
V. DEPOSITS
A.B. Average Balances and Rates Paid by Deposit
The Average Balance Sheets table and Average Yields and Rates Paid table in-
cluded herein on pages 6 and 8 present the average amount of and the average
rate paid for the years ended December 31, 1996, 1995 and 1994.
C. Foreign Deposits
The Company had no foreign deposits during the past three years.
14
D.E. Maturity Distribution of Time Deposits of $100,000 or More
The following table states the amount of time certificates of deposit at
December 31, 1996, of $100,000 or more by maturity:
Maturity of $100,000 Time Deposits
December 31, 1996
_______________________________________________________________________________
(in thousands)
Maturing 3 months or less $13,923
Maturing over 3 months through 6 months 12,126
Maturing over 6 months through 12 months 28,366
Maturing over 12 months 48,077
-------
$102,492
=======
For the Year Ended December 31,
VI. RETURN ON EQUITY AND ASSETS 1996 1995 1994
_______________________________________________________________________________
1. Return on average assets 1.29% 1.19% 1.11%
2. Return on average equity 12.75% 12.46% 12.15%
3. Dividend payout ratio 36.84% 32.00% 29.10%
4. Equity to assets ratio 10.08% 9.51% 9.17%
VII. SHORT-TERM BORROWINGS
A. Footnote 8 to the Consolidated Financial Statements included herein on page
49 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
15
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
Market Information, Dividends
The registrant's only class of common stock is traded on the National Associa-
tion of Securities Dealers Automated Quotation System National Market System.
Peoples First Corporation's common stock symbol is "PFKY". Share and per share
information have been adjusted to give effect 5% stock dividends declared on
April 19, 1995, January 17, 1996 and January 21, 1997. The high and low stock
prices and the quarterly dividends declared on the Company's common stock for
each quarter of 1996 and 1995 are as follows:
High and Low Stock Prices First Second Third Fourth
Dividends Declared quarter quarter quarter quarter
_______________________________________________________________________________
High 1996 $22.38 $22.62 $21.90 $24.29
Low 1996 19.50 19.76 20.00 20.95
Cash dividends declared 0.14 0.15 0.15 0.19
High 1995 $17.28 $17.46 $20.63 $21.77
Low 1995 14.90 14.68 16.55 19.05
Cash dividends declared 0.10 0.10 0.14 0.14
Holders
The approximate number of holders of registrant's only class of common stock as
of February 14, 1997, was 3,200.
16
Item 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
December 31, 1996 1995 1994 1993
________________________________________________________________________________
(in thousands)
Interest-Earning Assets
Loans, net $1,023,520 $901,126 $793,759 $693,322
Securities 304,311 306,642 333,527 375,366
Short-term investments 0 0 0 3,100
--------- --------- --------- ---------
1,327,831 1,207,768 1,127,286 1,071,788
Cash and due from banks 43,285 37,524 39,333 42,591
Premises and equipment 19,376 18,226 16,980 16,698
Other assets 27,272 24,078 26,957 25,429
--------- --------- --------- ---------
$1,417,764 $1,287,596 $1,210,556 $1,156,506
========= ========= ========= =========
Liabilities and Stockholders' Equity
Interest-bearing deposits $1,029,877 $960,744 $910,598 $906,646
Noninterest-bearing deposits 85,376 86,360 87,985 86,250
Short-term borrowings 132,167 93,469 84,567 32,502
Long-term borrowings 14,013 7,757 9,536 16,555
Other liabilities 11,782 11,094 7,607 8,182
--------- --------- --------- ---------
1,273,215 1,159,424 1,100,293 1,050,135
Stockholders' equity 144,549 128,172 110,263 106,371
--------- --------- --------- ---------
$1,417,764 $1,287,596 $1,210,556 $1,156,506
========= ========= ========= =========
</TABLE>
As more fully explained in Note 2 to the consolidated financial statements,
additional banking organizations were acquired in 1996, 1994 and 1992.
17
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Year ended December 31, 1996 1995 1994 1993
________________________________________________________________________________
(in thousands except per share data)
Results of Operations
Interest income $107,673 $98,746 $84,404 $80,845
Interest expense 53,559 51,152 38,855 37,997
------- ------- ------- -------
Net interest income 54,114 47,594 45,549 42,848
Provision for loan losses 2,664 2,167 1,723 2,541
Net interest income after ------- ------- ------- -------
provision for loan losses 51,450 45,427 43,826 40,307
Noninterest income 8,535 7,944 7,076 6,683
Noninterest expense 34,843 32,158 32,312 29,373
------- ------- ------- -------
Income before tax expense 25,142 21,213 18,590 17,617
Income tax expense 7,978 6,446 5,465 4,807
------- ------- ------- -------
Net Income $17,164 $14,767 $13,125 $12,810
======= ======= ======= =======
Average shares outstanding 10,025 9,852 9,767 9,787
Net income per common share $1.71 $1.50 $1.34 $1.31
Cash dividends per common
share 0.63 0.48 0.39 0.34
</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,
January 17, 1996 and January 21, 1997.
As more fully explained in Note 2 to the consolidated financial statements,
additional banking organizations were acquired in 1996, 1994 and 1992.
18
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's discussion and analysis includes forward-looking statements. Many
factors affect Peoples First Corporation's (Company) 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 annual report readers with
information relevant to understanding and assessing the financial condition and
results of operations of the Company.
Headquartered in Paducah, Kentucky, the Company is a bank and savings and loan
holding company registered with the Federal Reserve Board. The Company's market
area is primarily western Kentucky and the contiguous interstate areas. This
discussion should be read in conjunction with the consolidated financial
statements and accompanying notes.
The Company's one commercial bank subsidiary and two savings bank subsidiaries
operate principally in a single business segment offering general commercial and
savings bank services through 28 banking offices. Commercial banking services,
mortgage banking and consumer financing are all activities the Company considers
to be their one business segment.
EARNING ASSETS
Average earning assets of the Company for 1996, increased 7.2%, or $85.4 million
to $1,269.9 million from $1,184.5 million for 1995. This compares to growth in
earning assets of 6.3% and 5.0%, for 1995 and 1994, 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 both 1996 and 1995, compared to 94.6% for 1994.
Loans are the Company's primary earning asset. Loan growth, while still strong,
has slowed from previous levels. Average loans for 1996 increased 11.0%, or
$95.0 million, to $960.7 million, while average loan growth for 1995 and 1994
was 14.6% and 14.4%, respectively. The changing mix of earning assets was
favorable during the last two years as average loans were an increasing
percentage of total earning assets.
Table 1
Average Earning Assets
Year ended December 31, 1996 1995 1994
_______________________________________________________________________________
(dollars in thousands)
Total average earning assets $1,269,889 $1,184,526 $1,114,118
Percent of average earning assets
Average loans 75.7% 73.1% 67.8%
Average securities 24.1 26.7 31.9
Average other earning assets 0.2 0.2 0.3
19
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 2
Types of Loans
December 31, 1996 1995 1994 1993
_______________________________________________________________________________
(in thousands)
Commercial, financial
and agricultural $120,283 $113,929 $111,929 $118,906
Real estate
Construction 29,933 19,386 19,421 12,255
Residential mortgage 421,129 364,607 318,551 269,265
Commercial mortgage 174,576 158,429 139,629 127,666
Consumer, net 289,653 255,975 214,309 173,191
Other 855 1,463 1,952 2,250
--------- --------- --------- ---------
1,036,429 913,789 805,791 703,533
Allowance for loan losses (14,795) (13,371) (12,188) (10,715)
--------- --------- --------- ---------
$1,021,634 $900,418 $793,603 $692,818
========= ========= ========= =========
Management intends to further leverage stockholders' equity without creating
excessive interest rate risk, through reduction in the amount of loan funding
derived from securities activities. Purchases of securities held for sale
increased in 1996 to $73.6 million, up from $33.0 million in 1995 and $39.9
million in 1994. Average securities decreased $9.3 million during 1996, $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 77.0% of
the securities portfolios at December 31, 1996.
At December 31, 1996, mortgage-backed securities, which included Real Estate
Mortgage Investment Conduit (REMIC) and CMO instruments, were approximately
53.5% of the securities portfolios, compared to approximately 51.8% at December
31, 1995 and 46.0% at December 31, 1994. The REMIC issues are entirely 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. At December 31, 1996, approximately 19.2% 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, 1996, the Company had no 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.
20
FUNDING
The most important and stable source of funding is core deposits, considered by
management to include demand deposits, interest-bearing transaction accounts,
saving deposits and time deposits under $100,000. Core deposits for 1996
increased 5.2%, or $48.5 million to $974.3 million from $925.8 million for 1995.
Excluding the savings bank acquisition, the 1996 increase was 3.8%, or $37.2
million. Local markets for deposits are competitive. Core deposits 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 $22.8 million,
$24.7 million and $22.1 million for the years ended December 31, 1996, 1995 and
1994, respectively. Average short-term and long-term borrowings were $122.2
million for 1996, up from $94.3 million for 1995 and $65.1 million for 1994.
Management anticipates an increasing need to rely on non-core funding. 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. Additional funding totaling
approximately $158.3 million is available at December 31, 1996 from undrawn
federal funds purchased, lines-of-credit for U.S. treasury notes and FHLB
advances.
Table 3
Average Interest-bearing Liabilities
Year ended December 31, 1996 1995 1994
_______________________________________________________________________________
(dollars in thousands)
Total average interest-bearing
liabilities $1,107,265 $1,035,459 $976,581
Percent of average total interest-
bearing liabilities
Interest-bearing core deposits 80.5% 81.4% 84.0%
CDs of $100,000 or more 6.2 7.0 6.9
Brokered deposits 2.1 2.4 2.3
Average short-term borrowings 10.2 8.3 5.3
Average long-term borrowings 0.9 0.8 1.4
Other 0.1 0.1 0.1
NONPERFORMING ASSETS AND RISK ELEMENTS
Nonperforming assets, including nonaccrual, 90-day past due and restructured
loans and foreclosed properties, totaled $12.2 million at December 31, 1996,
compared to $6.8 million and $6.7 million at December 31, 1995 and 1994,
respectively. Nonperforming assets as a percentage of total loans and other
real estate increased to 1.17% at December 31, 1996 compared to 0.74% and 0.83%
at December 31, 1995 and 1994, respectively. The 1996 increase in nonperforming
assets is principally due to one $3.0 million loan that is past due 90 days,
one $1.0 million nonaccrual loan and numerous small consumer loans. Management
21
was prepared for the increased level of consumer chargeoffs and nonperforming
loans and believes that the level will remain relatively high compared to prior
periods due to the cyclical nature of consumer credit. There are generally good
economic conditions in the market area and management believes the Company's
comprehensive loan administration and workout procedures are adequate to manage
the credit risks. Also, diversification within the loan portfolio is an
important means of reducing inherent lending risks. At December 31, 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, 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 4
Nonperforming Assets
December 31, 1996 1995 1994 1993
_______________________________________________________________________________
(in thousands)
Nonaccrual loans $4,680 $1,817 $531 $835
Loans past due 90 days 4,710 1,471 1,838 503
Renegotiated loans 2,707 2,874 2,741 2,995
Other real estate owned 90 644 1,569 2,258
------ ------ ------ ------
$12,187 $6,806 $6,679 $6,591
====== ====== ====== ======
Nonperforming assets as a
percent of total loans
and other real estate 1.17% 0.74% 0.83% 0.93%
Allowance for loan losses
coverage of nonperform-
ing assets 121% 196% 182% 163%
In years prior to 1996, management's efforts to monitor and minimize nonper-
forming assets resulted in nonperforming totals 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 would create
serious doubts as to the future ability of borrowers to comply with loan
repayment terms. At December 31, 1996, loans with a total principal balance of
$26.4 million have been identified that may become nonperforming in the future,
compared to $12.8 million at December 31, 1995 and $12.9 million at December 31,
1994. The 1996 increase was due to two commercial loan relationships.
Management is working closely with these borrowers in their efforts to resolve
22
potential cash flow problems. 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 believes that a strong capital position is vital to continued
profitability, as well as depositor, investor and regulator confidence.
Stockholders' equity was 10.2% of assets at December 31, 1996, an increase from
10.0% at December 31, 1995. Exclusive of unrealized net gain and loss on
securities held for sale, net of applicable income taxes, stockholders' equity
increased $17.0 million, or 13.4%, during 1996, and increased $12.4 million, or
10.8%, during 1995. The capital base has been strengthened through the issuance
of common stock and earnings retention. Common stock was issued for the savings
bank acquisition and through various shareholder and employee plans. The
earnings retention rate, which the board of directors adjusts through
declaration of cash dividends, was 63.2% for 1996, 68.2% for 1995 and 70.9% for
1994. Proceeds from the sale of common stock through shareholder and employee
plans amounted to $1.7 million in 1996, $2.2 million in 1995 and $1.0 million in
1994. During 1996, the board of directors authorized the repurchase of up to
400,000 shares of the Company's common stock in the open market. A total of
89,005 shares were repurchased during the year for $1.9 million. Unrealized
gain or loss on securities held for sale, net of applicable income taxes, is
recorded directly to stockholders' equity. For 1996, stockholders' equity was
decreased by $0.6 million, for 1995 was increased by $5.6 million and for 1994
was decreased by $6.5 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. All of the Company's subsidiary banks were "well
capitalized" based on the regulatory defined minimums of a Tier I leverage ratio
of 5%, a Tier I capital ratio of 6% and a total capital ratio of 10%.
Subsidiary bank dividends are the principal source of funds for the Company's
payment of dividends to its stockholders. At December 31, 1996, approximately
$26.4 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 $0.14 per share in the
third quarter of 1995, to $0.15 per share in the second quarter of 1996 and to
$0.19 per share in the fourth quarter of 1996. Stock dividends of 5% were
declared in April 1995, January 1996 and January 1997.
RESULTS OF OPERATIONS
Net income increased 16.2% in 1996, reaching a record level of $17.2 million,
compared to an increase of 13.0% in 1995 when net income was $14.8 million. On
a per common share basis, net income increased 14.0% to $1.71 per share for the
23
year ended December 31, 1996, compared to an increase of 11.9% to $1.50 per
share for the year ended December 31, 1995. Net income per common share for the
fourth quarter of 1996 increased 11.9% to $0.47 from $0.42 for the fourth
quarter of 1995. The 1996 increase in earnings was primarily due to increased
interest margins and improved noninterest income partially offset by higher
provisions for loan losses and overhead. Strong loan growth, reductions in
deposit insurance expense 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 that year.
Performance measures continue to show consistent improvement. Return on
average stockholders' equity for the years ended December 31, 1996, 1995 and
1994 was 12.75%, 12.46% and 12.15%, respectively. Return on average assets for
the years ended 1996, 1995 and 1994 was 1.29%, 1.19% and 1.11%, respectively.
NET INTEREST INCOME
The primary source of income for the Company remains net interest income, the
amount by which interest earned on assets exceeds the interest paid on
supporting funds. Measured on a fully taxable equivalent (TE) basis, net
interest income for the year ended December 31, 1996, increased 13.3%, or $6.6
million to $56.1 million compared to $49.5 million for 1995. For the year ended
December 31, 1995, net interest income (TE) increased 4.0%, or $1.9 million from
$47.6 million for 1994. Two important factors determine net interest income.
They are the volume of earning assets and the margin earned thereon. The
resilient economy of the Midwest area and the desire to be a prominent lender is
apparent in loan growth, the Company's primary earning asset. More than
one-half of 1996's increase and all of 1995's increase is attributable to growth
in the volume of average earning assets. The fully taxable equivalent net
interest income margin on average earning assets was 4.41%, 4.18% and 4.28% for
the years ended December 31, 1996, 1995 and 1994, respectively. Management's
deliberate efforts to concentrate on appropriate pricing is reflected in the
increased margin.
Time deposits, the highest cost funding source, were 53.1% of the average of all
interest-bearing liabilities for 1996, down from 57.8% for 1995. Competitively
priced short-term money market accounts partially contributed to customer
choices. The subsidiary banks generally maintain a relatively balanced position
between volumes of rate-repricing assets and liabilities to guard to some degree
against adverse effects to net interest income from possible fluctuations in
interest rates.
PROVISION FOR LOAN LOSSES
The provision for loan losses reflects management's judgement of the cost
associated with credit risk inherent in the loan portfolio. The provision for
loan losses amounted to $2.7 million for 1996, an increase of 22.7% compared to
$2.2 million for 1995, which was an increase of 29.4% compared to $1.7 million
in 1994. The increases were required to reflect the growth in outstanding loans
and chargeoffs, particularily consumer loan chargeoffs. The provision for loan
24
losses as a percentage of average loans was 0.28% for the year ended December
31, 1996, up from 0.25% for the year ended December 31, 1995 and 0.23% for the
year ended December 31, 1994.
Net loan chargeoffs over most of the last three years were at levels below
historical trends. Net chargeoffs for 1996 were $1.7 million compared to $1.0
million for 1995 and $0.3 million for 1994. As a percentage of average loans,
net chargeoffs were 0.18% for 1996, up from 0.11% for 1995 and 0.03% for 1994,
periods of low net chargeoffs. Net chargeoffs as a percent of average loans
were 0.17% for the five-year period ended December 31, 1996. 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, 1996, the allowance for loan losses is 1.42% of outstanding loans compared
1.46% of outstanding loans at December 31, 1995. The December 31, 1996
allowance is 121% of nonperforming assets compared to 196% at December 31, 1995.
This reduction is due to an increase in nonaccrual and past due loans, most of
which were in the process of collection.
NONINTEREST INCOME
Noninterest income is an important but not yet significant source of revenue
for the Company, representing 13.1% of tax equivalent net revenues in 1996,
compared to 13.7% in 1995 and 12.9% in 1994. Noninterest income amounted to
$8.5 million in 1996, a 7.4% increase compared to $7.9 million in 1995 which was
an increase of 11.3% compared to $7.1 million in 1994. Excluding net securities
gains, the 1996 and 1995 increases were more comparable and were 8.9% and 11.4%,
respectively. Management desires to increase annual noninterest income revenue
by 10% by focusing on increased business activity in the trust department,
insurance, brokerage activities and other commission business.
Service charges on deposit accounts, the largest component of noninterest
income, increased 8.4% in 1996 and 4.6% in 1995. The increases are attributable
to account growth coupled with more uniform application of charges. Net
securities gains of $178,143 and $62,309, were recognized in 1995 and 1994,
respectively. Securities held for sale, primarily mortgage-backed securities,
totaling $12.1 million and $11.9 million, were sold in 1995 and 1994,
respectively, to reduce, 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.
Trust fees for 1996 increased 9.0% from 1995 which increased 3.3% from 1994.
These increases match the growth in the amount of trust assets managed which
were primarily in estate and personal trust accounts. Following growth rates of
41.3% and 48.3% in insurance commissions in 1995 and 1994, respectivley,
attributable to greater opportunities resulting from the significant increase in
consumer loans, the Company's penetration of this product was less successful in
1996. Income from secondary-market mortgage loan services, investment brokerage
services and property and casualty insurance products all generated higher level
of fees in 1996 due to account growth.
25
NONINTEREST EXPENSE
The ratio of noninterest expense net of noninterest income exclusive of
securities gains to average total assets was 1.97% for 1996, 1.96% for 1995 and
2.15% for 1994. Management continues to focus on controlling the rate of
increase of noninterest expense through 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 increased 8.3% in 1996 to $34.8 million, reflecting higher
equipment and data processing expenses. Noninterest expense decreased 0.3% in
1995 to $32.2 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 4.1% in 1996, compared to 6.0% in 1995.
Staffing levels were approximately the same at December 31, 1996 and 1994. The
Company has made investments in equipment and facilities of approximately $7.3
million during the last three years as technology has advanced and the need to
leverage personnel costs has intensified. Occupancy expense increased 2.5% in
1996, 5.5% in 1995 and 6.2% in 1994. Equipment expense increased 15.2% in 1996,
13.2% in 1995 and 16.2% in 1994 due to depreciation and maintenance of new
equipment. Much of the recent years' equipment purchases are electronic and
technology related assets which the Company depreciates over a five year or
shorter period. Management plans to continue to invest in technology for new
product delivery systems.
Deposit insurance expense totaled $1.6 million in 1996, an increase of 23.1%,
compared to $1.3 million in 1995. Deposit insurance expense decreased 43.5% in
1995 from $2.3 million in 1994. In the third quarter of 1996, the Federal
Deposit Insurance Corporation (FDIC) made a special assessment on savings banks'
deposits of $0.657 for every $100 of savings bank deposits on March 31, 1995.
The amount of the special assessment paid in 1996 by the Company's two savings
bank subsidiaries was $1.3 million. In the second quarter of 1995, the FDIC
reduced the rate paid by most commercial banks from $0.23 to $0.04 per $100 of
insured deposits and effective January 1996, the rate was reduced to a $2,000
annual minimum per bank. All of the Company's subsidiaries received the lowest
applicable deposit assessment rates from the FDIC. Management expects the level
of deposit insurance expense to be insignificant in 1997.
Increased data processing expense is attributable to a greater volume of activ-
ity and the outsourcing of a portion of credit card functions. The increase was
15.4% in 1996 and 2.7% in 1995. Kentucky Bankshare taxes increased 13.6% in
1996 compared to 1995. A small reduction in this expense occurred in 1995 due
to the consolidation of six separate banking corporations. The Company's bank
subsidiaries are required to maintain significant noninterest-bearing balances
with the Federal Reserve and to pay fees to regulatory agencies for periodic
examinations by the agencies.
26
INCOME TAXES
The Company's income tax planning is based on the goal of maximizing long-term
after-tax profitability. Income tax expense is impacted by the mix of taxable
versus tax-exempt revenues from securities and loans as well as certain
nondeductible expenses. 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.
Increases in income tax expense are attributable to higher operating earnings
and higher effective tax rates. The Company's effective income tax rate was
31.7%, 30.4% and 29.4%, for the years ended December 31, 1996, 1995 and 1994,
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. Nondeductible merger-related expenses also serve to increase
the effective rate.
LIQUIDITY AND INTEREST-RATE SENSITIVITY
The goal of the asset/liability management (ALM) process is to manage the
structure of the balance sheet to provide the maximum level of net interest
income while maintaining acceptable levels of interest sensitivity risk. 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. 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 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
thirteen 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. Management seeks to fairly closely match the duration of
repricing assets and liabilities over time to avoid unnecesary interest rate
risks. Currently, the Company does not employ interest rate swaps, financial
futures or options to affect interest rate risks.
27
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Table 5
Interest Rate Sensitivity
Analysis 1-91 92-183 184 days Total at
December 31, 1996 Days Days to 1 year 1 year
_______________________________________________________________________________
(in thousands)
Rate Sensitive Assets
Securities, at cost
U.S. treasury
and agencies $3,490 $3,015 $390 $6,895
Mortgage-backed 18,118 11,087 15,447 44,652
Municipal bonds 139 735 1,825 2,699
Other 10,394 0 0 10,394
------- ------- ------- -------
32,141 14,837 17,662 64,640
Loans 336,579 151,360 231,503 719,442
------- ------- ------- -------
368,720 166,197 249,165 784,082
Rate Sensitive Liabilities
Deposits
Transaction and savings 174,772 0 0 174,772
Time 153,186 79,772 174,463 407,421
Short-term borrowings 101,275 5,356 25,536 132,167
Long-term borrowings 3,102 254 2,602 5,958
------- ------- ------- -------
432,335 85,382 202,601 720,318
------- ------- ------- -------
Period Gap ($63,615) $80,815 $46,564 $63,764
======= ======= ======= =======
Cumulative Gap at 12/31/96 ($63,615) $17,200 $63,764 $63,764
Cumulative Gap at 12/31/95 ($100,928) ($19,511) $97,865 $97,865
</TABLE>
Management made the following assumptions in preparing the Interest Rate
Sensitivity Analysis:
o Assets and liabilities are generally scheduled according to their
earliest repricing dates regardless of their contractual maturities.
o Nonaccrual loans are included in the rate-sensitive category.
o 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.
o 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
The subsidiary banks and the Company collectively measure their level of
earnings exposure to future interest rate movements. Simulation and interest
rate gap analyses are used to scrutinize the sensitivity of net interest income
over a relatively short (1-2 years) time horizon. The analyses are used to
examine the impact on earnings of an immediate interest rate shock as well as
other forecasted interest rate scenarios. Each scenario incorporates what
management believes to be the most reasonable assumptions about such variables
as volumes, prepayment rates for mortgage assets and repricing characteristics.
A valuation analysis is also performed to measure the sensitivity of the
Company's net interest income. This analysis involves discounting projected
future cash flows of assets, liabilities and off-balance sheet positions to
arrive at an estimated net present economic value.
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 lines, 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. The Company has current plans to merge
the Tennessee savings bank into the Kentucky commercial bank in the third
quarter of 1997. 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
established or acquired branches under applicable federal or state law. The
Company regularly explores opportunities for acquisitions in the adjoining
interstate area. Branching Act provisions are designed to allow acquiring
companies the opportunity to operate more efficiently.
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. None of
the states contiguous with western Kentucky have opted-out of interstate
branching.
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, 1996 and 1995, 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, 1996.
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, 1996 and 1995, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
January 27, 1997
30
December 31, December 31,
CONSOLIDATED BALANCE SHEETS 1996 1995
_______________________________________________________________________________
(in thousands)
ASSETS
Cash and due from banks $43,285 $37,524
Securities held for sale 182,352 146,322
Securities held for investment 121,959 160,320
Loans held for sale 1,886 708
Loans receivable, net 1,021,634 900,418
Excess of cost over net assets
of purchased subsidiaries 10,586 9,248
Premises and equipment 19,376 18,226
Other assets 16,686 14,830
--------- ---------
$1,417,764 $1,287,596
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand deposits $85,376 $86,360
Interest-bearing transaction accounts 335,977 291,539
Savings deposits 85,145 83,607
Time deposits 608,755 585,598
--------- ---------
1,115,253 1,047,104
Short-term borrowings 132,167 93,469
Long-term borrowings 14,013 7,757
Other liabilities 11,782 11,094
--------- ---------
Total liabilities 1,273,215 1,159,424
Stockholders' Equity
Common stock 7,812 7,207
Surplus 69,691 53,269
Retained earnings 66,762 66,878
Unrealized net gain on
securities held for sale 284 926
Debt on ESOP shares 0 (108)
--------- ---------
144,549 128,172
--------- ---------
$1,417,764 $1,287,596
========= =========
Fair value of securities held for investment $125,061 $165,042
Common shares issued and outstanding 9,999 9,686
See accompanying notes to consolidated financial statements. 31
Year Ended December 31,
CONSOLIDATED STATEMENTS OF INCOME 1996 1995 1994
_______________________________________________________________________________
(in thousands, except per share data)
INTEREST INCOME
Interest and fees on loans $87,872 $78,487 $62,437
Taxable interest on securities 15,842 16,082 17,493
Nontaxable interest on securities 3,837 4,017 4,305
Interest on short-term investments 122 160 169
------- ------- -------
107,673 98,746 84,404
INTEREST EXPENSE
Interest on deposits 46,902 45,608 35,710
Other interest expense 6,657 5,544 3,145
------ ------ ------
53,559 51,152 38,855
------ ------ ------
Net Interest Income 54,114 47,594 45,549
Provision for Loan Losses 2,664 2,167 1,723
------ ------ ------
Net Interest Income after
Provision for Loan Losses 51,450 45,427 43,826
Noninterest Income 8,535 7,944 7,076
Noninterest Expense 34,843 32,158 32,312
------ ------ ------
Income Before Income Tax Expense 25,142 21,213 18,590
Income Tax Expense 7,978 6,446 5,465
------ ------ ------
NET INCOME $17,164 $14,767 $13,125
====== ====== ======
Net Income per Common Share $1.71 $1.50 $1.34
Cash Dividends per Common Share 0.63 0.48 0.39
See accompanying notes to consolidated financial statements. 32
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CONSOLIDATED STATEMENTS OF CHANGES Common Retained
IN STOCKHOLDERS' EQUITY stock Surplus earnings
________________________________________________________________________________
(in thousands, except share data)
BALANCE AT DECEMBER 31, 1993 $6,381 $33,862 $64,416
Net income 13,125
Net income for period attributable to
change in fiscal year of subsidiary 335
Cash dividends declared
Common stock ($0.39 per share) (3,231)
By pooled companies prior to merger (906)
Issuance of 60,100 common shares pursuant
to shareholder and employee plans 41 997
Reduction of ESOP debt
Change in unrealized net gain
(loss) on securities held for sale
------ ------ ------
BALANCE AT DECEMBER 31, 1994 6,422 34,859 73,739
Net income 14,767
Cash dividends declared ($0.48 per share) (4,604)
Common stock dividends declared (5%) 665 16,359 (17,024)
Issuance of 168,938 common shares pursuant
to shareholder and employee plans 120 2,051
Reduction of ESOP debt
Change in unrealized net gain
(loss) on securities held for sale
------ ------ ------
BALANCE AT DECEMBER 31, 1995 7,207 53,269 66,878
Net income 17,164
Cash dividends declared ($0.63 per share) (6,169)
Common stock dividend declared (5%) 372 10,739 (11,111)
Issuance of 87,457 common shares pursuant
to shareholder and employee plans 65 1,696
Issuance of 315,002 common shares
for acquisition 234 5,803
Repurchase of 89,005 common shares (66) (1,816)
Reduction of ESOP debt
Change in unrealized net gain
(loss) on securities held for sale
------ ------ ------
BALANCE AT DECEMBER 31, 1996 $7,812 $69,691 $66,762
====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements. 33
<TABLE>
<CAPTION>
<S> <C> <C>
Year Ended Dec
CONSOLIDATED STATEMENTS OF CASH FLOWS 1996 1995
________________________________________________________________________________
(in thousands)
OPERATING ACTIVITIES
Net income $17,164 $14,767
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,126 2,752
Net premium amortization on securities 575 953
Provision for loan losses 2,664 2,167
Provision for deferred income taxes 352 (316)
Net (increase) decrease in loans
held for sale (377) (553)
Other, net (1,178) 2,449
------ ------
Net Cash Provided by Operating
Activities 22,326 22,219
INVESTING ACTIVITIES
Net decrease in short-term investments 0 0
Proceeds from sales of securities
held for sale 0 12,086
Proceeds from maturities, calls and
prepayments of securities held for sale 41,678 13,045
Proceeds from maturities, calls and
prepayments of securities held for investment 47,808 44,639
Purchase of securities held for sale (73,565) (33,033)
Purchase of securities held for investment (6,502) (1,775)
Net increase in loans (78,072) (109,011)
Purchases of premises and equipment (2,044) (3,190)
Net cash received in acquisition 1,185 0
------ ------
Net Cash Used by Investing Activities (69,512) (77,239)
See accompanying notes to consolidated financial statements. 34
CONSOLIDATED STATEMENTS OF Year Ended Dec
CASH FLOWS - CONTINUED 1996 1995
________________________________________________________________________________
(in thousands)
FINANCING ACTIVITIES
Net increase in deposits $25,620 $48,521
Net increase in short-term borrowings 34,447 8,903
Proceeds from long-term borrowings 0 139
Repayments of long-term borrowings (830) (1,919)
Proceeds from issuance of common stock 696 1,418
Repurchase of common stock (1,882) 0
Cash dividends paid (5,104) (3,851)
------ ------
Net Cash Provided by Financing Activities 52,947 53,211
------ ------
Cash and Cash Equivalents
Decrease 5,761 (1,809)
Beginning of Year 37,524 39,333
------ ------
End of Year $43,285 $37,524
====== ======
SUPPLEMENTAL DISCLOSURES
Cash paid for interest expense $54,279 $48,642
Cash paid for income taxes 8,824 5,558
NONCASH INVESTING AND FINANCING TRANSACTIONS
Other real estate transferred
to (from) loans, net (108) (30)
Dividends reinvested 1,065 753
Common stock issued in acquisition 6,037 0
</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, 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 and its
subsidiaries conform to generally accepted accounting principles and general
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. Amortization or accretion of premiums or discounts on securities are
recognized as adjustments to interest income using the level yield method.
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
36
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 amortized cost.
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 HELD FOR SALE
The Company's operations include a limited amount of mortgage banking. Mortgage
banking activities include the origination of residential mortgage loans for
sale to various investors. Mortgage loans originated and intended for sale in
the secondary market, principally under programs with the Government National
Mortgage Association (GNMA) or the Federal National Mortgage Association (FNMA),
are carried at the lower of cost or market value. Mortgage banking revenues,
including origination fees, servicing fees, net gains on sales of servicing
rights, net gains or losses on sales of mortgages and other fee income amount to
less than 1% of the Company's total revenue for the years ended December 31,
1996, 1995 and 1994.
The Company became subject to Statement of Financial 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
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.
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. Unearned
discount attributable to certain consumer loans is credited to income using a
method which approximates the level yield method.
37
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. The Company recognizes interest income on
nonaccrual impaired loans equal to the amount of interest received, if any, in
cash.
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.
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 statement of income over the
period benefited. Management evaluates the periods of amortization continually
to determine whether later events and circumstances warrant revised estimates.
38
Currently, amortization is provided on a straight-line basis over fifteen years.
Accumulated amortization was $4.1 million at December 31, 1996 and $3.2 million
at December 31, 1995 and amortization expense was $879,164, $829,884 and
$829,884, for the years ended December 31, 1996, 1995 and 1994, respectively.
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, core
deposit or other long-lived assets. Management considers intangibles 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.
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 noninterest 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.
39
STOCK OPTIONS
The Company applies APB Opinion No. 25 in accounting for its stock option plan
and, accordingly, no compensation cost has been recognized for stock option
grants in the consolidated financial statements. During October, 1995, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123). FAS
123 establishes a new fair value-based method of accounting for equity
instruments issued to employees. The effect of FAS 123 on the Company was the
inclusion of certain disclosures in Note 12 to the consolidated financial
statements.
TRANSFER AND SERVICING OF FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES
During June, 1996, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing
of Financial Assets and Extinguishments of Liabilities" (FAS 125). FAS 125
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities based on consistent
application of a financial-components approach that focuses on control. It
distinguishes transfers of financial assets that are sales from transfers that
are secured borrowings, based on control of the transferred assets. The
adoption of FAS 125 effective at the beginning of 1997 will not have an impact
on the Company's financial position, results of operations or liquidity.
INCOME TAXES
Income tax expense is reported as the total of current income taxes payable and
the net change in deferred income taxes payable provided for temporary
differences. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying values of assets and liabilities for financial
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, allowance for
loan losses, amortization of premiums on debt securities, depreciation of
premises and equipment 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, 1996, including
the 5% stock dividend declared in January 1997, and payable in March 1997. 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 1996, 1995 and 1994 were 10,025,411,
9,851,674 and 9,767,160, respectively. Common stock equivalents have no
material dilutive effect.
40
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 purchased with a maturity
of three months or less to be cash equivalents.
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 consolidated financial statements have been
reclassified to conform with the 1996 presentation. The reclassifications had
no effect on previously reported stockholders' equity or net income.
2. BUSINESS COMBINATIONS
The Company regularly explores opportunities for acquisitions of financial
institutions. During the three year period ended December 31, 1996, the Company
was a party to three business combinations. The most recent acquisition was
accounted for using the purchase method of accounting. Results of operations
subject to purchase accounting are included from the date of acquisition.
Disclosure of pro forma condensed results of operations as if this acquisition
were consummated as of the beginning of the period have been omitted due to
the immaterial effect on operations. The two earlier acquisitions were
accounted for using the pooling of interest method of accounting. Results of
operation subject to pooling of interest accounting are reflected on a combined
basis from the earliest period presented.
On August 30, 1996, the Company consummated the acquisition of Guaranty Federal
Savings Bank (Guaranty). The Company acquired all of the outstanding shares of
Guaranty in exchange for 315,002 shares of Peoples First Corporation common
stock. Guaranty's three locations in Clarksville, Tennessee, are immediately
southeast of the market area served by the Company's other subsidiary banks.
Immediately prior the acquisition, Guaranty had total assets of approximately
$55.9 million and stockholders' equity of $3.2 million.
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
1,247,750 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.
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 1,076,353 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.
Immediately prior the acquisition, First Kentucky had total assets of
approximately $176.8 million.
41
3. CASH AND DUE FROM BANKS
The Company's banking subsidiaries are required to maintain certain reserve
balances in cash with Federal Reserve Banks (FRB). The reserve balances
maintained in accordance with FRB requirements, partially satisfied by vault
cash on hand, as of December 31, 1996 and 1995 were $8.0 million and $11.5
million, respectively. The average amount of required reserves were $12.8
million and $8.9 million, respectively, for the years ended December 31, 1996
and 1995.
4. SECURITIES HELD FOR SALE AND INVESTMENT
The amortized cost and fair value of securities held for sale as of
December 31, 1996 and 1995 are summarized as follows:
Gross Gross
Securities Held For Sale Amortized unrealized unrealized Fair
December 31, 1996 cost gains losses value
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies $58,604 $307 ($310) $58,601
Mortgage-backed securities 108,487 916 (501) 108,902
Federal Home Loan Bank
stock and other securities 14,819 30 0 14,849
------- ------- ------- -------
$181,910 $1,253 ($811) $182,352
======= ======= ======= =======
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 and other securities 11,958 105 0 12,063
------- ------- ------- -------
$144,919 $1,792 ($389) $146,322
======= ======= ======= =======
42
The amortized cost and fair value of securities held for investment as of
December 31, 1996 and 1995 are summarized as follows:
Securities Gross Gross
Held for Investment Amortized unrealized unrealized Fair
December 31, 1996 cost gains losses value
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies $7,102 $7 ($35) $7,074
Mortgage-backed securities 53,819 486 (168) 54,137
State and political
subdivisions 60,938 2,830 (18) 63,750
Other securities 100 0 0 100
------- ------- ------- -------
$121,959 $3,323 ($221) $125,061
======= ======= ======= =======
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 securities 500 4 0 504
------- ------- ------- -------
$160,320 $4,925 ($203) $165,042
======= ======= ======= =======
There were no sales of securities in 1996. Proceeds from sales of securities
during 1995 and 1994 were $12,085,690 and $11,885,303, respectively. Gross
gains of $178,143 and $62,309 and no gross losses were realized on those sales
during 1995 and 1994, respectively.
The amortized cost, estimated fair value and the weighted average yield of
securities held for sale and held for investment at December 31, 1996, by
estimated 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. 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.
43
Securities Held for Sale Weighted
Maturity Distribution Amortized Fair average
December 31, 1996 cost value yield
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies
1 year or less $2,495 $2,494 5.55%
Over 1 through 5 years 51,838 51,813 6.17
Over 5 through 10 years 3,481 3,487 6.66
Over 10 years 789 807 5.72
Mortgage-backed securities
1 year or less 15,740 15,846 6.40
Over 1 through 5 years 61,484 61,667 6.72
Over 5 through 10 years 28,211 28,328 6.79
Over 10 years 3,053 3,061 6.73
Federal Home Loan Bank
stock and other securities 14,819 14,849 7.08
------- -------
$181,910 $182,352 6.55%
======= ======= ====
Securities Held for Investment Weighted
Maturity Distribution Amortized Fair average
December 31, 1996 cost value yield
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies
1 year or less $5,396 $5,383 5.96%
Over 1 through 5 years 1,706 1,692 6.19
Mortgage-backed securities
1 year or less 33,769 33,847 6.27
Over 1 through 5 years 15,794 16,056 7.04
Over 5 through 10 years 1,061 998 4.54
Over 10 years 3,195 3,235 6.85
State and political subdivisions
1 year or less 4,237 4,293 6.45
Over 1 through 5 years 17,827 18,629 6.37
Over 5 through 10 years 24,557 25,985 6.09
Over 10 years 14,317 14,843 5.66
Other
Over 1 through 5 years 100 100 8.25
------- -------
$121,959 $125,061 6.27%
======= ======= ====
44
At December 31, 1996 and 1995, securities, all of which were under the control
of the Company, with carrying values of approximately $150.6 million and
$145.1 million, respectively, were pledged to secure repurchase agreements,
public and trust deposits and for other purposes as required by law. Amounts
advanced under repurchase agreements represent short-term borrowings and are
reflected as liabilities on the consolidated balance sheets.
5. LOANS RECEIVABLE
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, 1996
and 1995, 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 receivable are as follows:
December 31, 1996 1995
_______________________________________________________________________________
(in thousands)
Commercial, financial and agricultural $120,283 $113,929
Real estate
Construction 29,933 19,386
Residential mortgage 421,129 364,607
Commercial mortgage 174,576 158,429
Consumer, net of unearned income of $4,854 and
$12,980 at December 31, 1996 and 1995 289,653 255,975
Other 855 1,463
--------- ---------
1,036,429 913,789
Allowance for loan losses (14,795) (13,371)
--------- ---------
$1,021,634 $900,418
========= =========
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.
45
Activity in the allowance for loan losses was as follows for the three-year
period ended December 31, 1996:
Allowance for Loan Losses
Year Ended December 31, 1996 1995 1994
_______________________________________________________________________________
(in thousands)
Balance at beginning of year $13,371 $12,188 $10,715
Allowance associated with loans acquired 481 --- ---
Provision charged to expense 2,664 2,167 1,723
Loans charged off (2,524) (1,307) (686)
Recoveries of loans
previously charged off 803 323 436
------ ------ ------
Net loans charged off (1,721) (984) (250)
------ ------ ------
Balance at end of year $14,795 $13,371 $12,188
====== ====== ======
Nonaccrual and renegotiated loans totaled $7.4 million and $4.7 million at
December 31, 1996 and 1995, 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.
Information regarding impaired loans at December 31, 1996 and 1995 is as
follows:
Impaired Loans
December 31, 1996 1995
_______________________________________________________________________________
(in thousands)
Recorded investment in impaired loans $4,454 $4,109
Less portion for which no allowance
for loan losses is allocated 325 308
------ ------
Portion of impaired loan balance for
which an allowance for loan losses
is allocated $4,129 $3,801
====== ======
Portion of allowance for loan losses
allocated to the impaired loan balance $1,142 $829
====== ======
46
Information regarding impaired loans is as follows for the years ended
December 31, 1996 and 1995:
Impaired Loans
Year Ended December 31, 1996 1995
_______________________________________________________________________________
(in thousands)
Average investment in impaired loans $4,926 $4,258
Interest income recognized on
impaired loans 488 378
Interest income recognized on
impaired loans on cash basis 0 0
Certain officers and directors of the Company and its subsidiaries and certain
corporations and individuals related to them are loan customers of the Company's
subsidiary banks. The activity of these loans during the years ended December
31, 1996 and 1995 is summarized below. Such 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. These loans did not
involve more than the normal risk of collectibility, except for borrowing
relationships totaling approximately $10.3 million which were internally
classified by management in 1996 as potential problem loans because of apparent
cash flow uncertainty.
Loans to Officers and Directors
Year Ended December 31, 1996 1995
_______________________________________________________________________________
(in thousands)
Balance at beginning of year $13,445 $11,825
Additions 9,905 2,165
Repayments (743) (631)
Changes in officer and director status 400 86
------ ------
Balance at end of year $23,007 $13,445
====== ======
47
6. PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
December 31, 1996 1995
_______________________________________________________________________________
(in thousands)
Land $2,738 $2,394
Buildings 19,580 18,421
Equipment 14,544 12,432
Leasehold improvements 994 985
Construction in progress 0 764
------ ------
37,856 34,996
Accumulated depreciation and amortization (18,480) (16,770)
------ ------
$19,376 $18,226
====== ======
The amount of depreciation and amortization related to premises and equipment
that was charged to operating expenses in 1996, 1995 and 1994 was $2,148,864
$1,857,202 and $1,650,659 respectively.
7. DEPOSIT LIABILITIES
The aggregate amount of time deposits, each with a minimum balance of $100,000,
was $102.5 million and $96.1 million at December 31, 1996 and 1995,
respectively. Interest expense on time deposits over $100,000 was $5.3 million,
$6.0 million and $4.2 million for the years ended December 31, 1996, 1995 and
1994, respectively. Also included in deposit liabilities were brokered time
deposits of $15.5 million, $26.6 million and $21.4 million at December 31, 1996,
1995 and 1994, respectively. At December 31, 1996, the scheduled maturities of
time deposits were as follows:
Time Deposit Maturities
For the years ending December 31,
__________________________________________________________________
(in thousands)
1997 $384,915
1998 145,454
1999 38,410
2000 26,168
2001 and thereafter 13,808
-------
$608,755
=======
48
8. SHORT-TERM BORROWINGS
Federal funds purchased, repurchase agreements and U.S. treasury notes 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 1996 1995 1994
_______________________________________________________________________________
(dollars in thousands)
Federal funds purchased
Average balance $19,284 $13,414 $21,171
Year end balance 21,525 15,100 41,500
Highest month-end balance 33,100 35,000 41,500
Average interest rate 5.44% 6.07% 4.63%
Year end interest rate 6.40% 5.60% 6.12%
Repurchase agreements
Average balance $28,041 $25,794 $22,702
Year end balance 28,415 23,869 21,567
Highest month-end balance 36,624 32,120 24,090
Average interest rate 4.48% 4.64% 3.50%
Year end interest rate 4.74% 4.05% 4.08%
Short-term FHLB advances
Average balance $63,161 $46,733 $7,581
Year end balance 79,400 54,500 21,500
Highest month-end balance 83,700 54,500 21,500
Average interest rate 5.51% 6.19% 5.18%
Year end interest rate 5.54% 5.85% 6.16%
U.S. treasury notes
Average balance $1,973 $0 $0
Year end balance 2,826 0 0
Highest month-end balance 4,899 0 0
Average interest rate 5.06% -- --
Year end interest rate 5.16% -- --
At December 31, 1996, the subsidiary banks had unsecured lines-of-credit for
federal funds purchased from unaffiliated banks totaling $55.0 million, of which
$33.5 million was undrawn and available, and total lines-of-credit for U.S.
treasury notes of $9.0 million, of which $6.2 million was undrawn and available.
9. LONG-TERM BORROWINGS
Information pertaining to the subsidiary banks' long-term borrowings is
summarized below:
December 31, 1996 1995
___________________________________________________________________
(in thousands)
Federal Home Loan Bank advances 14,013 7,649
Employee Stock Ownership Plan debt 0 108
------ ------
$14,013 $7,757
====== ======
49
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. At December 31,
1996, the subsidiary banks had secured lines-of-credit from FHLB totaling
$212.0 million, of which $118.6 million was undrawn and available. Of the
long-term advances at December 31, 1996, all were at fixed interest rates
ranging from 4.70% 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 $3.0 million and certain single-family first mortgage loans in the
approximate amount of $313.5 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 $10.4 million at December 31, 1996. 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 was 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 wassecured by the pledge of certain shares of
the stock of the subsidiary. Interest was payable quarterly at the lender's
prime rate less 0.50% which can be adjusted daily (9.75% at December 31, 1995).
The note provided for annual principal payments of $25,357 and was paid off in
October 1996.
Annual minimum principal repayment requirements for long-term borrowings for the
years 1997 through 2001 are $484,250, $442,294, $477,638, $506,147 and $548,286,
respectively.
10. 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
collateral standards as on-balance-sheet items.
50
Contractual commitments to extend credit and standby letters of credit at
December 31, 1996 and 1995 are summarized as follows:
Financial Instruments with
Off-Balance-Sheet Risk
December 31, 1996 1995
_______________________________________________________________________________
(in thousands)
Contractual commitments to extend credit $126,331 $115,788
Standby letters of credit 11,882 10,894
Of the total commitments to extend credit at December 31, 1996 and 1995, $1,000
and $99,072, respectively, represent fixed-rate loan commitments.
11. 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 $236,130, $215,360 and $201,696 for the years ended
1996, 1995 and 1994, respectively. The ESOPs' investments include 300,363 and
307,142 shares of the Company's common stock at December 31, 1996 and 1995,
respectively. The fair value of the Company's common stock owned by the ESOPs
was $7.3 million and $6.5 million at December 31, 1996 and 1995, respectively.
Participants may elect to receive their benefits either in a lump-sum cash
amount or in shares of the Company's stock.
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, 1996, 1995 and 1994, the Company's required matching contribution
amounted to $258,747, $243,924 and $225,583, respectively. Employees have
several investment options in which contributions may be invested.
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 1996,
1995 and 1994.
12. 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.
51
SHARE PURCHASE RIGHTS PLAN
In January of 1995, the Board of Directors of the Company adopted a Share
Purchase Rights Plan and distributed a dividend of one Preferred Share Purchase
Right (Right) for each outstanding common share of the Company and for each
common share issued thereafter. The Rights are generally designed to deter
coercive takeover tactics and to encourage all persons interested in acquiring
control of the Company to deal with each shareholder on a fair and equal basis.
Each Right trades in tandem with its respective share of common stock until the
occurrence of certain events, in which case it would separate from the common
stock and entitle the registered holder, subject to the terms of the Rights
Agreement, to purchase certain equity securities at a price below their market
value. The Company has not issued any of the authorized no par preferred stock.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
In 1987, the Board of Directors of the Company adopted the Peoples First
Corporation Share Owner Dividend Reinvestment and Stock Purchase Plan (DRIP),
and amended the plan during 1994. The DRIP provides for the issuance of
1,203,930 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, 1996, 756,032 shares were reserved for
issuance under the DRIP. Shares issued under the DRIP totaled 74,717, 71,858
and 47,020 shares in 1996, 1995 and 1994, 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. The Option Plan authorizes
grants of options to purchase up to ten percent of the Company's outstanding
common shares. The authorized number of option shares at December 31, 1996 was
999,960 of which 151,035 is available for further grant under the Option Plan.
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.
The Company applies APB Opinion No. 25 in accounting for its Option Plan and,
accordingly, no compensation cost has been recognized for stock option grants in
the consolidated financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under FAS
123, considering only options granted in 1996 and 1995, the Company's net income
and net income per common share would have been the pro forma amounts indicated
below. The full impact of calculating compensation cost for stock options
under FAS 123 is not reflected because compensation cost is reflected over the
options' vesting period of up to ten years and compensation cost for options
granted prior to January 1, 1995 have not been considered.
52
Pro Forma Net Income
Year Ended December 31, 1996 1995
_______________________________________________________________________________
(in thousands, except per share data)
Net Income
As reported $17,164 $14,767
Pro forma 17,103 14,749
Net Income per Common Share
As reported 1.71 1.50
Pro forma 1.71 1.50
The per share weighted-average fair value of stock options granted during 1996
and 1995 was $4.92 and $5.03 on the date of grant using an option-pricing model
(Black Scholes) with the following weighted-average assumptions: 1996 - 3.28%
expected dividend yield, 24.63% expected volatility, 6.16% risk-free interest
rate and eight year expected life; 1995 - 2.50% expected dividend yield, 23.21%
expected volatility, 5.53% risk-free interest rate and ten year expected life.
Outstanding stock options are considered common stock equivalents in the
computation of net income per common share.
Weighted
average
Number exercise
Stock Option Plan Activity of shares price
_______________________________________________________________________________
Outstanding at December 31, 1993 517,412 $8.86
Granted 104,186 21.23
Exercised (14,587) 5.93
Forfeited (4,167) 14.04
-------
Outstanding at December 31, 1994 602,844 11.04
Granted 43,549 21.32
Exercised (114,281) 7.67
Forfeited (25,051) 13.93
-------
Outstanding at December 31, 1995 507,061 12.53
Granted 82,974 23.22
Exercised (12,740) 8.59
Forfeited (10,304) 19.56
-------
Outstanding at December 31, 1996 566,991 $14.06
=======
At December 31, 1996, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $6.40 - $23.33 and 5.3
years, respectively. At December 31, 1996 and 1995, the number of shares
subject to options that were exercisable was 329,709 and 289,754, respectively.
At December 31, 1996 and 1995, the weighted average exercise price of
exercisable shares was $9.44 and $8.65, respectively.
53
RETAINED EARNINGS RESTRICTION
In connection with the Company's savings bank subsidiaries conversion from
mutual to stock form of ownership during 1991 and 1981, the subsidiaries
restricted the amount of retained earnings at that date by establishing
liquidation accounts equal to approximately $6.8 million 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, 1996, total retained earnings of the Company's direct subsidiaries was
approximately $127.2 million, of which $26.4 million was available for payment
of dividends without approval by the applicable regulatory authority.
REGULATORY CAPITAL
The Company and its subsidiary banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by the regulators that, if undertaken, could
have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and its subsidiary banks must meet specific capital
guidelines that involve quantitative measures of the entity's assets,
liabilities and certain off-balance-sheet items calculated under regulatory
accounting practices. The Company's and subsidiary banks' capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulators to ensure capital adequacy
require the Company and subsidiary banks to maintain minimum amounts and ratios
of total and Tier I capital (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier I capital (as defined) to average assets (as
defined). Managements believes, as of December 31, 1996, that the Company and
subsidiary banks meet all capital adequacy requirements to which they are
subject.
As of November 27, 1995, the most recent notification from the Office of the
Comptroller of the Currency categorized the Company's only significant
subsidiary as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Company must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the following table. There are no conditions or events since
the notification that management believes have changed the institutions'
category.
54
The Company's and Peoples Bank's actual capital amounts and ratios are also
presented in the following table. Totals of $3.7 million and $0.9 million were
effectively deducted from capital for interest-rate risk in 1996 and 1995,
respectively.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
For
Regulatory Capital Actual Adequa
December 31, 1996 and 1995 Amount Ratio Amount
________________________________________________________________________________
(amounts in thousands)
As of December 31, 1996:
Total Capital to Risk Weighted Assets
Company $144,908 14.33% $80,914
Peoples Bank 120,572 13.77 70,045
Tier I Capital to Risk Weighted Assets
Company 132,986 13.15 40,457
Peoples Bank 109,920 12.55 35,022
Tier I Capital to Average Assets
Company 132,986 9.55 55,688
Peoples Bank 109,920 9.42 46,690
As of December 31, 1995:
Total Capital to Risk Weighted Assets
Company 129,141 14.23 72,584
Peoples Bank 111,707 13.71 65,183
Tier I Capital to Risk Weighted Assets
Company 117,937 13.00 36,292
Peoples Bank 101,494 12.46 32,591
Tier I Capital to Average Assets
Company 117,937 9.30 50,706
Peoples Bank 101,494 9.29 43,684
</TABLE>
13. INCOME TAXES
The current and deferred portions of income tax expense were as follows:
Year Ended December 31, 1996 1995 1994
_______________________________________________________________________________
(in thousands)
Current taxes $7,626 $6,762 $6,397
Deferred taxes 352 (316) (932)
----- ----- -----
Income tax expense $7,978 $6,446 $5,465
===== ===== =====
55
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, 1996 1995 1994
_______________________________________________________________________________
(in thousands)
Tax computed at statutory rates $8,800 $7,425 $6,407
Increase (decrease) in taxes
resulting from:
Tax-exempt income (1,266) (1,328) (1,413)
Goodwill amortization 308 290 290
Other, net 136 59 181
----- ----- -----
Income tax expense $7,978 $6,446 $5,465
===== ===== =====
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, 1996 1995
_______________________________________________________________________________
(in thousands)
Deferred tax assets:
Allowance for loan losses $4,871 $4,272
Deferred compensation 487 431
Other real estate owned 0 181
Other 111 74
----- -----
5,469 4,958
Deferred tax liabilities:
Unrealized security gain (35) (125)
Stock dividends on securities (675) (405)
Accrued interest income (31) (89)
Premises and equipment (1,346) (1,335)
Other (439) (48)
----- -----
(2,526) (2,002)
----- -----
Net deferred tax assets $2,943 $2,956
===== =====
Deferred tax assets have not been reduced by a valuation allowance. Based on
the weight of available evidence, management believes it is more likely than not
all of the deferred tax assets will be realized. Neither current or deferred
taxes have been provided for approximately $2.5 million of income at December
31, 1996 and 1995 which represents allocations for bad debt deductions for tax
56
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.
14. CONTINGENCIES
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.
15. SUPPLEMENTAL INCOME STATEMENT INFORMATION
Details of noninterest income and noninterest expense are as follows:
Noninterest Income
Year Ended December 31, 1996 1995 1994
_______________________________________________________________________________
(in thousands)
Service fees on deposits $4,767 $4,396 $4,201
Net securities gains 0 178 62
Trust department fees 1,330 1,220 1,181
Insurance commissions 578 664 470
Other income 1,860 1,486 1,162
----- ----- -----
$8,535 $7,944 $7,076
===== ===== =====
Noninterest Expense
Year Ended December 31, 1996 1995 1994
_______________________________________________________________________________
(in thousands)
Salaries $13,854 $13,302 $12,370
Employee benefits 2,500 2,411 2,450
Occupancy expense 1,814 1,769 1,677
Equipment expense 2,171 1,885 1,665
FDIC insurance expense 1,637 1,338 2,250
Data processing expense 2,590 2,245 2,187
Bankshare taxes 1,533 1,349 1,365
Goodwill amortization 879 830 830
Other expense 7,865 7,029 7,518
------ ------ ------
$34,843 $32,158 $32,312
====== ====== ======
57
16. PARENT COMPANY FINANCIAL INFORMATION
Following are condensed balance sheets of Peoples First Corporation (parent
company only) as of December 31, 1996 and 1995, and the related condensed
statements of income and cash flows for the years ended 1996, 1995 and 1994:
Condensed Balance Sheets
December 31, 1996 1995
__________________________________________________________________
(in thousands)
ASSETS
Cash in subsidiary bank $3,329 $797
Investment in subsidiary banks 141,257 127,105
Other assets 320 556
------- -------
$144,906 $128,458
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Accrued expenses and other liabilities $357 $286
Stockholders' equity
Common stock 7,812 7,207
Surplus 69,691 53,269
Retained earnings 66,762 66,878
Unrealized net gain on
securities held for sale 284 926
Debt on ESOP shares 0 (108)
------- -------
144,549 128,172
------- -------
$144,906 $128,458
======= =======
Common shares issued and outstanding 9,999 9,686
58
Condensed Statements of Income
Year Ended December 31, 1996 1995 1994
_______________________________________________________________________________
(in thousands)
INCOME
Dividends from subsidiary banks $9,100 $5,078 $10,878
Other income 3 3 11
------ ------ ------
9,103 5,081 10,889
EXPENSE
Interest expense 11 44 385
Legal and accounting fees 217 284 571
Other expense 390 378 654
------ ------ ------
618 706 1,610
------ ------ ------
Income before income tax benefit
and equity in undistributed
income of subsidiary banks 8,485 4,375 9,279
Income tax benefit 200 164 385
Income before equity in ------ ------ ------
undistributed income
of subsidiary banks 8,685 4,539 9,664
Equity in undistributed
income of subsidiary banks 8,479 10,228 3,461
------ ------ ------
NET INCOME $17,164 $14,767 $13,125
====== ====== ======
59
Condensed Statement of Cash Flows
Year Ended December 31, 1996 1995 1994
_______________________________________________________________________________
(in thousands)
OPERATING ACTIVITIES
Net income $17,164 $14,767 $13,125
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed
income of subsidiaries (8,479) (10,228) (3,461)
Amortization and other, net 137 (271) 134
Net Cash Provided by ------ ------ ------
Operating Activities 8,822 4,268 9,798
FINANCING ACTIVITIES
Proceeds from notes payable 0 0 3,800
Repayments of notes payable 0 (1,530) (11,859)
Proceeds from issuance of common stock 696 1,418 495
Repurchase of common stock (1,882) 0 0
Cash dividends paid (5,104) (3,851) (2,698)
------ ------ ------
Net Cash Used by Financing Activities (6,290) (3,963) (10,262)
Net Increase (Decrease) in Cash 2,532 305 (464)
and Cash Equivalents
Cash and Cash Equivalents at
Beginning of Year 797 492 956
------ ------ ------
Cash and Cash Equivalents at End of
Year $3,329 $797 $492
====== ====== ======
SUPPLEMENTAL DISCLOSURES
Cash paid for interest expense $0 $53 $405
Cash received for income taxes (558) (345) (711)
NONCASH INVESTING AND FINANCING TRANSACTIONS
Dividends reinvested 1,065 753 542
60
17. 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.
61
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 1996 and 1995.
The book values and estimated fair values for financial instruments as of
December 31, 1996 and 1995 are reflected below.
Financial Instruments
December 31, 1996 Book value Fair value
_______________________________________________________________________________
(in thousands)
Financial Assets
Cash and due from banks $43,285 $43,285
Securities held for sale 182,352 182,352
Securities held for investment 121,959 125,061
Loans held for sale 1,886 1,886
Loans receivable, net 1,021,634 1,063,034
Accrued interest receivable 9,850 9,850
Financial Liabilities
Deposits 1,115,253 1,118,860
Short-term borrowings 132,167 132,167
Long-term borrowings 14,013 13,854
Accrued interest payable 6,297 6,297
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 held for sale 708 708
Loans receivable, net 900,418 944,214
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
62
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the years ended December 31, 1996, 1995 and 1994 and in the subsequent
interim period, there has been no change in, or disagreements on accounting
matters with, the Company's independent auditors.
63
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 24, 1997, is incorporated herein by reference.
The following table provides information as of December 31, 1996, 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 222,537(1)
age 56 President and Chief
Executive of the registrant;
Chairman of the Board and
Chief Executive Officer of
Peoples Bank
Allan B. Kleet, Principal Accounting Officer, 1986 77,705(2)
age 48 Treasurer and Director of
the registrant
George Shaw, Director and President of 1993 9,044(3)
age 51 Peoples Bank; formerly Presi-
dent and Chief Executive Officer
of Bowling Green Bank & Trust
Company (1982-05/93)
(1) Represents 2.1% of the class of stock. Includes 133,871 shares subject to
currently exercisable stock options, and 210 shares held by Mr. Lippert as
custodian, and 24,277 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 753 shares
held individually by Mr. Kleet's wife, 71,530 shares subject to currently
exercisable stock options and 3,825 shares held in Mr. Kleet's ESOP
account for which he has voting but no dispositive power.
(3) Represents less than 1.0% of the class of stock. Includes 8,764 shares
subject to currently exercisable stock options and 49 shares held in Mr.
Shaw's ESOP account for which he has voting but no dispositive power.
64
Item 11. EXECUTIVE COMPENSATION
The information concerning compensation appearing on pages 9 through 12 of
Peoples First Corporation's definitive proxy statement, filed with the
Securities and Exchange Commission on March 24, 1997, 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 24, 1997, is incorporated herein
by reference.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information on pages 6 through 8 of Peoples First Corporation's definitive
proxy statement, filed with the Securities and Exchange Commission on March 24,
1997, 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.
65
(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 21, 1997 on January 21, 1997 to report the
Board of Director's declaration of a 5% stock dividend payable
March 20, 1997 to shareholders of record on February 21, 1997;
66
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: 03/25/97 /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 03/25/97
Aubrey W. Lippert of the Board
/s/ Allan B. Kleet Principal Accounting Officer 03/25/97
Allan B. Kleet
/s/ Walter L. Apperson Director 03/25/97
Walter L. Apperson
/s/ Glen Berryman Director 03/25/97
Glen Berryman
/s/ William R. Dibert Director 03/25/97
William R. Dibert
/s/ Joe Dick Director 03/25/97
Joe Dick
/s/ Richard E. Fairhurst, Jr. Director 03/25/97
Richard E. Fairhurst, Jr.
/s/ William Rowland Hancock Director 03/25/97
William Rowland Hancock
67
Signature Title Date
_____________________ ______________________ ________
/s/ James T. Holloway Director 03/25/97
James T. Holloway
/s/ Dennis W. Kirtley Director 03/25/97
Dennis W. Kirtley
/s/ Joe Harry Metzger Director 03/25/97
Joe Harry Metzger
/s/ Jerry L. Page Director 03/25/97
Jerry L. Page
/s/ Rufus E. Pugh Director 03/25/97
Rufus E. Pugh
/s/ Neal H. Ramage Director 03/25/97
Neal H. Ramage
/s/ Allan Rhodes, Jr. Director 03/25/97
Allan Rhodes, Jr.
/s/ Mary Warren Sanders Director 03/25/97
Mary Warren Sanders
/s/ Victor F. Speck, Jr. Director 03/25/97
Victor F. Speck, Jr.
/s/ C. Steve Story Director 03/25/97
C. Steve Story
68
INDEX TO EXHIBITS Page
(21) Subsidiaries of Registrant 70
(23) Consent of KPMG Peat Marwick LLP, independent public
accountants 71
(27) Financial Data Schedules (SEC only) 72
(99) Undertakings 74
69
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
Guaranty Federal Savings Bank
502 Madison Street
Clarksville, Tennessee 37042 Wholly owned
70
The Board of Directors
Peoples First Corporation:
We consent to incorporation by reference in the Registration Statements No.
33-28301 on Form S-3 and No. 33-28304 on Form S-8 of Peoples First Corporation
of our report dated January 27, 1997, relating to the consolidated balance
sheets of Peoples First Corporation and Subsidiaries as of December 31, 1996 and
1995, 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, 1996, which reports appears in the December 31, 1996 annual
report on Form 10-K of Peoples First Corporation.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
March 20, 1997
71
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 43,285
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 182,352
<INVESTMENTS-CARRYING> 121,959
<INVESTMENTS-MARKET> 125,061
<LOANS> 1,036,429
<ALLOWANCE> 14,795
<TOTAL-ASSETS> 1,417,764
<DEPOSITS> 1,115,253
<SHORT-TERM> 132,167
<LIABILITIES-OTHER> 11,782
<LONG-TERM> 14,013
<COMMON> 7,812
0
0
<OTHER-SE> 136,737
<TOTAL-LIABILITIES-AND-EQUITY> 1,417,764
<INTEREST-LOAN> 87,872
<INTEREST-INVEST> 19,679
<INTEREST-OTHER> 122
<INTEREST-TOTAL> 107,673
<INTEREST-DEPOSIT> 46,902
<INTEREST-EXPENSE> 53,559
<INTEREST-INCOME-NET> 54,114
<LOAN-LOSSES> 2,664
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 34,843
<INCOME-PRETAX> 25,142
<INCOME-PRE-EXTRAORDINARY> 25,142
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,164
<EPS-PRIMARY> 1.71
<EPS-DILUTED> 1.71
<YIELD-ACTUAL> 4.41
<LOANS-NON> 4,680
<LOANS-PAST> 4,710
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 26,400
<ALLOWANCE-OPEN> 13,371
<CHARGE-OFFS> 2,524
<RECOVERIES> 803
<ALLOWANCE-CLOSE> 14,795
<ALLOWANCE-DOMESTIC> 14,795
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
(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
74
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.
75
