_______________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934, For the Quarter Ended September 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number 0-16839
PEOPLES FIRST CORPORATION
(Exact name of registrant as specified in its charter)
Kentucky 61-1023747
(State or other jurisdiction of (I R S Employer
incorporation or organization) Identification No.)
100 South Fourth Street
P. O. Box 2200
Paducah, Kentucky 42002-2200
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (502) 441-1200
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing require-
ments for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of the Registrant's only class of stock as of
September 30, 1997: Common stock, no par value - 9,992,997 shares outstanding.
______________________________________________________________________________1
INDEX Page
_______________________________________________________________________________
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1997,
September 30, 1996 and December 31, 1996 3
Consolidated Statements of Income - Three and Nine
Months Ended September 30, 1997 and 1996 4
Consolidated Statement of Changes in Stockholders'
Equity - Nine Months Ended September 30, 1997 5
Consolidated Statements of Cash Flows - Nine Months
Ended September 30, 1997 and 1996 6
Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26
Item 2. Changes in Securities 26
Item 3. Defaults on Senior Securities 26
Item 4. Submission of Matters to a Vote of Securities Holders 26
Item 5. Other Information 26
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27
2
September 30, December 31,
CONSOLIDATED BALANCE SHEETS 1997 1996 1996
_______________________________________________________________________________
(in thousands)
ASSETS
Cash and due from banks $37,555 $42,474 $43,285
Securities held for sale 220,595 177,052 182,352
Securities held for investment 102,400 130,708 121,959
Loans held for sale 799 780 1,886
Loans receivable, net 1,055,600 1,000,678 1,021,634
Goodwill and other intangibles 12,471 11,183 10,923
Premises and equipment 20,391 19,866 19,376
Other assets 17,339 17,485 16,349
--------- --------- ---------
$1,467,150 $1,400,226 $1,417,764
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand deposits $84,411 $86,842 $85,376
Interest-bearing transaction accounts 369,817 317,086 335,977
Savings deposits 75,908 87,847 85,145
Time deposits 643,594 608,092 608,755
--------- --------- ---------
1,173,730 1,099,867 1,115,253
Short-term borrowings 83,980 132,026 132,167
Long-term borrowings 44,058 14,420 14,013
Other liabilities 11,991 13,043 11,782
--------- --------- ---------
Total liabilities 1,313,759 1,259,356 1,273,215
Stockholders' Equity
Common stock 7,807 7,432 7,812
Surplus 70,227 60,329 69,691
Retained earnings 74,105 73,314 66,762
Unrealized net gain (loss) on
securities held for sale 1,252 (199) 284
Debt on ESOP shares 0 (6) 0
--------- --------- ---------
153,391 140,870 144,549
--------- --------- ---------
$1,467,150 $1,400,226 $1,417,764
========= ========= =========
Fair value of securities held
for investment $105,697 $133,383 $125,061
Common shares issued and outstanding 9,993 9,989 9,999
See accompanying notes to consolidated financial statements. 3
<TABLE>
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Three Months Ended Nine Months Ended
September 30, September 30,
CONSOLIDATED STATEMENTS OF INCOME 1997 1996 1997 1996
____________________________________________________________________________________________
(in thousands, except per share data)
INTEREST INCOME
Interest and fees on loans $24,416 $22,381 $71,946 $64,210
Taxable interest on securities 4,235 4,005 12,450 11,877
Nontaxable interest on securities 920 954 2,768 2,906
Interest on short-term investments 14 15 91 85
------ ------ ------ ------
29,585 27,355 87,255 79,078
INTEREST EXPENSE
Interest on deposits 13,145 11,847 37,975 34,545
Other interest expense 1,987 1,809 6,121 4,669
------ ------ ------ ------
15,132 13,656 44,096 39,214
------ ------ ------ ------
Net Interest Income 14,453 13,699 43,159 39,864
Provision for Loan Losses 919 588 2,600 1,742
------ ------ ------ ------
Net Interest Income after
Provision for Loan Losses 13,534 13,111 40,559 38,122
Noninterest Income 2,764 2,152 7,795 6,196
Noninterest Expense 9,924 9,776 28,580 26,380
------ ------ ------ ------
Income Before Income Tax Expense 6,374 5,487 19,774 17,938
Income Tax Expense 2,082 1,700 6,434 5,640
------ ------ ------ ------
NET INCOME $4,292 $3,787 $13,340 $12,298
====== ====== ====== ======
Net Income per Common Share $0.42 $0.38 $1.30 $1.24
Cash Dividend per Common Share 0.22 0.15 0.60 0.44
Average Common Shares Outstanding 10,310 9,917 10,272 9,932
</TABLE>
See accompanying notes to consolidated financial statements. 4
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Unrealized
CONSOLIDATED STATEMENTS OF CHANGES net gain
IN STOCKHOLDERS' EQUITY Common Retained (loss) on
Nine Months Ended September 30, 1997 stock Surplus earnings securities Total
_________________________________________________________________________________________________________
(in thousands, except per share data)
BALANCE AT JANUARY 1, 1997 $7,812 $69,691 $66,762 $284 $144,549
Net income 13,340 13,340
Cash dividends declared
Common ($0.60 per share) (5,997) (5,997)
Stock issued pursuant to shareholder
and employee plans 44 1,370 1,414
Common stock repurchased (49) (834) (883)
Change in unrealized net gain
(loss) on securities held for sale 968 968
------ ------ ------ ------ -------
BALANCE AT SEPTEMBER 30, 1997 $7,807 $70,227 $74,105 $1,252 $153,391
====== ====== ====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements. 5
Nine Months Ended
September 30,
CONSOLIDATED STATEMENTS OF CASH FLOWS 1997 1996
_______________________________________________________________________________
(dollars in thousands)
OPERATING ACTIVITIES
Net income $13,340 $12,298
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,632 2,259
Net premium amortization 105 516
Provision for loan losses 2,600 1,742
Net (increase) decrease in loans held for sale 1,088 (72)
Provision for deferred income taxes 227 284
Increase (decrease) in accrued items (844) 565
Other, net (786) (1,166)
------ ------
Net Cash Provided by Operating Activities 18,362 16,426
INVESTING ACTIVITIES
Proceeds from maturities, calls and prepay-
ments of securities held for sale 30,607 24,912
Proceeds from maturities, calls and prepay-
ments of securities held for investment 25,601 37,255
Purchase of securities held for sale (67,000) (52,373)
Purchase of securities held for investment (6,042) (4,686)
Net increase in loans (36,958) (55,351)
Purchases of premises and equipment (2,794) (1,921)
Increase in core deposit premium (2,329) 0
Net cash received in acquisition
of subsidiary 0 1,185
------ ------
Net Cash Used by Investing Activities (58,915) (50,979)
See accompanying notes to consolidated financial statements. 6
Nine Months Ended
September 30,
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED 1997 1996
_______________________________________________________________________________
(dollars in thousands)
FINANCING ACTIVITIES
Net increase in deposits 58,476 10,233
Net increase (decrease) in short-term borrowings (48,187) 34,306
Proceeds from long-term borrowings 43,500 0
Repayments of long-term borrowings (13,454) (422)
Proceeds from issuance of common stock 385 568
Repurchase of common stock (883) (1,654)
Cash dividends paid (5,014) (3,528)
------ ------
Net Cash Provided by Financing Activities 34,823 39,503
------ ------
Cash and Cash Equivalents
Increase (Decrease) (5,730) 4,950
Beginning of Year 43,285 37,524
------ ------
End of Period $37,555 $42,474
====== ======
SUPPLEMENTAL DISCLOSURES
Cash paid for interest expense $42,148 $39,272
Cash paid for income tax 6,250 6,824
NONCASH INVESTING AND FINANCING TRANSACTIONS
Other real estate transferred from loans, net (392) (68)
Dividends reinvested 983 (738)
See accompanying notes to consolidated financial statements. 7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
_______________________________________________________________________________
NOTE A - BASIS OF PRESENTATION
Peoples First Corporation (Company) through its subsidiaries, Peoples First
National Bank and Trust Company, First Kentucky Federal Savings Bank and
Guaranty Federal Savings Bank, operates principally in a single business
segment offering a full range of banking services to individual and corporate
customers in the western Kentucky and contiguous interstate area. The Company
and the subsidiary banks are subject to the regulations of various federal and
state agencies and undergo periodic examination by regulators.
The accounting policies and reporting practices of the Company are based upon
generally accepted accounting principles and conform to predominant practices
within the banking industry. In preparing financial statements, management is
required to make assumptions and estimates which affect the Company's reported
amounts of assets and liabilities and the results of operations. Estimates and
assumptions involve future events and may change. The accompanying consolidated
financial statements are unaudited and should be read in conjunction with the
notes to consolidated financial statements contained in the 1996 annual report
on Form 10-K. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the period ended September 30, 1997 are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1997.
NOTE B - SECURITIES HELD FOR SALE AND INVESTMENT
At acquisition, securities are classified into one of three categories: trading,
held for sale or investment. 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 securities 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 prepayment risk, to meet liquidity needs, the need to increase
regulatory capital or other similar factors, are classified as securities held
for sale and are stated at fair value. Fair value is based on market prices
quoted in financial publications or other independent sources. Net unrealized
gains or losses are excluded from earnings and reported, net of applicable
income taxes, as a separate component of stockholders' equity until realized.
Securities for which the Company has the ability and positive intent to hold
until maturity are classified as securities held for investment and are carried
at cost, adjusted for amortization of premiums and accretion of discounts, which
are recognized as adjustments to interest income on the level-yield method.
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
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
_______________________________________________________________________________
rates, both historical and estimated, using a method which approximates the
level-yield method. Realized gains or losses on securities held for sale or
investment are accounted for using the specific security.
NOTE C - LOAN REVENUES
Loans receivable held for investment are carried at cost, as the Company has the
ability and it is management's intention to hold them to maturity. Interest on
commercial and real estate mortgage loans is accrued if deemed collectible and
credited to income based upon the principal amount outstanding. Mortgage loans
originated principally under programs with the Government National Mortgage
Association (GNMA) or the Federal National Mortgage Association (FNMA) and held
for sale are carried at the lower of cost or market value.
The Company evaluates the collectibility of both contractual interest and
contractual principal of all receivables when assessing the need for a loss
accrual. When in the opinion of management the collection of interest on a loan
is unlikely or when either principal or interest is past due over 90 days, that
loan is generally placed on nonaccrual status and interest is not recognized
unless received in cash. When a loan is placed in nonaccrual status, accrued
interest for the current period is reversed and charged against earnings and
accrued interest from prior periods is charged against the allowance for loan
losses. A loan remains on nonaccrual status until the loan is current as to
payment of both principal and interest and/or the borrower demonstrates the
ability to pay and remain current.
NOTE D - ALLOWANCE FOR LOAN LOSSES
The allowance is increased by provisions for loan losses charged to operations
and is maintained at a level adequate to absorb estimated credit losses asso-
ciated with the loan portfolio, including binding commitments to lend and
off-balance sheet credit instruments. At the end of each quarter, or more
frequently if warranted, management uses a systematic, documented approach in
determining the appropriate level of the allowance for loan losses. Manage-
ment's approach provides for general and specific allowances and is based upon
current economic conditions, past losses, collection experience, risk charac-
teristics of the loan portfolio, assessment of collateral values and such other
factors which in management's judgement deserve current recognition in
estimating potential loan losses.
Loans, except large groups of smaller-balance homogeneous loans, for which the
full collection of principal and interest is not probable, or a delay in
payments is expected, are evaluated for impairment. The Company measures and
reports impaired loans at either the present value of expected future cash
flows discounted at the loan's effective rate, the market price of the loan, or
fair value of the underlying collateral if the loan is collateral dependent.
Information regarding impaired loans at September 30, 1997 and 1996 and December
31, 1996 is as follows:
9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
_______________________________________________________________________________
Impaired Loans September 30, December 31,
September 30, 1997 1996 1996
________________________________________________________________________________
(in thousands)
Balance of impaired loans $5,951 $1,795 $4,454
Less portion for which no allowance
for loan losses is allocated 201 0 325
------ ------ ------
Portion of impaired loan balance for
which an allowance for loan losses
is allocated $5,750 $1,795 $4,129
====== ====== ======
Portion of allowance for loan losses
allocated to the impaired loan balance $1,480 $581 $1,142
====== ====== ======
Nine Months Ended
September 30,
Impaired Loans 1997 1996
_______________________________________________________________________________
(in thousands)
Average investment in impaired loans $4,895 $3,516
Interest income recognized on
impaired loans 402 257
Interest income recognized on
impaired loans on cash basis 63 0
NOTE E - GOODWILL AND OTHER INTANGIBLES
Net assets of subsidiaries acquired in purchase transactions are recorded at
fair value at the date of acquisition. The excess of cost over net assets
acquired is amortized by systematic charges in the consolidated statements of
income over the period benefited. Management evaluates the periods of amorti-
zation continually to determine whether later events and circumstances warrant
revised estimates. Currently, amortization is provided on a straight-line basis
over fifteen years. Accumulated amortization was $4.9 million at September 30,
1997, $3.8 million at September 30, 1996 and $4.1 million December 31, 1996.
Goodwill amortization expense was $733,293 and $634,708, respectively, for the
nine months ended September 30, 1997 and 1996.
10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
_______________________________________________________________________________
Core deposit intangibles, which represent the net present value of the future
economic benefit related to deposits purchased, are amortized on an accelerated
basis over 10 years. Accumulated amortization was $69,517 at September 30,
1997, $5,431 at September 30, 1996 and $21,724 at December 31, 1996. Core
deposit intangibles amortization expense was $47,793 and $5,431, respectively,
for the nine months ended September 30, 1997 and 1996.
The Company reviews intangible assets for impairment whenever events of changes
in circumstances indicate that the carrying value may not be recoverable. Asset
values and the related amortization expense are based on estimated lives and
significant changes in these lives could significantly affect future
amortization expense.
NOTE F - STOCK OPTION PLAN
The Peoples First Corporation 1986 Stock Option Plan (Option Plan), as amended
in 1994, authorizes the granting to key employees of the Company incentive stock
options and nonqualified stock options to purchase common stock of the Company
at market value at the time the options are granted. Shares sold under the
Option Plan may be either unissued authorized shares or shares reacquired by the
Company. Options granted are exercisable, subject to vesting and other
requirements, at varying times from the first through the tenth year after the
grant date. Optionees may exercise their options with cash or with shares of
the Company's common stock. At September 30, 1997, a total of 149,264 shares
are reserved for grants of options. Outstanding stock options at September
30, 1997 totaled 559,576 and are considered common stock equivalents in the
computation of net income per common share.
NOTE G - PER COMMON SHARE DATA
Share and per share information have been adjusted to give effect to 5% stock
dividends declared in January 1997 and January 1996. Net income per common
share is determined by dividing net income by the weighted average number of
common shares outstanding and common stock equivalents pertaining to common
stock options. The average number of shares outstanding including common stock
equivalents for the nine months ended September 30, 1997 and 1996 were
10,271,847 and 10,246,847 respectively, and for the three months ended September
30, 1997 and 1996, were 10,310,760 and 10,252,760, respectively. Common stock
equivalents have no material dilutive effect.
During February, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (FAS 128). FAS
128 establishes standards for computing and presenting earnings per share (EPS).
FAS 128 replaces the presentation of primary EPS with a presentation of basic
EPS. Dual presentation of basic and diluted EPS is required on the face of the
statement of income for entities with complex capital structures. Basic EPS
excludes dilution and is computed by dividing income available to common
11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
_______________________________________________________________________________
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity. FAS 128 is effective for financial statements
issued for periods ending after December 15, 1997. Management does not expect
the adoption of FAS 128 to have a material effect on the Company's results of
operations since common stock equivalents are not currently a significant factor
in the calculation of EPS.
NOTE H - CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all cash and due from banks to be cash equivalents.
NOTE I - BUSINESS COMBINATIONS
On August 30, 1996, the Company consummated the purchase acquisition of Guaranty
Federal Savings Bank (Guaranty) of Clarksville, Tennessee. The Company acquired
all of the outstanding shares of Guaranty in exchange for 315,002 shares of the
Company's 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 to the acquisition, Guaranty had total assets of approximately $55.9
million and stockholders' equity of $3.2 million.
NOTE J - ACCOUNTING POLICIES
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Standards No. 130 and No. 131. They are effective for the
Company's next year financial statements. Management does not currently believe
these statements will have a material impact on the Company's financial
statements.
12
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 financial statement readers with
information relevant to understanding and assessing the financial condition and
results of operations of Peoples First Corporation (Company).
Headquartered in Paducah, Kentucky, the Company is a bank and savings and loan
holding company registered with the Federal Reserve Board. The Company's
market area is primarily western Kentucky and the surrounding interstate area.
The Company's one commercial bank subsidiary and two savings bank subsidiaries
operate principally in a single business segment offering general commercial,
consumer and savings bank services through 29 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 the first nine months of 1997
increased 9.6%, or $119.4 million to $1,367.8 million from $1,248.4 million for
the first nine months of 1996. Excluding the effect of the savings bank
acquisition in the third quarter of 1996, the increase was 5.5%, or $68.4
million. This compares to average earning asset growth of 6.3% for the first
nine months of 1996 over the first nine months of 1995. A consistently
favorable ratio of average earning assets to average total assets has been
achieved. The ratio was 95.7% and 95.1% for the first nine months of 1997 and
1996, respectively.
<TABLE>
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<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
Table 1 September 30, September 30,
Average Earning Assets 1997 1996 1997 1996
____________________________________________________________________________________________
(dollars in thousands)
Total average earning assets $1,379,217 $1,279,830 $1,367,826 $1,248,407
Percent of average earning assets
Loans 76.9% 75.9% 77.0% 75.1%
Securities 23.0 24.0 22.8 24.7
Other earning assets 0.1 0.1 0.2 0.2
</TABLE>
13
The Company's primary business is making real estate, consumer and commercial
loans. Loans are the Company's primary earning asset and management believes
the Company should be a prominent lender. Average loans for the first nine
months of 1997 were 77.0% of total average earning assets, up from 75.1% for the
first nine months of 1996. Loan growth, while still strong, has slowed from
previous levels. For the first three quarters of 1997, average loans increased
12.3%, or $115.5 million to $1,053.4 million from $937.9 million for the first
three quarters of 1996. Excluding the effect of the savings bank acquisition in
the third quarter of 1996, the increase was 7.6%. For the first three quarters
of 1996, average loans increased 9.9%, or $84.6 million from $853.3 million for
the first three quarters of 1995. The Company primarily directs lending
activities to its regional market. Management has focused on retail lending and
the growth of residential real estate mortgage loans over the last three years.
Table 2 September 30, December 31,
Types of Loans 1997 1996 1996
_______________________________________________________________________________
(in thousands)
Real estate
Residential mortgage $460,540 $409,840 $421,129
Commercial mortgage 172,662 167,037 174,576
Construction 22,658 29,526 29,933
Consumer, net 297,477 290,598 289,653
Commercial, financial
and agricultural 116,577 117,103 120,283
Other 688 1,239 855
--------- --------- ---------
1,070,602 1,015,343 1,036,429
Allowance for loan losses (15,002) (14,665) (14,795)
--------- --------- ---------
$1,055,600 $1,000,678 $1,021,634
========= ========= =========
For the first three quarters of 1997, average total securities increased 1.3%,
or $3.9 million to $312.0 million from $308.1 million for the first three
quarters of 1996. Excluding the effect of the savings bank acquisition in the
third quarter of 1996, average total securities decreased 2.0%. For the first
three quarters of 1996, average total securities decreased 3.4%, or $10.7
million from $318.8 million for the first three quarters of 1995. Management
intends to concentrate on borrowings to fund future loan growth and allow the
level of securities to remain at or above current levels to better leverage
stockholders' equity.
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. Average core deposits for the
first nine months of 1997 increased 6.7%, or $58.8 million to $934.2 million
from $875.4 million for 1996. Excluding the savings bank acquisition, the
increase was 3.2%, or $27.9 million. Management plans to increase reliance on
14
non-core funding. The Company's subsidiaries have obtained various short-term
and long-term advances from the Federal Home Loan Bank (FHLB) under Blanket
Agreements for Advances and Security Agreements (Agreements). The Agreements
entitle the banks to borrow additional funds from the FHLB to fund mortgage loan
programs and satisfy other funding needs. Additional funding totaling approxi-
mately $199.4 million is available at September 30, 1997 from undrawn federal
funds purchased, lines of credit for U. S. treasury notes and FHLB advances.
<TABLE>
<CAPTION>
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Three Months Ended Nine Months Ended
Table 3 September 30, September 30,
Average Interest-bearing Liabilities 1997 1996 1997 1996
____________________________________________________________________________________________
(dollars in thousands)
Total average interest-bearing
liabilities $1,195,374 $1,118,197 $1,185,909 $1,088,853
Percent of average total interest-
bearing liabilities
Interest-bearing core deposits 79.1% 79.1% 78.8% 80.4%
CDs of $100,000 or more 7.9 7.1 7.6 6.7
Brokered deposits 1.1 1.9 1.2 2.2
Short-term borrowings 7.1 10.9 8.5 9.8
Long-term borrowings 4.6 0.9 3.8 0.8
Other 0.1 0.1 0.1 0.1
</TABLE>
NONPERFORMING ASSETS AND RISK ELEMENTS
The Company's loan underwriting guidelines, credit review procedures and
policies are designed to protect the Company from avoidable credit losses. Some
losses inevitably occur. The Company's process for monitoring loan quality
includes detailed, monthly analyses of delinquencies, nonperforming assets and
potential problem loans from each subsidiary bank. Management extensively
monitors credit policies, including policies related to appraisals, assessing
the financial condition of borrowers, restrictions on out-of-area lending and
avoidance of loan concentrations.
The level of nonperforming assets at September 30, 1997 remains at manageable
levels. Diversification within the loan portfolio is an important means of
reducing inherent lending risks. At September 30, 1997, 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.
Nonperforming assets were $0.3 million lower at September 30, 1997 than at
December 31, 1996. As a percentage of total loans and other real estate,
nonperforming assets were down slightly during the last nine months. 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 these credit risks. During the last five years, the
allowance for loan losses coverage of nonperforming assets has always been
greater than 100%.
15
Table 4 September 30, December 31,
Nonperforming Assets 1997 1996 1996
_______________________________________________________________________________
(dollars in thousands)
Nonaccrual loans $4,928 $2,947 $4,680
Loans past due ninety days 4,019 4,542 4,710
Renegotiated loans 2,583 2,746 2,707
Other real estate owned 366 111 90
------ ------ ------
$11,896 $10,346 $12,187
====== ====== ======
Ratios:
Nonperforming assets to total
loans and other real estate 1.11% 1.02% 1.17%
Allowance for loan losses to
nonperforming assets 126% 142% 121%
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. Since December 31, 1996, loans
that have been identified that may become nonperforming in the future have
increased $12.1 million. This increase is primarily due to additional draws
against an existing credit line and several small commercial loans. At
September 30, 1997, loans with a total principal balance of $38.4 million were
considered potential problem loans, compared to $15.1 million at September 30,
1996. Potential problem loans are not included in nonperforming assets since
the borrowers currently meet all applicable loan agreement terms.
The banking industry is currently experiencing an increase in consumer
delinquencies and chargeoffs. Management expects the Company's level of
chargeoffs and nonperforming assets to remain relatively high during 1997
compared to prior periods due to the cyclical nature of consumer credit and the
Company's increase in consumer lending.
CAPITAL RESOURCES AND DIVIDENDS
The current economic and regulatory environment places increased emphasis on
capital strength. The board of directors develops and reviews the capital goals
and policies of the consolidated entity and subsidiary banks. The Company's
capital policies are designed to retain sufficient amounts for healthy financial
ratios and to maintain, at a minimum, a capital position that meets the federal
regulators' well capitalized classification. Stockholders' equity was 10.5% of
assets at September 30, 1997, up from 10.1% at September 30, 1996. Exclusive of
the $1.0 million increase in the unrealized net gain on securities held for
sale, net of applicable income taxes, stockholders' equity increased $7.8
million, or 7.3% (annualized), during the first nine months of 1997. This
compares to an increase, exclusive of the $1.1 million increase in the un-
realized net loss on securities held for sale, net of applicable income taxes,
16
of $13.8 million, or 14.5% (annualized), during the same 1996 period. Equity
issued in the third quarter of 1996 for an acquisition amounted to $6.0
million. Based upon the nature and makeup of their current businesses, growth
expectations, stock repurchase program and dividend increases, management
expects all of the reporting entities' capital ratios to continue to exceed
regulatory requirements.
The capital base has been strengthened through earnings retention and the
issuance of common stock. The earnings retention rate, which the board of
directors adjusts through declaration of cash dividends, was 53.8% for the first
three quarters of 1997, compared to 64.5% for the first three quarters of 1996.
The quarterly cash dividend was raised to $0.152 per share in the second quarter
of 1996, to $0.190 per share in the fourth quarter of 1996 and to $0.22 per
share in the third quarter of 1997. Subsidiary bank dividends are the principal
source of funds for the Company's payment of dividends to its stockholders. At
September 30, 1997, approximately $29.4 million, compared to $25.3 million at
September 30, 1996, in retained earnings of subsidiary banks were available for
dividend payments to the Company without regulatory approval or without reducing
capital of the respective banks below minimum standards.
The sale of common stock through shareholder and employee plans increased
capital $1.4 million and $1.3 million, respectively, in the first three quarters
of 1997 and 1996. In the first quarter of 1996, the board of directors approved
the purchase of up to 400,000 shares of the Company's common stock in the open
market. During the first three quarters of 1997, 64,606 shares were purchased
for $0.9 million compared to 73,850 shares purchased for $1.7 million during the
first three quarters of 1996.
Under the Federal Reserve Board's risk-based capital guidelines for bank holding
companies, the minimum ratio of total capital to risk-adjusted assets (including
certain off-balance sheet items, such as standby letters of credit) is currently
8.0%. The minimum Tier I capital to risk-adjusted assets is 4.0%. The
Company's total capital and Tier I capital to risk-adjusted assets ratio was
14.96% and 13.76%, respectively, at September 30, 1997 compared with 14.98% and
13.73%, respectively at September 30, 1996. The Federal Reserve Board also
requires bank holding companies to comply with minimum leverage ratio
guidelines. The leverage ratio is the ratio of Tier I capital to its total
consolidated quarterly average assets, less goodwill and certain other
intangible assets. The guidelines require a minimum leverage ratio of 3.0% for
companies that meet certain specified criteria. The Company's leverage ratio
was 9.75% at September 30, 1997, compared with 9.70% at September 30, 1996.
The Federal Deposit Insurance Act requires federal bank regulatory agencies to
take "prompt corrective action" with respect to FDIC-insured depository
institutions that do not meet minimum capital requirements. As of September 30,
1997, all of the Company's insured depository institutions met the criteria to
be classified as "well capitalized".
17
RESULTS OF OPERATIONS
Net income for the first nine months increased 8.5% in 1997, reaching $13.3
million, compared to $12.3 million in 1996. Net income for the third quarter
increased 13.3% in 1997, reaching $4.3 million, compared to $3.8 million in
1996. Net income per common share for the first nine months increased 4.8% to
$1.3 in 1997, compared to $1.24 for 1996. Net income per common share for the
third quarter was $0.42 in 1997, compared to $0.38 for 1996. Results for 1997
were impacted by increased loan volume and improved noninterest income offset by
higher provision for loan losses and noninterest expense.
Return on average stockholders' equity for the first nine months of 1997 and
1996 was 12.09% and 12.43%, respectively. Return on average assets for both the
first nine months of 1997 and 1996 was 1.25%.
NET INTEREST INCOME
The operating results of the Company depend primarily on its net interest
income, which is the difference between interest income on interest-earning
assets and interest expense on interest-bearing liabilities, consisting
primarily of deposits. Net interest income is determined by the difference
between yields earned on assets and rates paid on liabilities (interest-rate
spread) and the relative amounts of interest-earning assets and interest-bearing
liabilities. The Company's interest-rate spread is affected by regulatory,
economic and competitive factors that influence interest rates, loan demand and
deposit flows.
Table 5
Net Interest Income Analysis Average Average
Nine months ended September 30, 1997 volume Interest rate
_______________________________________________________________________________
(dollars in thousands)
Loans $1,053,359 $71,997 9.14%
Securities 312,022 16,521 7.08
Other interest earning assets 2,445 91 4.98
--------- ------
1,367,826 88,609 8.66
Time deposits 614,401 26,086 5.68
All other interest bearing deposits 424,090 11,889 3.75
Other interest bearing liabilities 147,418 6,121 5.55
--------- ------
$1,185,909 44,096 4.97
------ ----
Net interest income (TE) spread $44,513 3.69%
====== ====
Net interest income (TE) as a percent
of average interest-earning assets 4.35%
====
18
Table 6
Net Interest Income Analysis Average Average
Nine months ended September 30, 1996 volume Interest rate
_______________________________________________________________________________
(dollars in thousands)
Loans $937,948 $64,268 9.15%
Securities 308,144 16,128 6.99
Other interest earning assets 2,359 84 4.76
--------- ------
1,248,451 80,480 8.61
Time deposits 582,160 24,247 5.56
All other interest bearing deposits 389,996 10,298 3.53
Other interest bearing liabilities 116,697 4,669 5.34
--------- ------
$1,088,853 39,214 4.81
------ ----
Net interest income (TE) spread $41,266 3.80%
====== ====
Net interest income (TE) as a percent
of average interest-earning assets 4.42%
====
Table 7
Net Interest Income Analysis Average Average
Three months ended September 30, 1997 volume Interest rate
_______________________________________________________________________________
(dollars in thousands)
Loans $1,061,453 $24,432 9.13%
Securities 316,688 5,566 6.97
Other interest earning assets 1,076 14 5.16
--------- ------
1,379,217 30,012 8.63
Time deposits 619,002 8,863 5.68
All other interest bearing deposits 435,052 4,282 3.90
Other interest bearing liabilities 141,320 1,987 5.58
--------- ------
$1,195,374 15,132 5.02
------ ----
Net interest income (TE) spread $14,880 3.61%
====== ====
Net interest income (TE) as a percent 4.28%
of average interest-earning assets ====
19
Table 8
Net Interest Income Analysis Average Average
Three months ended September 30, 1996 volume Interest rate
_______________________________________________________________________________
(dollars in thousands)
Loans $971,491 $22,399 9.17%
Securities 307,135 5,396 6.99
Other interest earning assets 1,334 15 4.47
--------- ------
1,279,960 27,810 8.64
Time deposits 590,052 8,300 5.60
All other interest bearing deposits 395,434 3,548 3.57
Other interest bearing liabilities 132,711 1,808 5.42
--------- ------
$1,118,197 13,656 4.86
------ ----
Net interest income (TE) spread $14,154 3.78%
====== ====
Net interest income (TE) as a percent
of average interest-earning assets 4.40%
====
For the nine months ended September 30, 1997, net interest income, on a tax-
equivalent (TE) basis, increased 7.9%, or $3.2 million to $44.5 million compared
to $41.3 million for the nine months ended September 30, 1996. The 1996
increase of 13.5%, or $4.9 million was attributed to increased volume of earning
assets, while volume and margin improvement provided approximately equal amounts
to the 1996 increased net interest income.
For 1997, management is attempting to balance volume increases and pricing to a
greater degree. Low levels of nonperforming loans favorably contributed to
margins each period and net interest income margins benefit from a favorable mix
of earning assets and funding sources.
Net interest income (TE) as a percent of average earning assets was 4.35% and
4.42% for the nine months ended September 30, 1997 and 1996, respectively.
Interest earned on loans for the nine months ended September 30, 1997 was 4.17%
greater than the average funding cost, down from 4.34% for the nine months ended
September 30, 1996. Management attributes this to their concentration on
secured residential real estate lending and a competitive consumer market.
20
PROVISION FOR LOAN LOSSES
The Company's primary business of making real estate, consumer and commercial
loans entails potential loan losses, the magnitude of which depend on a
variety of economic factors affecting borrowers which are beyond the control of
the Company. Accordingly, a significant factor in the Company's past and future
operating results is the level of the provision for loan losses. The provision
for loan losses amounted to $2.6 million for the nine months ended September 30,
1997, an increase of $0.9 million or 49.3% when compared to $1.7 for the nine
months ended September 30, 1996. The increase in the 1997 provision for loan
losses was influenced by the growth in outstanding loans and net loan
chargeoffs, particularly consumer chargeoffs. The annualized provision for loan
losses as a percentage of average loans was 0.33% for the nine months ended
September 30, 1997, up from 0.28% and 0.25%, for the years ended December 31,
1996 and 1995, respectively. Levels of providing for loan losses reflect, among
other things, management's evaluation of potential problem loans.
Net chargeoffs as a percentage of average loans were 0.30% and 0.13% for the
nine months ended September 30, 1997 and 1996, respectively. 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 1.40% and 1.44%, respectively, of
outstanding loans at September 30, 1997 and 1996. The allowance 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.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
Table 7 September 30, September 30,
Allowance for Loan Losses 1997 1996 1997 1996
____________________________________________________________________________________________
(dollars in thousands)
Balance at beginning of period $14,989 $13,915 $14,795 $13,371
Allowance associated with loans acquired 0 481 0 481
Provision charged to expense 919 588 2,600 1,742
Loans charged off (962) (640) (2,675) (1,522)
Recoveries of chargeoffs 56 321 282 593
------ ------ ------ ------
Net loans charged off (906) (319) (2,393) (929)
------ ------ ------ ------
Balance at end of period $15,002 $14,665 $15,002 $14,665
====== ====== ====== ======
Annualized Ratios:
Provision for loan losses
to average loans 0.34% 0.24% 0.33% 0.25%
Net chargeoffs to
average loans 0.34 0.13 0.30 0.13
Allowance for loan losses
to period end loans 1.40 1.44 1.40 1.44
</TABLE>
21
NONINTEREST INCOME
Noninterest income is an important but not yet significant source of revenue for
the Company, representing 14.9% of tax-equivalent revenues, excluding securities
gains, for the first three quarters of 1997, up from 13.2% for the first three
quarters of 1996. During the last two years, the Company has continued to
engage outside consulting firms to review banking products and services. As a
result, fees from traditional deposit services as well as revenues from
brokerage activities and other commission business have been increased by
management's focus on improving all areas of noninterest income. Noninterest
income amounted to $7.8 million for the nine months ended September 30, 1997, a
25.8% increase compared to $6.2 million for the nine months ended September 30,
1996. Service charges on deposit accounts, the largest component of noninterest
income, increased 30.2% primarily due to a change in the assessment of overdraft
fees. This level of increase is not expected to continue in future years.
Insurance commissions for the year of 1997 are expected to equal comparative
prior periods due to renewed management focus. Management continues to seek
ways to increase fee income from services.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
Table 8 September 30, September 30,
Noninterest Income 1997 1996 1997 1996
____________________________________________________________________________________________
(in thousands)
Service charges on deposits $1,354 $1,056 $3,904 $2,998
Net securities gains (losses) 0 0 0 (4)
Trust fees 398 317 1,036 989
Insurance commissions 116 140 400 453
Bankcard fees 176 164 527 484
Other income 720 475 1,928 1,276
----- ----- ----- -----
$2,764 $2,152 $7,795 $6,196
===== ===== ===== =====
Annualized Ratio:
Noninterest income
to average assets 0.76% 0.64% 0.73% 0.63%
</TABLE>
NONINTEREST EXPENSE
The Company's efficiency ratios have improved, despite costs associated with
system changes. The ratio of overhead to revenue was 54.64% for the nine months
ended September 30, 1997, compared to 55.58% for the nine months ended September
30, 1996. Noninterest expense to average assets was approximately the same for
both periods. There is a constant process of evaluation to reach the optimum
balance between revenue and overhead. Prior to the third quarter of 1997,
subsidiary banks used three different data processors for principal customer
applications. Two of the systems have now been converted to the Company's
primary data processor to allow for more uniform applications and better
employee utilization. Also during the third quarter of 1996, an additional
bank subsidiary was merged into the lead bank. A total of six separate
subsidiaries have now been merged to in order to provide opportunity for future
efficiencies.
22
The ratio of personnel expense decreased slightly as a percentage of average
total assets to 1.23% for the nine months ended September 30, 1997, compared to
1.24% for the nine months ended September 30, 1996. Comparable staffing levels
were maintained at September 30, 1997 and 1996. An additional one-time expense
amounting to approximately $116,000 was incurred in the first quarter of 1996 to
terminate a defined benefit plan of an acquired bank.
For the last three years, equipment expense has increased by an average of
approximately 14.9%. For 1997, management expected a double-digit percentage
increase due to implementation of new systems. The Company has made purchases
amounting to approximately $3.3 million for equipment during the last two years
as technology has advanced and the need to leverage personnel costs has
intensified. Management is attempting to increase customers volumes and
leverage personnel expense through the use of additional technology and plans to
continue to purchase technology for new product delivery systems.
Data processing expense for the first three quarters of 1997 was 24.2% higher
than the first three quarters of 1996, which was significantly higher than the
previous year. Direct fees totaled $215,289 for the conversion of two systems
during the quarter. Excluding these fees, data processing expense for the
third quarter of 1997 was 11.1% greater than the same quarter in the previous
year. This is due to additional business volume and processes. Bankshare taxes
imposed by the State of Kentucky have been increasing and are expected to
continue to increase in future years. Increased goodwill amortization resulted
from the acquisition of a savings bank in the third quarter of 1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
Table 9 September 30, September 30,
Noninterest Expense 1997 1996 1997 1996
____________________________________________________________________________________________
(in thousands)
Salaries $3,900 $3,477 $11,166 $10,327
Employee benefits 655 573 2,013 1,891
Occupancy expense 501 471 1,501 1,373
Equipment expense 675 548 1,967 1,582
Deposit insurance expense 52 1,350 157 1,529
Data processing expense 906 622 2,340 1,884
Bank share taxes 421 391 1,257 1,158
Goodwill amortization 244 220 733 635
Legal and consulting fees 415 139 1,325 397
Other expense 2,155 1,985 6,121 5,604
------ ------ ------ ------
$9,924 $9,776 $28,580 $26,380
====== ====== ====== ======
Annualized Ratios:
Overhead ratio 56.25% 59.95% 54.64% 55.58%
Noninterest expense
to average assets 2.73 2.89 2.67 2.68
</TABLE>
23
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 loans and securities 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 investment securities and
other portfolio considerations.
The increase in income tax expense for the nine months ended September 30, 1997
from the comparable 1996 period, is attributable to higher operating earnings
and a higher effective tax rate. The Company's effective tax rate was 32.5% and
31.4% for the nine months ended September 30, 1997 and 1996, respectively. The
effective tax rate increased due to the continued decline in tax-exempt income,
an increase in nondeductible acquisition expenses and interstate taxation.
LIQUIDITY AND INTEREST-RATE SENSITIVITY
The 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. 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. 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.
Management 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 banks located
in nine different counties has been a stable source of funds. Additional funds
for liquidity are available by borrowing of federal funds from correspondent
banks, Federal Home Loan Bank borrowings and brokered deposits. Various types
of analyses are performed to ensure adequate liquidity, and to evaluate the
desirability of the relative interest rate sensitivity of assets and
liabilities. 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 closely match the duration of repricing
assets and liabilities over time to avoid unnecessary interest rate risk.
Currently, the Company does not employ interest rate swaps, financial futures or
options to affect interest rate risks.
24
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Table 10
Interest Rate Sensitivity
Analysis 1-90 91-365 Total at >1 - <3 >3 - <5 >5 - <15 Over 15
September 30, 1997 Days Days 1 year years years years years Total
___________________________________________________________________________________________________________________________________
(in thousands)
Rate Sensitive Assets
Securities, at cost
U.S. treasury
and agencies $198 $3,197 $3,395 $23,041 $43,413 $6,474 $1,577 $77,900
Mortgage-backed 10,849 34,492 45,341 43,996 34,366 45,858 2,673 172,234
Municipal bonds 1,162 2,867 4,029 6,567 10,271 40,851 174 61,892
Other 7,338 65 7,403 35 1,602 0 0 9,040
------- ------- ------- ------- ------- --------- --------- ---------
19,547 40,621 60,168 73,639 89,652 93,183 4,424 321,066
Loans 332,056 421,145 753,201 157,547 84,625 70,710 5,318 1,071,401
------- ------- ------- ------- ------- --------- --------- ---------
351,603 461,766 813,369 231,186 174,277 163,893 9,742 1,392,467
Rate Sensitive Liabilities
Deposits
Transaction and savings 189,597 0 189,597 30,546 30,546 152,731 42,305 445,725
Time 185,784 259,979 445,763 176,284 18,320 3,227 0 643,594
Short-term borrowings 79,562 4,418 83,980 0 0 0 0 83,980
Long-term borrowings 34,411 685 35,096 2,824 846 3,658 1,634 44,058
------- ------- ------- ------- ------- --------- --------- ---------
489,354 265,082 754,436 209,654 49,712 159,616 43,939 1,217,357
------- ------- ------- ------- ------- --------- --------- ---------
Period Gap ($137,751) $196,684 $58,933 $21,532 $124,565 $4,277 ($34,197) $175,110
======= ======= ======= ======= ======= ========= ========= =========
Cumulative Gap at 09/30/97 ($137,751) $58,933 $58,933 $80,465 $205,030 $209,307 $175,110 $175,110
Cumulative Gap at 12/31/96 ($102,059) $63,764 $63,764 $89,661 $166,128 $186,139 $166,128 $166,128
</TABLE>
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 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. The September 30, 1997 cumulative gap at one year
between rate sensitive assets and liabilities has changed little from December
31 or September 30, 1996.
25
PART II
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(10.5) Employment Agreement with Aubrey W. Lippert, Chief Executive
Officer of Peoples First Corporation
(10.6) Employment Agreement with Allan B. Kleet, Chief Financial
Officer of Peoples First Corporation
(27.1) Financial Data Schedules (SEC use only)
(b) Reports on Form 8-K - None
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PEOPLES FIRST CORPORATION
11/12/97 /s/ Aubrey W. Lippert
Aubrey W. Lippert
President and Chairman
of the Board
11/12/97 /s/ Allan B. Kleet
Allan B. Kleet
Principal Accounting Officer
27
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 37,555
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 220,595
<INVESTMENTS-CARRYING> 102,400
<INVESTMENTS-MARKET> 105,697
<LOANS> 1,070,602
<ALLOWANCE> 15,002
<TOTAL-ASSETS> 1,467,150
<DEPOSITS> 1,173,730
<SHORT-TERM> 83,980
<LIABILITIES-OTHER> 11,991
<LONG-TERM> 44,058
<COMMON> 7,807
0
0
<OTHER-SE> 145,584
<TOTAL-LIABILITIES-AND-EQUITY> 1,467,150
<INTEREST-LOAN> 71,946
<INTEREST-INVEST> 15,218
<INTEREST-OTHER> 91
<INTEREST-TOTAL> 87,255
<INTEREST-DEPOSIT> 37,975
<INTEREST-EXPENSE> 44,096
<INTEREST-INCOME-NET> 43,159
<LOAN-LOSSES> 2,600
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 28,580
<INCOME-PRETAX> 19,774
<INCOME-PRE-EXTRAORDINARY> 19,774
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,340
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
<YIELD-ACTUAL> 4.35
<LOANS-NON> 4,928
<LOANS-PAST> 4,019
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 38,400
<ALLOWANCE-OPEN> 14,795
<CHARGE-OFFS> 2,675
<RECOVERIES> 282
<ALLOWANCE-CLOSE> 15,002
<ALLOWANCE-DOMESTIC> 15,002
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
EXHIBIT 10.5 - EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of July 16, 1997, by and between
Peoples First Corporation ("PFC") with offices at 100 South Fourth Street,
Paducah, Kentucky 42001 and Aubrey W. Lippert, a resident of Paducah, Kentucky
(hereinafter referred to as "Officer").
WITNESSETH:
WHEREAS, it is the intention and desire of the parties to enter into a
formal agreement whereby two principal purposes will be served, to wit:
A. PFC will have the benefit of the employment of Officer during the
period covered by this Agreement; and
B. Officer will be an executive of PFC during the Period hereinafter
defined.
NOW, THEREFORE, in consideration of the employment of Officer by PFC, of
the mutual promises, covenants, representations and warranties contained herein,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto, intending to be legally bound, agree as follows:
SECTION 1 EMPLOYMENT AND TERM
1.1 Employment. PFC hereby employs Officer, and Officer hereby accepts
such employment to perform the duties described in Section 2 of this Agreement.
1.2 Term.
(a) Base Term. The current term of employment is scheduled to expire
on December 31, 1999, unless such term of employment is extended or terminated
by written agreement of the parties or as provided herein.
(b) Extended Term if Acquired. Notwithstanding any other provision
hereof to the contrary, this Agreement shall be renewable for one (1) additional
three (3) year term, at Officer's option, exercisable by him by a notice in
writing given immediately prior to, upon or at any time following the occurrence
of a "Change in Control" of PFC. A "Change of Control" shall mean a change of
control of PFC of a nature that would be required to be reported by PFC in
response to Item 6(e) of Schedule 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"); provided that, without limitation, such a
change of control shall be deemed to have occurred if:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of PFC securities representing
20% or more of the combined voting power of PFC's then outstanding stock;
(ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for any reason to
constitute a majority thereof, unless the election, or the nomination for
election by PFC's shareholders, of each new director was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of the period;
(iii) the business of PFC for which the Officer's services are
principally performed is disposed of by PFC pursuant to a partial or complete
liquidation of PFC, a sale of assets of PFC, or otherwise;
(iv) PFC enters into an agreement, the consummation of which would
result in the occurrence of a Change of Control;
(v) any person (including PFC) publicly announces an intention to
take or to consider taking actions which if consummated would constitute a
Change of Control of PFC; or
(vi) the Board adopts a resolution to the effect that a potential
Change in Control for purposes of PFC's Stock Option Plan has occurred.
The renewal term shall commence on the later of (i) the date of notice of
said three-year renewal, or (ii) the date of the Change in Control, and any
remaining period of the current employment term, and any extension thereof,
shall be canceled.
(c) Self-Termination after Change in Control. Notwithstanding any
other provision herein to the contrary, at any time during the one-year period
immediately following the occurrence of a Change in Control, whether or not
Officer has executed the option to renew for three (3) years, Officer, at his
sole discretion, may resign from employment hereunder without penalty upon 90
days prior written notice setting forth the effective date of said resignation.
Upon resignation of Officer, Officer shall be entitled to receive a lump sum
payment equal to (i) three (3) times Officer's Final Average Earnings (as
defined in the following sentence), plus (ii) any Tax Gross-Up Payment payable
under Sections 1.2(e) and (f). For purposes of this Agreement, Officer's Final
Average Earnings shall be the sum of (i) his highest annual base salary in
effect during any calendar year preceding his termination of employment,
including the year in which such termination occurs, and (ii) his highest annual
bonus payable with respect to any calendar year preceding his termination of
employment, including the year in which such termination occurs. Said lump sum
payment shall be payable in cash on the effective date of Officer's resignation.
If for any reason the lump sum payment is not paid on or before the date
specified, then, in addition to the lump sum payment, PFC shall pay interest
thereon at an annual rate of eight percent (8%), compounded monthly, and shall
continue to pay Officer monthly compensation, which shall not be a credit
against the lump sum payment, in an amount equal to one-twelfth (1/12) of
Officer's Final Average Earnings until such lump sum is paid.
(d) Annual Extension. On December 31 of each year, unless PFC
notifies Officer that his employment under this Agreement will not be extended,
his employment under this Agreement shall automatically be extended for a one
(1) year period after the term set forth in Section 1.2(a) on the same terms and
conditions as are set forth herein; provided, however, that the term of this
Agreement may be extended only until such time as will provide for a term ending
December 31 of the year Officer attains age sixty-five (65). If PFC elects not
to extend Officer's employment under this Agreement, as provided in the
preceding sentence, it shall do so by notifying Officer in writing at least
sixty (60) days prior to the applicable December 31 extension date. If PFC so
elects not to extend Officer's employment under this Agreement, Officer shall
have the right to either remain as an employee for the remaining term of this
Agreement (subject to Officer's right to extend this Agreement under Section
1.2(b) at any time during the remaining term if a Change in Control has occurred
or shall occur) or, within one (1) year after the date PFC delivers such notice
to Officer, to terminate this Agreement and receive in a lump sum on the date of
termination an amount equal to three (3) times his Final Average Earnings (as
defined in Section 1.2(c)), plus any Tax Gross-Up Payments required by Sections
1.2(e) and 1.2(f). If for any reason the lump payment is not paid on the date
specified, then, in addition to the lump sum payment, PFC shall pay interest
thereon at an annual rate of eight percent (8%), compounded monthly, and shall
continue to pay Officer monthly compensation, which shall not be a credit
against the lump sum payment, in an amount equal to one-twelfth (1/12) of
Officer's Final Average Earnings until such lump sum payment is paid. PFC shall
also pay to Officer such termination bonus as the PFC Board of Directors may, in
its discretion, determine. Officer's date of termination shall be the December
31 following his written election to terminate this Agreement.
(e) Income Tax Gross-Up Payment. Anything in this Agreement to the
contrary notwithstanding, in the event any payment or distribution by PFC to or
for the benefit of Officer, or any acceleration of any benefit (whether paid or
payable, distributed or distributable, or accelerated pursuant to the terms of
this Agreement or otherwise) is paid or payable, distributed or distributable,
or accelerated by reason of there having occurred a Change in Control, including
without limitation (i) any lump-sum, interest or compensation-continuation
payments under Section 1.2(c) of this Agreement, (ii) any income tax liability
associated with stock options or restricted stock the vesting on which is
accelerated by a Change in Control, (iii) any SERP or deferred compensation
payments accelerated by a Change in Control, (iv) the payment or receipt of any
other benefit (cash or stock) triggered or accelerated by a Change in Control,
and (v) an Excise Tax Gross-Up Payment under Section 1.2(f) below (in any such
case, a "Change in Control Benefit"), then Officer shall be entitled to receive
an additional payment (an "Income Tax Gross-Up Payment") in an amount equal to
the federal, state and local taxes (including income taxes and social security,
FICA, FUTA and other employment taxes) owed by Officer with respect to such
Change in Control Benefit such that after payment by Officer of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any taxes (and any interest and penalties imposed
with respect thereto) imposed upon the Income Tax Gross-Up Payment, Officer
retains an amount of the Income Tax Gross-Up Payment equal to the federal, state
and local taxes (including income taxes and social security, FICA, FUTA and
other employment taxes) imposed upon the Change in Control Benefit. The Income
Tax Gross-Up Payment shall not include the amount of federal, state or local tax
owed by Officer upon the exercise of any PFC stock option, stock appreciation
right, or other award under PFC's stock-based incentive plans to the extent such
benefit would have been available, based on the Officer's service at the date of
termination, without regard to the happening of a Change in Control.
(f) Excise Tax Gross-Up Payment. Anything in this Agreement to the
contrary notwithstanding and except as set forth below, in the event it shall be
determined that any payment or distribution by PFC to or for the benefit of
Officer (whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 1.2(f)) (a "Parachute Payment")
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are
incurred by Officer with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then Officer shall be entitled to receive an additional
payment (an "Excise Tax Gross-Up Payment") in an amount such that after payment
by Officer of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Excise Tax Gross-Up Payment, Officer retains an amount of the Excise Tax
Gross-Up Payment equal to the Excise Tax imposed upon the Parachute Payments.
(g) Calculation and Adjustment of Tax Gross-Up Payments.
(i) Subject to the provisions of Section 1.2(g)(ii), all
determinations required to be made under Sections 1.2(e) and 1.2(f), including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by KPMG Peat Marwick LLP or such other nationally recognized
public accounting firm as may be designated by Officer (the "Accounting Firm")
which shall provide detailed supporting calculations both to PFC and Officer
within 15 business days after the receipt of notice from Officer or PFC that
there has been a Change in Control Benefit or a Parachute Payment. In the event
that the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting a Change in Control, Officer shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by PFC. Any Income Tax Gross-Up Payment or Excise Tax Gross-Up Payment,
as determined pursuant to Section 1.2(e) or 1.2(f), shall be paid by PFC to
Officer within five days after the receipt by PFC of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
PFC and Officer. As a result of the uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Excise Tax Gross-Up Payments which will not have
been made by PFC should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that PFC exhausts its
remedies pursuant to Section 1.2(g)(ii) and Officer thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by PFC to or for the benefit of Officer.
(ii) Officer shall notify PFC in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by PFC of the
Income Tax Gross-Up Payment or the Excise Tax Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten
business days after Officer is informed in writing of such claim and shall
apprise PFC of the nature of such claim and the date on which such claim is
requested to be paid. Officer shall not pay such claim prior to the expiration
of the 30-day period following the date on which it gives such notice to PFC (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If PFC notifies Officer in writing prior to the expiration
of such period that it desires to contest such claim, Officer shall:
(A) give PFC any information reasonably requested by PFC relating to
such claim,
(B) take such action in connection with contesting such
claim as PFC shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by PFC,
(C) cooperate with PFC in good faith in order effectively
to contest such claim, and
(D) permit PFC to participate in any proceedings relating
to such claim;
provided, however, that PFC shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold Officer harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation as well as for payment of
costs and expenses of the representation. Without limitation of the foregoing
provisions of this Section 1.2(g)(ii), PFC shall control all proceedings taken
in connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct Officer to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and Officer agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as PFC shall determine;
provided, however, that if PFC directs Officer to pay such claim and sue for a
refund, PFC shall advance the amount of such payment to Officer, on an
interest-free basis and shall indemnify and hold Officer harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of Officer with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore,
PFC's control of the contest shall be limited to issues with respect to which an
Income Tax Gross-Up Payment or Excise Tax Gross-Up Payment would be payable
hereunder and Officer shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other taxing
authority.
(iii) If, after the receipt by Officer of an amount advanced by PFC
pursuant to Section 1.2(g)(ii), Officer becomes entitled to receive any refund
with respect to such claim, Officer shall (subject to PFC's complying with the
requirements of Section 1.2(g)(ii)) promptly pay to PFC the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by Officer of an amount advanced by
PFC pursuant to Section 1.2(g)(ii), a determination is made that Officer shall
not be entitled to any refund with respect to such claim and PFC does not notify
Officer in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Income Tax Gross-Up Payment
or Excise Tax Gross-Up Payment required to be paid.
SECTION 2 DUTIES
2.1 General Duties. Officer shall serve PFC as Chairman of the Board,
President and Chief Executive Officer, and as an executive officer of any
subsidiary of PFC to which he may be elected. Officer shall also be a member of
the Boards of Directors of PFC, and Peoples First National Bank ("Bank"), and
such other Boards of subsidiaries to which he may be elected. Officer shall
also serve in the capacity of "Chairman" of the Boards of PFC and Bank, and be a
member of the Executive Committee of PFC and Bank, and in such other capacities
and on such other committees of the Boards of PFC, Bank and subsidiaries to
which he may be appointed. He shall perform such duties and responsibilities as
are customarily performed by persons acting in such capacities.
2.2 Extent of Service. During the term hereof, Officer agrees to devote
substantially his entire time, attention and skill to the performance of his
duties as Chairman of the Board, President and Chief Executive Officer of PFC.
PFC recognizes that Officer serves on several civic and corporate boards and
that such service does not conflict with the duties outlined above. 2.3 Best
Efforts. Officer agrees that he will, at all times, faithfully, industriously,
and to the best of his ability, experience and talents, perform all of the
duties that may be required of and from him by the Boards of Directors as
described above.
2.4 Location. The duties of Officer shall be performed at PFC's executive
offices in the reasonable vicinity of Paducah, Kentucky. The permanent location
of the duties Officer is to perform shall not be moved without Officer's
consent. Officer shall also on a temporary basis perform such duties at such
other place or places as the Board of Directors of PFC shall reasonably
designate or as the interests or opportunities of the Board of Directors of PFC
shall reasonably require.
SECTION 3 COMPENSATION
3.1 Annual Base Salary. PFC shall pay Officer, and Officer shall accept
from PFC, in full payment for Officer's services hereunder, an annual base
salary in the minimum amount of Two Hundred Ninety Thousand Dollars ($290,000),
payable in twenty-six (26) periodic equal installments during the year, which
annual base salary shall be reviewed at least annually and may be increased from
time to time as determined by the Board of Directors of PFC. Once increased,
Officer's base salary shall not thereafter be decreased during the Term without
his written consent.
3.2 Stock Options. Officer shall be entitled to participate in all of
PFC's stock option programs. Based upon satisfactory performance, it is
anticipated that Officer will be granted additional stock options from time to
time, such additional grants to be considered on an annual basis. Officer shall
be granted full protection against dilution of such options as is provided under
the terms of the Stock Option Plans. In the event of a Change in Control as
defined in Section 1.2(b), then all options, stock appreciation rights, and
other awards in the nature of rights that may be exercised, and all awards of
restricted stock, if any, issued to Officer under all stock incentive plans of
PFC shall immediately vest and be exercisable by Officer and all restrictions
thereon shall lapse, in accordance with the terms of the applicable plans.
PFC shall take such action as may be necessary from time to time to
allow Officer to sell all stock issuable upon exercise of Officer's options free
of resale restrictions, including but not limited to the grant to Officer of
piggyback registration rights with respect to such stock. Such sales may only
be made under all then-existing securities laws.
3.3 Reimbursement of Expenses. PFC shall reimburse Officer for such
reasonable out-of-pocket expenses necessarily incurred by Officer while
rendering the services contemplated hereunder, including reimbursement for
travel by Officer in the conduct of the business of PFC in accordance with PFC's
normal reimbursement rules and subject to accounting by Officer of the amount
requested for reimbursement.
3.4 Tax Withholdings. PFC shall deduct from the regular monthly
compensation payable to Officer all federal, state and local taxes on income,
social security, FICA, FUTA, and other withholdings as required by law.
3.5 Annual Incentive Bonus and Deferred Compensation Plans. During the
term hereof, and any renewal, Officer shall be eligible for participation in any
of PFC's and Bank's incentive bonus programs and deferred compensation plans.
Bonuses for less than a full year of service may be granted at the discretion of
the Board. Any such bonuses shall be paid within 90 days after the close of the
fiscal year. Officer shall also be entitled to participate in PFC's 401(k),
employee stock ownership and other benefit plans generally available to
employees of PFC and its subsidiaries.
3.6 Annual Vacation. Officer shall be entitled to an annual vacation
period consistent with PFC's vacation policy, as amended from time to time.
3.7 Other Fringe Benefits. Officer shall have the following fringe
benefit programs made available to him: medical coverage, short term and long
term disability and life insurance, all in accordance with the terms of the
plans generally provided to executive employees of PFC or the Bank from time to
time. Officer shall also be entitled to participate in such other fringe
benefit programs as PFC shall have or shall make available from time to time to
senior executives. Further, PFC agrees to pay for or reimburse Officer for
expenses, including dues, for clubs of which Officer is a member, the facilities
of which Officer shall use from time to time in holding various company
functions or entertaining company employees, customers or guests.
SECTION 4 TERMINATION
4.1 Termination by PFC. PFC may at any time terminate this Agreement and
the employment of Officer for Cause. For the purposes of this Agreement,
"Cause" shall mean:
(a) the willful and continued failure by Officer to substantially
perform his duties with PFC or one of its affiliates (other than any such
failure resulting from incapacity due to physical or mental illness), after a
written demand for substantial performance is delivered to Officer by the Board
of Directors of PFC, which demand specifically identifies the manner in which
Officer has not substantially performed his duties, and Officer fails to comply
with such demand within a reasonable time, or
(b) the willful engaging by Officer in gross misconduct that is
materially and demonstrably injurious to PFC.
For purposes of this provision, no act or failure to act, on the part of
Officer, shall be considered "willful" or "gross misconduct" unless it is done,
or omitted to be done, by Officer in bad faith or without reasonable belief that
Officer's action or omission was in the best interests of PFC. Any act, or
failure to act, based upon authority given pursuant to a resolution duly adopted
by the Board or upon the instructions of a senior officer of PFC or based upon
the advice of counsel for PFC shall be conclusively presumed to be done, or
omitted to be done, by Officer in good faith and in the best interests of PFC.
The cessation of employment of Officer shall not be deemed to be for Cause
unless and until there shall have been delivered to him a copy of a resolution
duly adopted by the affirmative vote of not less than a majority of the entire
membership of the Board of Directors of PFC at a meeting of the Board called and
held for that purpose (after reasonable notice to Officer, and an opportunity
for Officer, together with counsel of his choice, to be heard before the Board),
finding that, in the good faith opinion of the Board, Officer is guilty of the
conduct set forth above in clauses (i) or (ii) of this Section 4.1, and
specifying the particulars thereof in reasonable detail.
4.2 Effect on Parties.
(a) Termination for Cause. If PFC terminates this Agreement as
specified in 4.1 above, then the rights of Officer after such termination shall
be as follows:
(i) Officer's salary that may have accrued through termination and
annual incentive bonus if such has been approved but not paid shall be paid;
(ii) Officer shall have such rights with respect to options, stock
appreciation rights, restricted stock or other awards granted under PFC's
stock-based incentive plans as are provided under the plan and any agreement
governing the award.
(b) Termination by Resignation. If PFC notifies Officer of its
election, under Section 1.2(d), not to extend Officer's employment, then Officer
shall have the rights specified under Section 1.2(d).
(c) Death or Disability. Upon Officer's death or Disability (as
defined below), then Officer's rights shall be as follows:
(i) Officer's salary that may have accrued through termination and
annual incentive bonus if such has been approved but not paid shall be paid; and
(ii) Officer or his estate shall be entitled to receive a lump sum
equal to three times his Final Average Earnings, payable within 30 days after
the date of death or termination of employment by reason of Disability.
For purposes of this Agreement, "Disability" means a mental or physical
disability as determined by the Board in accordance with standards and
procedures consistent with those under PFC's employee long-term disability plan,
if any. At any time that PFC does not maintain such a long-term disability
plan, Disability shall mean the inability of Officer, as determined by the
Board, to substantially perform his regular duties and responsibility due to a
medically determinable physical or mental illness which has lasted (or can
reasonably be expected to last) for a period of six consecutive months.
(d) Survival of Certain Obligations. Any termination by PFC pursuant
to Section 4.1 above shall not terminate PFC's rights and Officer's obligations
under the Confidential Information, Assistance in Litigation or Arbitration
Sections in this Agreement.
4.3 Resignation by Officer Absent a Change in Control or Nonrenewal.
Aside from Officer's rights under Sections 1.2(c) and 1.2(d), Officer may
terminate his employment hereunder, upon 90 days advance written notice, and
such termination shall terminate all of Officer's rights hereunder, and such
termination shall not affect PFC's rights to pursue remedies for breach of this
Agreement. It is understood that a resignation by Officer under Sections 1.2(c)
or (d) shall not be construed as a termination under this Section.
SECTION 5 CONFIDENTIAL INFORMATION
5.1 Officer recognizes that PFC's and Bank's business interests require a
fiduciary relationship between PFC, Bank and Officer and the fullest practical
protection and confidential treatment of the confidential information relating
to PFC and Bank. Officer acknowledges the reasonableness, in the context of
PFC's business, of the promises herein made and recognizes a just purpose in
PFC's protecting its confidential information. Officer acknowledges that in the
course of his association with PFC he may have in the past or may in the future
receive certain lists of PFC's prospective acquisition and management agreements
and other confidential information and knowledge concerning the business of PFC
(hereinafter collectively referred to as "information") which PFC desires to
protect. Officer understands that such information is confidential and agrees
not to reveal such information to anyone outside PFC so long as the confidential
or secret nature of the information shall continue.
SECTION 6 ASSISTANCE IN LITIGATION
During or after the term of this Agreement, Officer shall, upon reasonable
notice, furnish such information and assistance to PFC as may reasonably be
required by PFC in connection with any litigation in which PFC or any of its
subsidiaries or affiliates is, or may become, a party.
SECTION 7 ARBITRATION
7.1 Methods. Any difference, claims or matters in dispute arising among
the parties out of this Agreement or connected herewith shall be submitted by
them to arbitration before a panel of three arbitrators selected as follows:
each party shall select an arbitrator from the American Arbitration
Association's Approved List of Arbitrators. The arbitrators so selected by the
parties shall agree upon a third arbitrator and the three so selected shall
resolve the dispute under the duly promulgated rules and regulations of the
American Arbitration Association or its successor, and the pertinent provisions
of the laws of the Commonwealth of Kentucky, relating to arbitration. The
decision of the arbitrators may be entered as a judgment in any Court in the
Commonwealth of Kentucky or elsewhere. Any arbitrator selected who does not
have experience relating to the banking and financial services industry shall
avail himself of the counsel of an individual who has such experience.
7.2 Specific Performance. Notwithstanding Section 7.1 above, all
provisions hereof are for the protection and are intended to be for the benefit
of the parties hereto and enforceable directly by and binding upon each party.
Each party hereto agrees that the remedy through arbitration or at law of the
other for any actual or threatened breach of this agreement would be inadequate
and that the other party shall be entitled to specific performance hereof or
injunctive relief or both, by temporary or permanent injunction or such other
appropriate judicial remedy, writ or order as may be decided by a court of
competent jurisdiction in addition to any damages which the complaining party
may be legally entitled to recover together with reasonable expenses of
arbitration, litigation, including attorney's fees incurred in connection
therewith as may be approved by such arbitrators or court.
SECTION 8 MISCELLANEOUS
8.1 Assignment by PFC. This Agreement shall inure to the benefit of and be
binding upon PFC and its successors and assigns. PFC will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of PFC to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that PFC would be required to perform it if no such succession had taken
place. As used in this Agreement, "PFC" shall mean PFC as hereinbefore defined
and any successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
8.2 Assignment by Officer. This is a personal agreement on the part of
Officer and may not be sold, assigned, transferred or conveyed by Officer
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by Officer's legal
representatives.
8.3 Entire Agreement. This Agreement contains the entire agreement among
the parties hereto and there are no representations, inducements, promises,
agreements, arrangements or undertakings, oral or written, among the parties as
to the subject matter covered, other than the contents of certain Agreements and
plans referred to herein (for example, the Stock Option Plan).
8.4 Severability. Should any part of this Agreement be declared invalid
for any reason, such invalidity shall not affect the validity of any remaining
portion hereof and such remaining portion shall continue in full force and
effect as if this Agreement had been originally executed without including the
invalid part.
8.5 Governing Law. This Agreement and its performance shall be
interpreted and construed in accordance with the laws of the Commonwealth of
Kentucky.
8.6 Titles. Titles and captions in no way define, limit, extend or
describe the scope of this Agreement nor the intent of any provision hereof.
8.7 Amendments. No changes, alterations, modifications, additions or
qualifications to the terms of this Agreement shall be made or be binding unless
made in writing and executed by the parties in the same manner as this
Agreement.
8.8 No Waiver. Failure by either party to enforce any right granted by
this Agreement shall not constitute a waiver of such right and waiver of any
provision of this Agreement shall not constitute a waiver of any other
provision.
8.9 Notices. Any notice, instrument or communication required or
permitted under this Agreement shall be deemed to have been effectively given
and made if in writing and if served whether by personal delivery to the party
for whom it is intended, or by being deposited, postage prepaid, registered or
certified mail, return receipt requested, in the United States mail, addressed
to the party for whom it is intended at the following addresses:
Officer: Aubrey W. Lippert 165 Troon Road
Paducah, Kentucky 42001
PFC: Peoples First Corporation 100
South Fourth Street P. O. Box 2200
Paducah, Kentucky 42002-2200 Attn: Chairman, Executive
Committee
8.10 Full Settlement. PFC's obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which PFC may have against Officer or others. In no event shall
Officer be obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to Officer under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not Officer obtains
other employment. PFC agrees to pay as incurred, to the full extent permitted
by law, all legal fees and expenses, including arbitration fees, which Officer
may reasonably incur as a result of any contest (regardless of the outcome
thereof) by PFC, Officer or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by Officer about the amount of any
payment pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of
the Code.
8.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement this 16th
day of July, 1997.
Attest: PEOPLES FIRST CORPORATION
/s/ Jean R. Perry By: /s/ Allan B. Kleet
Title: Principal Accounting Officer
/s/ Aubrey W. Lippert
Aubrey W. Lippert
Approved and Acknowledged:
PEOPLES FIRST CORPORATION EXECUTIVE COMMITTEE
By: /s/ R. E. Pugh Chairman
A:\PARACHTE.AWL
EXHIBIT 10.6 - EMPLOYMENT AGREEMENT
THIS AGREEMENT, made and entered into as of July 16, 1997, by and between
Peoples First Corporation ("PFC") with offices at 100 South Fourth Street,
Paducah, Kentucky 42001 and Allan B. Kleet, a resident of Paducah, Kentucky
(hereinafter referred to as "Officer").
WITNESSETH:
WHEREAS, it is the intention and desire of the parties to enter into a
formal agreement whereby two principal purposes will be served, to wit:
A. PFC will have the benefit of the employment of Officer during the
period covered by this Agreement; and
B. Officer will be an executive of PFC during the Period hereinafter
defined.
NOW, THEREFORE, in consideration of the employment of Officer by PFC, of
the mutual promises, covenants, representations and warranties contained herein,
the receipt and sufficiency of which are hereby acknowledged, the parties
hereto, intending to be legally bound, agree as follows:
SECTION 1 EMPLOYMENT AND TERM
1.1 Employment. PFC hereby employs Officer, and Officer hereby accepts
such employment to perform the duties described in Section 2 of this Agreement.
1.2 Term.
(a) Base Term. The current term of employment is scheduled to expire
on December 31, 1999, unless such term of employment is extended or terminated
by written agreement of the parties or as provided herein.
(b) Extended Term if Acquired. Notwithstanding any other provision
hereof to the contrary, this Agreement shall be renewable for one (1) additional
three (3) year term, at Officer's option, exercisable by him by a notice in
writing given immediately prior to, upon or at any time following the occurrence
of a "Change in Control" of PFC. A "Change of Control" shall mean a change of
control of PFC of a nature that would be required to be reported by PFC in
response to Item 6(e) of Schedule 14A under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"); provided that, without limitation, such a
change of control shall be deemed to have occurred if:
(i) any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act) is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of PFC securities representing
20% or more of the combined voting power of PFC's then outstanding stock;
(ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for any reason to
constitute a majority thereof, unless the election, or the nomination for
election by PFC's shareholders, of each new director was approved by a vote of
at least two-thirds of the directors then still in office who were directors at
the beginning of the period;
(iii) the business of PFC for which the Officer's services are
principally performed is disposed of by PFC pursuant to a partial or complete
liquidation of PFC, a sale of assets of PFC, or otherwise;
(iv) PFC enters into an agreement, the consummation of which would
result in the occurrence of a Change of Control;
(v) any person (including PFC) publicly announces an intention to
take or to consider taking actions which if consummated would constitute a
Change of Control of PFC; or
(vi) the Board adopts a resolution to the effect that a potential
Change in Control for purposes of PFC's Stock Option Plan has occurred.
The renewal term shall commence on the later of (i) the date of notice of
said three-year renewal, or (ii) the date of the Change in Control, and any
remaining period of the current employment term, and any extension thereof,
shall be canceled.
(c) Self-Termination after Change in Control. Notwithstanding any
other provision herein to the contrary, at any time during the one-year period
immediately following the occurrence of a Change in Control, whether or not
Officer has executed the option to renew for three (3) years, Officer, at his
sole discretion, may resign from employment hereunder without penalty upon 90
days prior written notice setting forth the effective date of said resignation.
Upon resignation of Officer, Officer shall be entitled to receive a lump sum
payment equal to (i) three (3) times Officer's Final Average Earnings (as
defined in the following sentence), plus (ii) any Tax Gross-Up Payment payable
under Sections 1.2(e) and (f). For purposes of this Agreement, Officer's Final
Average Earnings shall be the sum of (i) his highest annual base salary in
effect during any calendar year preceding his termination of employment,
including the year in which such termination occurs, and (ii) his highest annual
bonus payable with respect to any calendar year preceding his termination of
employment, including the year in which such termination occurs. Said lump sum
payment shall be payable in cash on the effective date of Officer's resignation.
If for any reason the lump sum payment is not paid on or before the date
specified, then, in addition to the lump sum payment, PFC shall pay interest
thereon at an annual rate of eight percent (8%), compounded monthly, and shall
continue to pay Officer monthly compensation, which shall not be a credit
against the lump sum payment, in an amount equal to one-twelfth (1/12) of
Officer's Final Average Earnings until such lump sum is paid.
(d) Annual Extension. On December 31 of each year, unless PFC
notifies Officer that his employment under this Agreement will not be extended,
his employment under this Agreement shall automatically be extended for a one
(1) year period after the term set forth in Section 1.2(a) on the same terms and
conditions as are set forth herein; provided, however, that the term of this
Agreement may be extended only until such time as will provide for a term ending
December 31 of the year Officer attains age sixty-five (65) years. If PFC
elects not to extend Officer's employment under this Agreement, as provided in
the preceding sentence, it shall do so by notifying Officer in writing at least
sixty (60) days prior to the applicable December 31 extension date. If PFC so
elects not to extend Officer's employment under this Agreement, Officer shall
have the right to either remain as an employee for the remaining term of this
Agreement (subject to Officer's right to extend this Agreement under Section
1.2(b) at any time during the remaining term if a Change in Control has occurred
or shall occur) or, within one (1) year after the date PFC delivers such notice
to Officer, to terminate this Agreement and receive in a lump sum on the date of
termination an amount equal to three (3) times his Final Average Earnings (as
defined in Section 1.2(c)), plus any Tax Gross-Up Payments required by Sections
1.2(e) and 1.2(f). If for any reason the lump payment is not paid on the date
specified, then, in addition to the lump sum payment, PFC shall pay interest
thereon at an annual rate of eight percent (8%), compounded monthly, and shall
continue to pay Officer monthly compensation, which shall not be a credit
against the lump sum payment, in an amount equal to one-twelfth (1/12) of
Officer's Final Average Earnings until such lump sum payment is paid. PFC shall
also pay to Officer such termination bonus as the PFC Board of Directors may, in
its discretion, determine. Officer's date of termination shall be the December
31 following his written election to terminate this Agreement.
(e) Income Tax Gross-Up Payment. Anything in this Agreement to the
contrary notwithstanding, in the event any payment or distribution by PFC to or
for the benefit of Officer, or any acceleration of any benefit (whether paid or
payable, distributed or distributable, or accelerated pursuant to the terms of
this Agreement or otherwise) is paid or payable, distributed or distributable,
or accelerated by reason of there having occurred a Change in Control, including
without limitation (i) any lump-sum, interest or compensation-continuation
payments under Section 1.2(c) of this Agreement, (ii) any income tax liability
associated with stock options or restricted stock accelerated by a Change in
Control, (iii) any SERP or deferred compensation payments accelerated by a
Change in Control, (iv) the payment or receipt of any other benefit (cash or
stock) triggered or accelerated by a Change in Control, and (v) an Excise Tax
Gross-Up Payment under Section 1.2(f) below (in any such case, a "Change in
Control Benefit"), then Officer shall be entitled to receive an additional
payment (an "Income Tax Gross-Up Payment") in an amount equal to the federal,
state and local taxes (including income taxes and social security, FICA, FUTA
and other employment taxes) owed by Officer with respect to such Change in
Control Benefit such that after payment by Officer of all taxes (including any
interest or penalties imposed with respect to such taxes), including, without
limitation, any taxes (and any interest and penalties imposed with respect
thereto) imposed upon the Income Tax Gross-Up Payment, Officer retains an amount
of the Income Tax Gross-Up Payment equal to the federal, state and local taxes
(including income taxes and social security, FICA, FUTA and other employment
taxes) imposed upon the Change in Control Benefit. The Income Tax Gross-Up
Payment shall not include the amount of federal, state or local tax owed by
Officer upon the exercise of any PFC stock option, stock appreciation right, or
other award under PFC's stock- based incentive plans to the extent such benefit
would have been available, based on the Officer's service at the date of
termination, without regard to the happening of a Change in Control.
(f) Excise Tax Gross-Up Payment. Anything in this Agreement to the
contrary notwithstanding and except as set forth below, in the event it shall be
determined that any payment or distribution by PFC to or for the benefit of
Officer (whether paid or payable or distributed or distributable pursuant to the
terms of this Agreement or otherwise, but determined without regard to any
additional payments required under this Section 1.2(f)) (a "Parachute Payment")
would be subject to the excise tax imposed by Section 4999 of the Internal
Revenue Code of 1986, as amended (the "Code"), or any interest or penalties are
incurred by Officer with respect to such excise tax (such excise tax, together
with any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then Officer shall be entitled to receive an additional
payment (an "Excise Tax Gross-Up Payment") in an amount such that after payment
by Officer of all taxes (including any interest or penalties imposed with
respect to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Excise Tax Gross-Up Payment, Officer retains an amount of the Excise Tax
Gross-Up Payment equal to the Excise Tax imposed upon the Parachute Payments.
(g) Calculation and Adjustment of Tax Gross-Up Payments.
(i) Subject to the provisions of Section 1.2(g)(ii), all
determinations required to be made under Sections 1.2(e) and 1.2(f), including
whether and when a Gross-Up Payment is required and the amount of such Gross-Up
Payment and the assumptions to be utilized in arriving at such determination,
shall be made by KPMG Peat Marwick LLP or such other nationally recognized
public accounting firm as may be designated by Officer (the "Accounting Firm")
which shall provide detailed supporting calculations both to PFC and Officer
within 15 business days after the receipt of notice from Officer or PFC that
there has been a Change in Control Benefit or a Parachute Payment. In the event
that the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting a Change in Control, Officer shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by PFC. Any Income Tax Gross-Up Payment or Excise Tax Gross-Up Payment,
as determined pursuant to Section 1.2(e) or 1.2(f), shall be paid by PFC to
Officer within five days after the receipt by PFC of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
PFC and Officer. As a result of the uncertainty in the application of Section
4999 of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Excise Tax Gross-Up Payments which will not have
been made by PFC should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that PFC exhausts its
remedies pursuant to Section 1.2(g)(ii) and Officer thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by PFC to or for the benefit of Officer.
(ii) Officer shall notify PFC in writing of any claim by the Internal
Revenue Service that, if successful, would require the payment by PFC of the
Income Tax Gross-Up Payment or the Excise Tax Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten
business days after Officer is informed in writing of such claim and shall
apprise PFC of the nature of such claim and the date on which such claim is
requested to be paid. Officer shall not pay such claim prior to the expiration
of the 30-day period following the date on which it gives such notice to PFC (or
such shorter period ending on the date that any payment of taxes with respect to
such claim is due). If PFC notifies Officer in writing prior to the expiration
of such period that it desires to contest such claim, Officer shall:
(A) give PFC any information reasonably requested by PFC relating to
such claim,
(B) take such action in connection with contesting such
claim as PFC shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by PFC,
(C) cooperate with PFC in good faith in order effectively
to contest such claim, and
(D) permit PFC to participate in any proceedings relating
to such claim;
provided, however, that PFC shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in connection with such
contest and shall indemnify and hold Officer harmless, on an after-tax basis,
for any Excise Tax or income tax (including interest and penalties with respect
thereto) imposed as a result of such representation as well as for payment of
costs and expenses of the representation. Without limitation of the foregoing
provisions of this Section 1.2(g)(ii), PFC shall control all proceedings taken
in connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct Officer to pay the tax claimed and sue for a refund or contest the claim
in any permissible manner, and Officer agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as PFC shall determine;
provided, however, that if PFC directs Officer to pay such claim and sue for a
refund, PFC shall advance the amount of such payment to Officer, on an
interest-free basis and shall indemnify and hold Officer harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of Officer with respect to which such contested amount is
claimed to be due is limited solely to such contested amount. Furthermore,
PFC's control of the contest shall be limited to issues with respect to which an
Income Tax Gross-Up Payment or Excise Tax Gross-Up Payment would be payable
hereunder and Officer shall be entitled to settle or contest, as the case may
be, any other issue raised by the Internal Revenue Service or any other taxing
authority.
(iii) If, after the receipt by Officer of an amount advanced by PFC
pursuant to Section 1.2(g)(ii), Officer becomes entitled to receive any refund
with respect to such claim, Officer shall (subject to PFC's complying with the
requirements of Section 1.2(g)(ii)) promptly pay to PFC the amount of such
refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by Officer of an amount advanced by
PFC pursuant to Section 1.2(g)(ii), a determination is made that Officer shall
not be entitled to any refund with respect to such claim and PFC does not notify
Officer in writing of its intent to contest such denial of refund prior to the
expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Income Tax Gross-Up Payment
or Excise Tax Gross-Up Payment required to be paid.
SECTION 2 DUTIES
2.1 General Duties. Officer shall serve PFC as Principal Accounting
Officer, and as an executive officer of any subsidiary of PFC to which he may be
elected. Officer shall also be a member of the Boards of Directors of PFC and
such other Boards of subsidiaries to which he may be elected. Officer shall
also serve in such other capacities and on such other committees of the Boards
of PFC and subsidiaries to which he may be appointed. He shall perform such
duties and responsibilities as are customarily performed by persons acting in
such capacities.
2.2 Extent of Service. During the term hereof, Officer agrees to devote
substantially his entire time, attention and skill to the performance of his
duties as Principal Accounting Officer of PFC. PFC recognizes that Officer
serves on several civic and corporate boards and that such service does not
conflict with the duties outlined above.
2.3 Best Efforts. Officer agrees that he will, at all times, faithfully,
industriously, and to the best of his ability, experience and talents, perform
all of the duties that may be required of and from him by the Boards of
Directors as described above.
2.4 Location. The duties of Officer shall be performed at PFC's executive
offices in the reasonable vicinity of Paducah, Kentucky. The permanent location
of the duties Officer is to perform shall not be moved without Officer's
consent. Officer shall also on a temporary basis perform such duties at such
other place or places as the Board of Directors of PFC shall reasonably
designate or as the interests or opportunities of the Board of Directors of PFC
shall reasonably require.
SECTION 3 COMPENSATION
3.1 Annual Base Salary. PFC shall pay Officer, and Officer shall accept
from PFC, in full payment for Officer's services hereunder, an annual base
salary in the minimum amount of One Hundred Eighty One Thousand Three Hundred
Eighty Five Dollars ($181,385), payable in twenty-six (26) periodic equal
installments during the year, which annual base salary shall be reviewed at
least annually and may be increased from time to time as determined by the Board
of Directors of PFC. Once increased, Officer's base salary shall not thereafter
be decreased during the Term without his written consent.
3.2 Stock Options. Officer shall be entitled to participate in all of
PFC's stock option programs. Based upon satisfactory performance, Officer may
be granted additional stock options from time to time. Officer shall be granted
full protection against dilution of such options as is provided under the terms
of the Stock Option Plans. In the event of a Change in Control as defined in
Section 1.2(b), then all options, stock appreciation rights, and other awards in
the nature of rights that may be exercised, and all awards of restricted stock,
if any, issued to Officer under all stock incentive plans of PFC shall
immediately vest and be exercisable by Officer and all restrictions thereon
shall lapse, in accordance with the terms of the applicable plans.
PFC shall take such action as may be necessary from time to time to
allow Officer to sell all stock issuable upon exercise of Officer's options free
of resale restrictions, including but not limited to the grant to Officer of
piggyback registration rights with respect to such stock. Such sales may only
be made under all then-existing securities laws.
3.3 Reimbursement of Expenses. PFC shall reimburse Officer for such
reasonable out-of-pocket expenses necessarily incurred by Officer while
rendering the services contemplated hereunder, including reimbursement for
travel by Officer in the conduct of the business of PFC in accordance with PFC's
normal reimbursement rules and subject to accounting by Officer of the amount
requested for reimbursement.
3.4 Tax Withholdings. PFC shall deduct from the regular monthly
compensation payable to Officer all federal, state and local taxes on income,
social security, FICA, FUTA, and other withholdings as required by law.
3.5 Annual Incentive Bonus and Deferred Compensation Plans. During the
term hereof, and any renewal, Officer shall be eligible for participation in any
of PFC's and Bank's incentive bonus programs and deferred compensation plans.
Bonuses for less than a full year of service may be granted at the discretion of
the Board. Any such bonuses shall be paid within 90 days after the close of the
fiscal year. Officer shall also be entitled to participate in PFC's 401(k),
employee stock ownership and other benefit plans generally available to
employees of PFC and its subsidiaries.
3.6 Annual Vacation. Officer shall be entitled to an annual vacation
period consistent with PFC's vacation policy, as amended from time to time.
3.7 Other Fringe Benefits. Officer shall have the following fringe
benefit programs made available to him: medical coverage, short term and long
term disability and life insurance, all in accordance with the terms of the
plans generally provided to executive employees of PFC or the Bank from time to
time. Officer shall also be entitled to participate in such other fringe
benefit programs as PFC shall have or shall make available from time to time to
senior executives. Further, PFC agrees to pay for or reimburse Officer for
expenses, including dues, for clubs of which Officer is a member, the facilities
of which Officer shall use from time to time in holding various company
functions or entertaining company employees, customers or guests.
SECTION 4 TERMINATION
4.1 Termination by PFC. PFC may at any time terminate this Agreement and
the employment of Officer for Cause. For the purposes of this Agreement,
"Cause" shall mean:
(a) the willful and continued failure by Officer to substantially
perform his duties with PFC or one of its affiliates (other than any such
failure resulting from incapacity due to physical or mental illness), after a
written demand for substantial performance is delivered to Officer by the Board
of Directors of PFC, which demand specifically identifies the manner in which
Officer has not substantially performed his duties, and Officer fails to comply
with such demand within a reasonable time, or
(b) the willful engaging by Officer in gross misconduct that is
materially and demonstrably injurious to PFC.
For purposes of this provision, no act or failure to act, on the part of
Officer, shall be considered "willful" or "gross misconduct" unless it is done,
or omitted to be done, by Officer in bad faith or without reasonable belief that
Officer's action or omission was in the best interests of PFC. Any act, or
failure to act, based upon authority given pursuant to a resolution duly adopted
by the Board or upon the instructions of the Chief Executive Officer or a senior
officer of PFC or based upon the advice of counsel for PFC shall be conclusively
presumed to be done, or omitted to be done, by Officer in good faith and in the
best interests of PFC. The cessation of employment of Officer shall not be
deemed to be for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than a
majority of the entire membership of the Board of Directors of PFC at a meeting
of the Board called and held for that purpose (after reasonable notice to
Officer, and an opportunity for Officer, together with counsel of his choice, to
be heard before the Board), finding that, in the good faith opinion of the
Board, Officer is guilty of the conduct set forth above in clauses (i) or (ii)
of this Section 4.1, and specifying the particulars thereof in reasonable
detail.
4.2 Effect on Parties.
(a) Termination for Cause. If PFC terminates this Agreement as
specified in 4.1 above, then the rights of Officer after such termination shall
be as follows:
(i) Officer's salary that may have accrued through termination and
annual incentive bonus if such has been approved but not paid shall be paid;
(ii) Officer shall have such rights with respect to options, stock
appreciation rights, restricted stock or other awards granted under PFC's
stock-based incentive plans as are provided under the plan and any agreement
governing the award.
(b) Termination by Resignation. If PFC notifies Officer of its
election, under Section 1.2(d), not to extend Officer's employment, then Officer
shall have the rights specified under Section 1.2(d).
(c) Death or Disability. Upon Officer's death or Disability (as
defined below), then Officer's rights shall be as follows:
(i) Officer's salary that may have accrued through termination and
annual incentive bonus if such has been approved but not paid shall be paid; and
(ii) Officer or his estate shall be entitled to receive a lump sum
equal to three times his Final Average Earnings, payable within 30 days after
the date of death or termination of employment by reason of Disability.
For purposes of this Agreement, "Disability" means a mental or physical
disability as determined by the Board in accordance with standards and
procedures consistent with those under PFC's employee long-term disability plan,
if any. At any time that PFC does not maintain such a long-term disability
plan, Disability shall mean the inability of Officer, as determined by the
Board, to substantially perform his regular duties and responsibility due to a
medically determinable physical or mental illness which has lasted (or can
reasonably be expected to last) for a period of six consecutive months.
(d) Survival of Certain Obligations. Any termination by PFC pursuant
to Section 4.1 above shall not terminate PFC's rights and Officer's obligations
under the Confidential Information, Assistance in Litigation or Arbitration
Sections in this Agreement.
4.3 Resignation by Officer Absent a Change in Control or Nonrenewal.
Aside from Officer's rights under Sections 1.2(c) and 1.2(d), Officer may
terminate his employment hereunder, upon 90 days advance written notice, and
such termination shall terminate all of Officer's rights hereunder, and such
termination shall not affect PFC's rights to pursue remedies for breaches of
this Agreement. It is understood that a resignation by Officer under Sections
1.2(c) or (d) shall not be construed as a termination under this Section.
SECTION 5 CONFIDENTIAL INFORMATION
5.1 Officer recognizes that PFC's and Bank's business interests require a
fiduciary relationship between PFC, Bank and Officer and the fullest practical
protection and confidential treatment of the confidential information relating
to PFC and Bank. Officer acknowledges the reasonableness, in the context of
PFC's business, of the promises herein made and recognizes a just purpose in
PFC's protecting its confidential information. Officer acknowledges that in the
course of his association with PFC he may have in the past or may in the future
receive certain lists of PFC's prospective acquisition and management agreements
and other confidential information and knowledge concerning the business of PFC
(hereinafter collectively referred to as "information") which PFC desires to
protect. Officer understands that such information is confidential and agrees
not to reveal such information to anyone outside PFC so long as the confidential
or secret nature of the information shall continue.
SECTION 6 ASSISTANCE IN LITIGATION
During or after the term of this Agreement, Officer shall, upon reasonable
notice, furnish such information and assistance to PFC as may reasonably be
required by PFC in connection with any litigation in which PFC or any of its
subsidiaries or affiliates is, or may become, a party.
SECTION 7 ARBITRATION
7.1 Methods. Any difference, claims or matters in dispute arising among
the parties out of this Agreement or connected herewith shall be submitted by
them to arbitration before a panel of three arbitrators selected as follows:
each party shall select an arbitrator from the American Arbitration
Association's Approved List of Arbitrators. The arbitrators so selected by the
parties shall agree upon a third arbitrator and the three so selected shall
resolve the dispute under the duly promulgated rules and regulations of the
American Arbitration Association or its successor, and the pertinent provisions
of the laws of the Commonwealth of Kentucky, relating to arbitration. The
decision of the arbitrators may be entered as a judgment in any Court in the
Commonwealth of Kentucky or elsewhere. Any arbitrator selected who does not
have experience relating to the banking and financial services industry shall
avail himself of the counsel of an individual who has such experience.
7.2 Specific Performance. Notwithstanding Section 7.1 above, all
provisions hereof are for the protection and are intended to be for the benefit
of the parties hereto and enforceable directly by and binding upon each party.
Each party hereto agrees that the remedy through arbitration or at law of the
other for any actual or threatened breach of this agreement would be inadequate
and that the other party shall be entitled to specific performance hereof or
injunctive relief or both, by temporary or permanent injunction or such other
appropriate judicial remedy, writ or order as may be decided by a court of
competent jurisdiction in addition to any damages which the complaining party
may be legally entitled to recover together with reasonable expenses of
arbitration, litigation, including attorney's fees incurred in connection
therewith as may be approved by such arbitrators or court.
SECTION 8 MISCELLANEOUS
8.1 Assignment by PFC. This Agreement shall inure to the benefit of and be
binding upon PFC and its successors and assigns. PFC will require any successor
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of PFC to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that PFC would be required to perform it if no such succession had taken
place. As used in this Agreement, "PFC" shall mean PFC as hereinbefore defined
and any successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
8.2 Assignment by Officer. This is a personal agreement on the part of
Officer and may not be sold, assigned, transferred or conveyed by Officer
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by Officer's legal
representatives.
8.3 Entire Agreement. This Agreement contains the entire agreement among
the parties hereto and there are no representations, inducements, promises,
agreements, arrangements or undertakings, oral or written, among the parties as
to the subject matter covered, other than the contents of certain Agreements and
plans referred to herein (for example, the Stock Option Plan).
8.4 Severability. Should any part of this Agreement be declared invalid
for any reason, such invalidity shall not affect the validity of any remaining
portion hereof and such remaining portion shall continue in full force and
effect as if this Agreement had been originally executed without including the
invalid part.
8.5 Governing Law. This Agreement and its performance shall be
interpreted and construed in accordance with the laws of the Commonwealth of
Kentucky.
8.6 Titles. Titles and captions in no way define, limit, extend or
describe the scope of this Agreement nor the intent of any provision hereof.
8.7 Amendments. No changes, alterations, modifications, additions or
qualifications to the terms of this Agreement shall be made or be binding unless
made in writing and executed by the parties in the same manner as this
Agreement.
8.8 No Waiver. Failure by either party to enforce any right granted by
this Agreement shall not constitute a waiver of such right and waiver of any
provision of this Agreement shall not constitute a waiver of any other
provision.
8.9 Notices. Any notice, instrument or communication required or
permitted under this Agreement shall be deemed to have been effectively given
and made if in writing and if served whether by personal delivery to the party
for whom it is intended, or by being deposited, postage prepaid, registered or
certified mail, return receipt requested, in the United States mail, addressed
to the party for whom it is intended at the following addresses:
Officer: Allan B. Kleet 1280 Highland Church
Road Paducah, Kentucky 42001
PFC: Peoples First Corporation 100
South Fourth Street P. O. Box 2200
Paducah, Kentucky 42002-2200 Attn: Chairman, Executive
Committee
8.10 Full Settlement. PFC's obligation to make the payments provided for
in this Agreement and otherwise to perform its obligations hereunder shall not
be affected by any set-off, counterclaim, recoupment, defense or other claim,
right or action which PFC may have against Officer or others. In no event shall
Officer be obligated to seek other employment or take any other action by way of
mitigation of the amounts payable to Officer under any of the provisions of this
Agreement and such amounts shall not be reduced whether or not Officer obtains
other employment. PFC agrees to pay as incurred, to the full extent permitted
by law, all legal fees and expenses, including arbitration fees, which Officer
may reasonably incur as a result of any contest (regardless of the outcome
thereof) by PFC, Officer or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by Officer about the amount of any
payment pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable federal rate provided for in Section 7872(f)(2)(A) of
the Code.
8.11 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have executed this Agreement this day
of July, 1997.
Attest: PEOPLES FIRST CORPORATION
Jean R. Perry By: /s/ Aubrey W. Lippert
Chief Executive Officer
/s/ Allan B. Kleet
Allan B. Kleet
Approved and Acknowledged:
PEOPLES FIRST CORPORATION EXECUTIVE COMMITTEE
By: R. E. Pugh, Chairman
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