_______________________________________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934, For the Fiscal Year Ended December 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission File Number Number 0-16839
PEOPLES FIRST CORPORATION
(Exact name of registrant as specified in its charter)
Kentucky 61-1023747
(State or other jurisdiction of (I R S Employer
incorporation or organization) Identification No.)
100 South Fourth Street
Paducah, Kentucky 42002-2200
(Address of principal exective offices) (Zip Code)
Registrant's telephone number, including area code: (502) 441-1200
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, No Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 16, 1998: Common stock, no par value - $313,847,000.
The number of shares outstanding of the Registrant's only class of stock as of
February 16, 1998: Common stock, no par value - 10,024,311 shares outstanding.
Documents Incorporated by Reference - None
_____________________________________________________________________________1
INDEX
Page
_______________________________________________________________________________
PART I.
Item 1. Business 3
Item 2. Properties 15
Item 3. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Securities Holders 15
PART II.
Item 5. Market for the Registrant's Common Stock and Related
Shareholder Matters 16
Item 6. Selected Financial Data 17
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 19
Item 8. Financial Statements and Supplementary Data 31
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 62
PART III.
Item 10. Directors and Executive Officers of the Registrant 63
Item 11. Executive Compensation 67
Item 12. Security Ownership of Certain Beneficial Owners
and Management 70
Item 13. Certain Relationships and Related Transactions 71
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 71
Signatures 73
2
PART I
Item 1. Business
Peoples First Corporation (the "Company") is a multi-bank and unitary savings
and loan holding company registered with the Board of Governors of the Federal
Reserve System ("Federal Reserve Board") pursuant to Section 5(a) of the Bank
Holding Company Act of 1956, as amended. Its primary business is banking. In
recent years, the Company has been one of the ten largest independent financial
institutions headquartered in Kentucky. The Company conducts a complete range
of commercial and personal banking activities through two wholly owned
subsidiaries: The Peoples First National Bank & Trust Company of Paducah
("Peoples Bank") in the Kentucky counties of McCracken, Marshall, Ballard,
Livingston, Calloway and Graves Counties, and in the Tennessee county of
Montgomery; and, Peoples First, F.S.B. of Central City (Saving Bank) in
Muhlenberg, Ohio, McLean and Butler Counties. As a part of the Company's
banking services, it subsidiaries are engaged in mortgage orgination and
servicing, investment management and trust services, the issuance of credit
and debit cards, the sale of loans, full-service brokerage services and the
sale of bank-eligible insurance products. Its primary market is western
Kentucky and northwestern Tennessee and Peoples First Corporation's principal
executive offices are located at 100 South Fourth Street, Paducah, Kentucky
42002-2200.
The Company is a Kentucky Corporation incorporated on March 1, 1983. The
Company became a bank holding company when it acquired Peoples Bank in 1983.
The Company acquired (and subsequently merged into Peoples Bank during 1994)
First Liberty Bank in 1985, First National Bank of LaCenter in 1987, Salem Bank,
Inc. in 1989, Bank of Murray in 1992 and Liberty Bank and Trust in 1994. The
Savings Bank was acquired in 1994. During 1996 the Company acquired all of the
outstanding shares of Guaranty FSB (and subsequently merged into Peoples Bank
during 1997) in exchange for 315,002 shares of Peoples First Corporation common
stock. Guaranty FSB's had three locations immediately southeast of the market
area served by Peoples Bank.
Dividends from Peoples Bank and the Savings Bank (collectively the "banks") are
the principal source of cash flow for the Company. Legal limitations are
imposed on the amount of dividends that may be paid by the banks. Although
the Company may engage in other activities, subject to rules and regulations of
the Federal Reserve Board and Kentucky Department of Financial Institutions, it
is currently expected that the banks will remain the principal source of
operating revenues.
Peoples Bank, organized in 1926, provides a full range of banking services to
the Western Kentucky region through its main office in Paducah, Kentucky and
twelve full service branch offices, three limited service branch offices and one
business operations office. Commercial lending services provided to medium-size
and small businesses, real estate mortgage lending and individual consumer
lending services are the primary sources of operating revenues. Peoples Bank
had total deposits of $1,030.7 million at December 31, 1997 and is the first or
second largest commercial banking operation in each of the six Kentucky counties
it operates. At December 31, 1997, Peoples Bank had 483 full-time equivalent
employees.
3
The Savings Bank, organized in 1934, provides a broad array of banking services
to the Western Kentucky region through its main office in Central City, Kentucky
and five branch offices. Residential real estate mortgage lending is the
primary source of operating income. First Kentucky FSB had total deposits of
$146.9 million at December 31, 1997 and is largest financial institution
headquartered in their immediate West-Central Kentucky market area. At December
31, 1997, the Savings Bank had 70 full-time equivalent employees.
Management considers employee relations to be good with all of the bank
employees, none of which are covered by a collective bargining agreement.
Competition
The banks actively compete on local and regional levels with other commercial
banks and financial institutions for all types of deposits, loans, trust
accounts and the provision of financial and other services. With respect to
certain banking services, the banks compete with insurance companies, savings
and loan associations, credit unions and other financial institutions. Many of
the banks' competitors are not commercial banks or savings and loan
associations. For example, the banks compete for funds with money market
mutual funds, brokerage houses, and governmental and private issuers of money
market instruments. The banks also compete for loans with other financial
institutions and private concerns providing financial services. These include
finance companies, credit unions, certain governmental agencies and merchants
who extend their own credit selling to consumers and other customers. Many of
the financial institutions and other interests with which the banks compete
have capital resources substantially in excess of the capital and resources of
the banks.
Supervision and Regulation
The Registrant is a bank holding company within the meaning of the Bank Holding
Company Act. As such, it is registered with the Federal Reserve Board (FRB) and
files reports with and is subject to examination by that body.
Peoples Bank, chartered under the National Bank Act, is subject to the supervi-
sion of and is regularly examined by the Comptroller of the Currency of the
United States. By law, Peoples Bank is a member of the Federal Reserve System
and insured members of the Bank Insurance Fund of the Federal Deposit Insurance
Corporation (FDIC). As such, it is subject to regulation by these federal
agencies. The Savings Bank is a federally chartered savings association,
subject to the supervision of and are regularly examined by Office of Thrift
Supervision. It is subject to certain reserve requirements of the FRB and are
insured members of the Savings Association Insurance Fund of the FDIC, and, as
such, are subject to regulation and examined by these federal agencies.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA)
was principally designed to deal with the financial crisis involving the thrift
industry and the Federal Savings and Loan Insurance Corporation. FIRREA
contains many provisions which affect banks and bank holding companies. FIRREA
included substantial increases in the enforcement powers available to
regulators. The FDIC's enforcement powers were expanded. Several civil and
4
criminal penalties were added which address misconduct and knowingly or
recklessly causing a substantial loss to an insured institution. FIERRA
expanded the power of bank holding companies by permitting them to acquire any
savings assocation, including healthy as well as troubled institutions.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
contained many provisions affecting the banking industry. FDICIA included
provisions, among others to: 1) reform the deposit insurance system, 2)
establish a format for closer monitoring of financial institutions and to enable
prompt corrective action by banking regulators when a financial institution
begins to experience difficulty, 3) establish five capital levels for financial
institutions that would impose more scrutiny and restriction on less capitalized
insstitutions, 4) require regulators to set operational and managerial standards
for all insured institutions, including limits on excessive compensation to
executive officers, directors and principal shareholders, and establish
standards for loans secured by real estate, 5) adopt certain accounting reforms
and require annual on-site examinations of federally insured institutions and
the ability to require independent audits, 6) restrict state-chartered banks
from engaging in activities not permitted for national banks unless they are
adequately capitalized and have FDIC approval. Further FDCIA permited the FDIC
to make special assessments on insured depository institutions, in amounts
determined by the FDIC to be necessary to give it adequate assessment income to
repay amounts borrowed from the U.S. Treasury Department and other sources or
for any other purpose the FDIC deems necessary.
Future legislative actions, possibly including restructuring and modernization
of financial institution regulation, could have dramatic effect on the cost of
doing business and competitiveness. The terms or timing of future legislation
or regulatory actions that may be adopted cannot be predicted, accordingly, the
potential effect on the Company is unknown.
Changes in the national economy and in the money markets, together with the
effects of actions by monetary and fiscal authorities, make it exceedingly
difficult to predict with any reasonable accuracy the possible future changes in
interest rates and their effect on deposit levels, loan demand and the business
and earnings of the Company and its subsidiaries.
5
Statistical Disclosures
I. Distribution of Assets, Liabilities and Stockholders' Equity; Interest Rates
and Interest Differential
A. AVERAGE BALANCE SHEETS For the Year Ended December 31,
(in thousands) 1997 1996 1995
_______________________________________________________________________________
INTEREST-EARNING ASSETS
Loans (1) $1,063,185 $960,726 $865,707
Taxable securities 252,993 244,917 251,107
Non-taxable securities 61,416 61,734 64,835
Short-term investments 2,644 2,512 2,877
--------- --------- ---------
1,380,238 1,269,889 1,184,526
NONINTEREST-EARNING ASSETS
Cash and due from banks 30,324 35,586 33,515
Allowance for loan losses (14,965) (14,066) (12,691)
Other assets 47,844 44,221 40,582
--------- --------- ---------
$1,443,441 $1,335,630 $1,245,932
========= ========= =========
INTEREST-BEARING LIABILITIES
Transaction accounts $352,563 $310,666 $253,689
Savings deposits 79,864 84,684 87,618
Time deposits 618,628 588,289 598,514
Short-term borrowings 100,285 112,459 86,400
Long-term borrowings 44,524 9,785 7,946
Other liabilities 1,060 1,382 1,292
--------- --------- ---------
1,196,924 1,107,265 1,035,459
NONINTEREST-BEARING LIABILITIES
Demand deposits 84,176 82,269 82,752
Other liabilities 13,330 11,523 9,176
STOCKHOLDERS' EQUITY 149,011 134,573 118,545
--------- --------- ---------
$1,443,441 $1,335,630 $1,245,932
========= ========= =========
(1) Nonperforming loans are included in
average loans
6
B. ANALYSIS OF NET INTEREST EARNINGS For the Year Ended December 31,
(in thousands) 1997 1996 1995
_______________________________________________________________________________
INTEREST INCOME
Loans (TE) (2) $97,017 $87,950 $78,573
Taxable securities 16,733 15,842 16,082
Non-taxable securities (TE) (2) 5,364 5,704 5,847
Short-term investments 133 122 160
------- ------- -------
119,247 109,618 100,662
INTEREST EXPENSE
Transaction accounts 14,122 11,606 9,101
Saving deposits 2,309 2,422 2,460
Time deposits 35,030 32,874 34,047
Short-term borrowings 5,452 5,958 4,939
Long-term borrowings 2,588 608 515
Other liabilities 80 91 90
------- ------- -------
59,581 53,559 51,152
------- ------- -------
NET INTEREST INCOME (TE) (2) 59,666 56,059 49,510
TE Basis Adjustment (1,775) (1,945) (1,916)
------- ------- -------
NET INTEREST EARNINGS $57,891 $54,114 $47,594
======= ======= =======
(2) Tax equivalent (TE) interest income is based
upon a Federal income tax rate of 35%.
7
B. AVERAGE YIELDS AND RATES PAID For the Year Ended December 31,
1997 1996 1995
_______________________________________________________________________________
AVERAGE YIELDS FOR INTEREST-EARNING ASSETS
Loans (TE) (1) (2) 9.13% 9.15% 9.08%
Taxable securities 6.61% 6.47% 6.40%
Non-taxable securities (TE) (2) 8.73% 9.24% 9.02%
Short-term investments 5.03% 4.86% 5.56%
All interest-earning assets 8.64% 8.63% 8.50%
AVERAGE RATES FOR INTEREST-BEARING LIABILITIES
Transaction accounts 4.01% 3.74% 3.59%
Saving deposits 2.89% 2.86% 2.81%
Time deposits 5.66% 5.59% 5.69%
Short-term borrowings 5.44% 5.30% 5.72%
Long-term borrowings 5.81% 6.21% 6.48%
Other liabilities 7.55% 6.58% 6.97%
All interest-bearing liabilities 4.98% 4.84% 4.94%
---- ---- ----
NET INTEREST-RATE SPREAD (TE) (2) 3.66% 3.79% 3.56%
==== ==== ====
NET YIELD ON INTEREST-EARNING ASSETS 4.32% 4.41% 4.18%
==== ==== ====
(1) Nonperforming loans are included in
average loans
(2) Tax equivalent (TE) interest income is based
upon a Federal income tax rate of 35%.
8
C. FOR THE LAST TWO FISCAL YEARS
CHANGES ATTRIBUTABLE TO VOLUME AND RATE Change Due to Due to
(in thousands) 1997/1996 Volume Rate (3)
_______________________________________________________________________________
INTEREST INCOME
Loans (1) (2) $9,067 $9,380 ($313)
Taxable securities 891 522 369
Non-taxable securities (TE) (2) (340) (29) (311)
Short-term investments 11 6 5
------
9,629 9,525 104
INTEREST EXPENSE
Transaction accounts 2,516 1,565 951
Saving deposits (113) (138) 25
Time deposits 2,156 1,695 461
Short-term borrowings (506) (645) 139
Long-term borrowings 1,980 2,159 (179)
Other liabilities (11) (21) 10
------
6,022 4,337 1,685
------ ------ ------
NET INTEREST INCOME (TE) (2) $3,607 $5,188 ($1,581)
====== ====== ======
(1) Nonperforming loans are included in average loans.
(2) Tax equivalent (TE) net interest income is based upon a Federal income
tax rate of 35%.
(3) Changes due to both rate and volume are included in due to rate.
9
CHANGES ATTRIBUTABLE TO VOLUME AND RATE Change Due to Due to
(in thousands) 1996/1995 Volume Rate (3)
_______________________________________________________________________________
INTEREST INCOME
Loans (TE) (1) $9,377 $8,624 $753
Taxable securities (240) (396) 156
Non-taxable securities (TE) (2) (143) (280) 137
Short-term investments (38) (20) (18)
------
8,956 7,254 1,702
INTEREST EXPENSE
Transaction accounts 2,505 2,044 461
Saving deposits (38) (82) 44
Time deposits (1,173) (582) (591)
Short-term borrowings 1,019 1,490 (471)
Long-term borrowings 93 119 (26)
Other liabilities 1 6 (5)
------
2,407 3,547 (1,140)
------ ------ ------
NET INTEREST INCOME (TE) (2) $6,549 $3,707 $2,842
====== ====== ======
(1) Nonperforming loans are included in average loans.
(2) Tax equivalent (TE) net interest income is based upon a Federal income
tax rate of 35%.
(3) Changes due to both rate and volume are included in due to rate.
10
II. Security Portfolios
A. Footnote 4 to the Consolidated Financial Statements included herein on page
43 presents the book value as of the end of 1997 and 1996 of securities by type
of security.
B. Footnote 4 to the Consolidated Financial Statements included herein on page
43 presents the amortized cost, estimated market value and the weighted average
yield of securities at December 31, 1997, by contractual maturity range.
C. As of December 31, 1997, the Company owned no securities (other than U. S.
Government and U. S. Government agencies and corporations) issued by one issuer
for which the book value exceeded ten percent of stockholders' equity.
III. Loan Portfolio
A. The table of Types of Loans in Management's Discussion and Analysis of
Financial Condition and Results of Operations (MDA) included herein on page 20
presents the amount of all loans in various categories as of the end of 1997
and 1996.
B. The following table presents the maturities in the loan portfolio, excluding
commercial paper, real estate mortgage, installment, consumer revolving credit
and other loans at December 31, 1997:
Loan Portfolio Maturities 1 year 1 to 5 Over
December 31, 1997 or less years 5 years Total
_______________________________________________________________________________
(in thousands)
Commercial, financial
and agricultural $81,459 $28,485 $9,980 $119,924
Real estate construction 18,284 3,744 2,129 24,157
------- ------- ------- -------
$99,743 $32,229 $12,109 $144,081
======= ======= ======= =======
The amounts of these loans due after one year which have predetermined rates
and adjustable rates are $17.9 million and $26.4 million, respectively.
C. Risk Elements
1. The table of Nonperforming Assets in MDA included herein on page 22 states
the amount of nonaccrual, past due and restructured loans. The following table
states the gross interest income that would have been recorded for the years
ended December 31, 1993 through 1997, if the nonaccrual and renegotiated loans
had been current in accordance with their original terms, and the amount of
interest income that was included in net income for each year:
11
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Interest Income on Nonaccrual
and Restructured Loans
Year ended December 31, 1997 1996 1995 1994 1993
____________________________________________________________________________________________
(in thousands)
Contractual interest $749 $504 $421 $209 $407
Interest recognized 441 343 351 192 279
</TABLE>
2. Potential Problem Loans
Internal credit review procedures are designed to alert management of possible
credit problems which would create serious doubts as to the future ability of
borrowers to comply with loan repayment terms. At December 31, 1997, loans
with a total principal balance of $26.5 million had been identified which may
become nonperforming in the future, compared to $26.4 million at December 31,
1996. Potential problem loans are not included in nonperforming assets since
the borrowers currently meet all applicable loan agreement terms. The
identified potential problem loan totals consist of many different loans and are
generally loans for which the collateral appears to be sufficient but that have
potential financial weakness evidenced by internal credit review's analysis of
historical financial information. At December 31, 1997, a total of $7.4 million
of potential problem loans were to three borrowers.
3. Foreign Outstandings
There were no foreign outstandings at anytime during the last three years.
4. Loan Concentrations
As of December 31, 1997, there was no concentration of loans exceeding 10% of
total loans which are not otherwise disclosed in the Types of Loans table
pursuant to III. A. There were no amounts loaned in excess of 10% of total
loans to a multiple of borrowers engaged in similar activities which would
cause them to be similarly impacted by economic or other conditions. Most
loans are originated in the immediate market area of the banks.
D. Other Interest Bearing Assets
The Company has no other interest earning assets that would be required to
be disclosed under Item III. C.1. or 2. if such assets were loans.
12
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. The following table presents an analysis of loss experience and the allow-
ance for loan losses for the years ended December 31, 1997, 1996, 1995, 1994,
and 1993:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Analysis of the Allowance
for Loan Losses
Year ended December 31, 1997 1996 1995 1994 1993
_______________________________________________________________________________ _____________
(in thousands)
Balance at beginning of
year $14,795 $13,371 $12,188 $10,715 $8,606
Allowance associated with
loans acquired -- 481 -- -- --
Provision charged to
expense 5,041 2,664 2,167 1,723 2,541
Loan charge-offs
Commercial, financial
and agricultural (463) (467) (450) (248) (463)
Real estate mortgage (848) (401) (225) (81) (240)
Installment loans (1,984) (1,273) (540) (279) (317)
Consumer revolving
credit (447) (383) (92) (78) (24)
------ ------ ------ ------ ------
(3,742) (2,524) (1,307) (686) (1,044)
Loan charge-off recoveries
Commercial, financial
and agricultural 135 556 133 339 376
Real estate mortgage 34 59 63 9 110
Installment loans 133 141 117 76 122
Consumer revolving
credit 46 47 10 12 4
------ ------ ------ ------ ------
348 803 323 436 612
------ ------ ------ ------ ------
Net loan charge-offs (3,394) (1,721) (984) (250) (432)
------ ------ ------ ------ ------
Balance at end of year $16,442 $14,795 $13,371 $12,188 $10,715
====== ====== ====== ====== ======
Year end balance of loans $1,101,707 $1,036,429 $914,497 $805,947 $704,037
Average loans outstanding 1,063,185 960,726 865,707 755,314 660,345
Allowance / year end loans 1.49% 1.42% 1.46% 1.51% 1.52%
Provision / net chargeoffs 148.53% 154.79% 220.22% 689.20% 588.19%
Nonperforming assets 13,067 12,187 6,806 6,679 6,591
Potential problem loans 26,488 26,362 14,300 14,800 22,400
</TABLE>
13
B. The following tables present a breakdown of the allowance for loan losses
at December 31, 1997, 1996, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Allocation of the Allowance
for Loan Losses
December 31, 1997 1996 1995 1994 1993
____________________________________________________________________________________________
(in thousands)
Commercial, financial
and agricultural $4,000 $3,107 $2,951 $3,134 $2,973
Real estate
Construction 150 150 97 97 61
Residential mortgage 2,000 1,612 1,598 1,496 1,285
Commercial mortgage 3,498 4,100 3,905 4,050 3,626
Consumer loans 6,200 5,526 4,581 3,215 2,598
Consumer revolving credit 594 300 239 196 172
------ ------ ------ ------ ------
$16,442 $14,795 $13,371 $12,188 $10,715
====== ====== ====== ====== ======
Percent of Loans in Each
Category to Total Loans
December 31, 1997 1996 1995 1994 1993
____________________________________________________________________________________________
Commercial, financial
and agricultural 10.9% 11.6% 12.5% 13.9% 16.9%
Real estate mortgage
Construction 2.2% 2.9% 2.1% 2.4% 1.7%
Residential mortgage 42.5% 40.7% 39.9% 39.5% 38.3%
Commercial mortgage 17.1% 16.8% 17.3% 17.3% 18.1%
Consumer loans 27.1% 27.9% 28.0% 26.6% 24.6%
Other 0.2% 0.1% 0.2% 0.3% 0.4%
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
V. DEPOSITS
A.B. Average Balances and Rates Paid by Deposit
The Average Balance Sheets table and Average Yields and Rates Paid table in-
cluded herein on pages 6 and 8 present the average amount of and the average
rate paid for the years ended December 31, 1997, 1996 and 1995.
C. Foreign Deposits
The Company had no foreign deposits during the past three years.
14
D.E. Maturity Distribution of Time Deposits of $100,000 or More
The following table states the amount of time certificates of deposit at
December 31, 1997, of $100,000 or more by maturity:
Maturity of $100,000 Time Deposits
December 31, 1997
_______________________________________________________________________________
(in thousands)
Maturing 3 months or less $15,878
Maturing over 3 months through 6 months 12,336
Maturing over 6 months through 12 months 33,043
Maturing over 12 months 44,336
-------
$105,593
=======
For the Year Ended December 31,
VI. RETURN ON EQUITY AND ASSETS 1997 1996 1995
_______________________________________________________________________________
1. Return on average assets 1.12% 1.29% 1.19%
2. Return on average equity 10.86% 12.75% 12.46%
3. Dividend payout ratio 50.62% 36.00% 31.17%
4. Equity to assets ratio 10.31% 10.08% 9.51%
VII. SHORT-TERM BORROWINGS
A. Footnote 8 to the Consolidated Financial Statements included herein on page
49 presents for each category of short-term borrowings, the amounts outstanding
at the end of the reported periods, the weighted average interest rate, the
maximum amount of borrowings in each catergory at any month-end and the
approximate weighted interest rate.
Item 2. PROPERTIES
The Company's investments in premises and equipment are comprised of properties
owned and leased by the banks. Peoples Bank owns the building housing its main
offices, which contains 17,325 square feet of space and is located at 401
Kentucky Avenue. Peoples Bank also owns its Service Center, located at 100
South Fourth Street, which contains 50,000 square feet of space and houses the
Company's executive offices. Of the twenty-seven other banking offices of the
banks, twenty-four are owned and three are leased by their respective bank.
Item 3. LEGAL PROCEEDINGS - None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None
15
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
Market Information, Dividends
The registrant's only class of common stock is traded on the National Associa-
tion of Securities Dealers Automated Quotation System National Market System.
Peoples First Corporation's common stock symbol is "PFKY". Share and per share
information have been adjusted to give effect to 5% stock dividends declared
on January 17, 1996 and January 21, 1997. The high and low stock prices and
the quarterly dividends declared on the Company's common stock for each quarter
of 1997 and 1996 are as follows:
High and Low Stock Prices First Second Third Fourth
Dividends Declared quarter quarter quarter quarter
_______________________________________________________________________________
High 1997 $26.50 $29.25 $34.75 $39.50
Low 1997 23.33 23.50 27.75 28.50
Cash dividends declared 0.19 0.19 0.22 0.22
High 1996 $22.38 $22.62 $21.90 $24.29
Low 1996 19.50 19.76 20.00 20.95
Cash dividends declared 0.14 0.15 0.15 0.19
Holders
The approximate number of holders of registrant's only class of common stock as
of February 16, 1998, was 3,250.
16
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA
December 31, 1997 1996 1995 1994 1993
____________________________________________________________________________________________
(in thousands)
Interest-Earning Assets
Loans, net $1,087,405 $1,023,520 $901,126 $793,759 $693,322
Securities 316,493 304,311 306,642 333,527 375,366
Short-term investments 0 0 0 0 3,100
--------- --------- --------- --------- ---------
1,403,898 1,327,831 1,207,768 1,127,286 1,071,788
Cash and due from banks 46,820 43,285 37,524 39,333 42,591
Premises and equipment 20,310 19,376 18,226 16,980 16,698
Other assets 29,969 27,272 24,078 26,957 25,429
--------- --------- --------- --------- ---------
$1,500,997 $1,417,764 $1,287,596 $1,210,556 $1,156,506
========= ========= ========= ========= =========
Liabilities and Stockholders' Equity
Interest-bearing deposits $1,086,487 $1,029,877 $960,744 $910,598 $906,646
Noninterest-bearing deposits 90,354 85,376 86,360 87,985 86,250
Short-term borrowings 114,472 132,167 93,469 84,567 32,502
Long-term borrowings 43,104 14,013 7,757 9,536 16,555
Other liabilities 11,853 11,782 11,094 7,607 8,182
--------- --------- --------- --------- ---------
1,346,270 1,273,215 1,159,424 1,100,293 1,050,135
Stockholders' equity 154,727 144,549 128,172 110,263 106,371
--------- --------- --------- --------- ---------
$1,500,997 $1,417,764 $1,287,596 $1,210,556 $1,156,506
========= ========= ========= ========= =========
____________________________________________________________________________________________
</TABLE>
As more fully explained in Note 2 to the consolidated financial statements,
additional banking organizations were acquired in 1996 and 1994.
17
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997 1996 1995 1994 1993
____________________________________________________________________________________________
(in thousands except per share data)
Results of Operations
Interest income $117,472 $107,673 $98,746 $84,404 $80,845
Interest expense 59,581 53,559 51,152 38,855 37,997
------- ------- ------- ------- -------
Net interest income 57,891 54,114 47,594 45,549 42,848
Provision for loan losses 5,041 2,664 2,167 1,723 2,541
Net interest income after ------- ------- ------- ------- -------
provision for loan losses 52,850 51,450 45,427 43,826 40,307
Noninterest income 10,548 8,535 7,944 7,076 6,683
Noninterest expense 39,280 34,843 32,158 32,312 29,373
------- ------- ------- ------- -------
Income before tax expense 24,118 25,142 21,213 18,590 17,617
Income tax expense 7,931 7,978 6,446 5,465 4,807
------- ------- ------- ------- -------
Net Income $16,187 $17,164 $14,767 $13,125 $12,810
======= ======= ======= ======= =======
Average shares outstanding
Basic 9,998 9,787 9,600 9,943 9,854
Assuming dilution 10,188 9,956 9,804 9,730 9,705
Earnings per common share
Basic $1.62 $1.75 $1.54 $1.35 $1.32
Assuming dilution 1.59 1.72 1.51 1.32 1.30
Cash dividends per common
share 0.82 0.63 0.48 0.39 0.34
____________________________________________________________________________________________
</TABLE>
Shares outstanding and per share amounts have been adjusted for a two-for-one
stock split on January 4, 1994 and 5% stock dividends on April 19, 1995,
January 17, 1996 and January 21, 1997.
As more fully explained in Note 2 to the consolidated financial statements,
additional banking organizations were acquired in 1996 and 1994.
18
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Management's discussion and analysis includes forward-looking statements. Many
factors affect Peoples First Corporation's (Company) financial position and
profitability, including changes in economic conditions, the volatility of
interest rates, political events and competition from other providers of
financial services. Because these factors are unpredictable and beyond the
Company's control, earnings may fluctuate from period to period. The purpose of
this discussion and analysis is to provide annual report readers with
information relevant to understanding and assessing the financial condition and
results of operations of the Company.
Headquartered in Paducah, Kentucky, the Company is a bank and unitary savings
and loan holding company registered with the Federal Reserve Board. The
Company's market area is primarily western Kentucky and the contiguous
interstate areas. This discussion should be read in conjunction with the
consolidated financial statements and accompanying notes.
The Company's one commercial banking subsidiary and one savings bank subsidiary
operate principally in a single business segment offering general commercial and
savings bank services through 28 banking offices. Commercial banking services,
mortgage banking and consumer financing are all activities the Company considers
to be their one business segment.
EARNING ASSETS
Average earning assets of the Company for 1997, increased 8.7%, or $110.3
million to $1,380.2 million from $1,269.9 million for 1996. This compares to
growth of average earning assets of 7.2% and 6.3%, for 1996 and 1995,
respectively. The Company maintains a consistently favorable ratio of average
earning assets to average total assets. The ratio was 95.6% and 95.1%, for 1997
and 1996, respectively.
The Company's principal business is making real estate, consumer and commercial
loans. As such, loans are the Company's primary earning assets and loans are an
increasing part of total earning assets. Average loans for 1997 increased
10.7%, or $102.5 million, to $1,063.1 million, while average loan growth for
1996 and 1995 was 11.0% and 14.6%, respectively.
Table 1
Average Earning Assets
Year ended December 31, 1997 1996 1995
_______________________________________________________________________________
(dollars in thousands)
Total average earning assets $1,380,238 $1,269,889 $1,184,526
Percent of average earning assets
Average loans 77.0% 75.7% 73.1%
Average securities 22.8 24.1 26.7
Average other earning assets 0.2 0.2 0.2
19
The Company primarily directs lending activities to its regional market from
which deposits are drawn. Management has focused on secured lending and the
growth of real estate mortgage and consumer loans during the last three years.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Table 2
Types of Loans
December 31, 1997 1996 1995 1994 1993
____________________________________________________________________________________________
(in thousands)
Commercial, financial
and agricultural $119,924 $120,283 $113,929 $111,929 $118,906
Real estate
Construction 24,157 29,933 19,386 19,421 12,255
Residential mortgage 468,330 421,129 364,607 318,551 269,265
Commercial mortgage 188,502 174,576 158,429 139,629 127,666
Consumer, net 298,724 289,653 255,975 214,309 173,191
Other 2,070 855 1,463 1,952 2,250
--------- --------- --------- --------- ---------
1,101,707 1,036,429 913,789 805,791 703,533
Allowance for loan losses (16,442) (14,795) (13,371) (12,188) (10,715)
--------- --------- --------- --------- ---------
$1,085,265 $1,021,634 $900,418 $793,603 $692,818
========= ========= ========= ========= =========
</TABLE>
The Company maintains a portfolio of securities held for sale as an available
source of funding for loan growth. In prior years, reductions in the investment
portfolios were used to fund loan growth. Beginning in 1997, in order to
further leverage stockholders' equity without creating excessive interest-rate
risk, management reduced the amount of loan funding derived from security
maturities. Average securities increased $7.8 million during 1997, following
decreases of $9.3 million during 1996 and $39.0 million during 1995. U. S.
treasury and agency obligations represent approximately 75.0% of the securities
portfolios at December 31, 1997.
At December 31, 1997, mortgage-backed securities which included Real Estate
Mortgage Investment Conduit (REMIC) and CMO instruments were approximately 52.6%
of the securities portfolios, compared to approximately 53.5% at December 31,
1996. The REMIC issues are 100% U. S. agencies issues. The CMO issues are
marketable, collateralized mortgage obligations backed by agency-pooled
collateral or whole-loan collateral. All nonagency issues held are currently
rated AA or AAA by either Standard & Poors or Moody's. At December 31, 1997,
approximately 15.0% of the mortgage-backed securities are floating-rate issues,
the majority being indexed to the Constant Maturity Treasury index.
Management's normal practice is to purchase securities at or near par value to
reduce risk of premium write-offs resulting from unexpected prepayments.
At December 31, 1997, the Company did not have any structured notes (as
currently defined by regulatory agencies) in the securities portfolios since
management believes the uncertainty of cash flows from these securities, which
are driven by interest-rate movements, could expose the Company to greater
market risk than traditional securities.
20
FUNDING
An 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
1997 increased 6.4%, or $62.1 million to $1,029.4 million from $967.3 million
for 1996. Excluding the 1997 branch purchase and the 1996 savings bank
acquisiton, the 1997 increase was 2.7%, or $26.1 million, compared to 3.8%, or
$37.2 million for 1996. Local markets for deposits are competitive. Core
deposits are a decreasing portion of average interest-bearing liabilities. The
core deposit base is supplemented with brokered deposits, short-term and
long-term borrowings to fully fund loan growth. Average brokered deposits
amounted to $13.9 million, $22.8 million and $24.7 million for the years ended
December 31, 1997, 1996 and 1995, respectively. Average short-term and
long-term borrowings were $144.8 million for 1997, up from $122.2 million for
1996 and $94.3 million for 1995.
Management plans to continue to increase reliance on non-core funding. The
Company's subsidiary banks have obtained various short-term and long-term
advances from the Federal Home Loan Bank (FHLB) under Blanket Agreements for
Advances and Security Agreements (Agreements). The Agreements entitle the banks
to borrow additional funds from the FHLB to fund mortgage loan programs and
satisfy other funding needs. Additional funding totaling approximately $182.8
million is available at December 31, 1997 from undrawn federal funds purchased,
lines-of-credit for U.S. treasury notes and FHLB advances.
Table 3
Average Interest-bearing Liabilities
Year ended December 31, 1997 1996 1995
_______________________________________________________________________________
(dollars in thousands)
Total average interest-bearing
liabilities $1,196,924 $1,107,265 $1,035,459
Percent of average total interest-
bearing liabilities
Interest-bearing core deposits 78.9% 80.5% 81.4%
CDs of $100,000 or more 7.7 6.2 7.0
Brokered deposits 1.2 2.1 2.4
Average short-term borrowings 8.4 10.2 8.3
Average long-term borrowings 3.7 0.9 0.8
Other 0.1 0.1 0.1
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 although inevitably occur. The Company's process for monitoring
loan quality includes detailed, monthly analyses of delinquencies, nonperforming
assets and potential problem loans. Management extensively monitors credit
policies, including policies related to appraisals, assessment of the financial
condition of borrowers, restrictions on out-of-area lending and avoidance of
loan concentrations.
21
The amount of nonperforming assets at December 31, 1997 remains at managable
levels. Diversification within the loan portfolio is an important means of
reducing inherent lending risks. At December 31, 1997, the Company had no
concentrations of ten percent or more of total loans in any single industry
nor geographical area outside the Paducah, Kentucky, western Kentucky regions,
the immediate market area of the banks.
Nonperforming assets, including nonaccrual, 90-day past due and restructured
loans and foreclosed properties, totaled $13.1 million at December 31, 1997,
compared to $12.2 million and $6.8 million at December 31, 1996 and 1995,
respectively. Nonperforming assets as a percentage of total loans and other
real estate increased to 1.18% at December 31, 1997 compared to 1.17% and 0.74%
at December 31, 1996 and 1995, respectively. The 1997 nonaccrual loan balance
is comprised of twelve residential rental and commercial loans with outstanding
balances between $100,000 and $500,000, and numerous consumer loans with an
average balance of $22,000. The 1996 increase in nonperforming assets is
principally due to one $3.0 million loan that was past due 90 days, one $1.0
million nonaccrual loan and numerous small consumer loans. Management was
prepared for the increased level of consumer chargeoffs and nonperforming loans
and believes that the level will remain relatively high compared to prior
periods due to increased outstandings and to the cyclical nature of consumer
credit. There are generally good economic conditions in the market area and
management believes the Company's comprehensive loan administration and workout
procedures are adequate to manage the credit risks.
The Company discontinues the accrual of interest on loans which become ninety
days past due as to principal or interest, unless the loans are adequately
secured and in the process of collection. Other real estate owned is carried at
the lower of cost or fair value. A loan is classified as a renegotiated loan
when the interest rate is materially reduced or the term is extended beyond the
original maturity date because of the inability of the borrower to service the
debt under the original terms.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Table 4
Nonperforming Assets
December 31, 1997 1996 1995 1994 1993
____________________________________________________________________________________________
(in thousands)
Nonaccrual loans $5,848 $4,680 $1,817 $531 $835
Loans past due 90 days 4,451 4,710 1,471 1,838 503
Renegotiated loans 2,532 2,707 2,874 2,741 2,995
Other real estate owned 236 90 644 1,569 2,258
------ ------ ------ ------ ------
$13,067 $12,187 $6,806 $6,679 $6,591
====== ====== ====== ====== ======
Nonperforming assets as a
percent of total loans
and other real estate 1.18% 1.17% 0.74% 0.83% 0.93%
Allowance for loan losses
coverage of nonperform-
ing assets 126% 121% 196% 182% 163%
</TABLE> 22
Internal credit review procedures are designed to alert management of possible
credit problems which would create serious doubts as to the future ability of
borrowers to comply with loan repayment terms. At December 31, 1997, loans with
a total principal balance of $26.5 million have been identified that may become
nonperforming in the future, compared to $26.4 million at December 31, 1996 and
$12.8 million at December 31, 1995. The 1996 increase was due to two commercial
loan relationships. Management works closely with these borrowers in their
efforts to resolve potential cash flow problems. Potential problem loans are
not included in nonperforming assets since the borrowers currently meet all
applicable loan agreement terms.
CAPITAL RESOURCES AND DIVIDENDS
The board of directors develops and reviews the capital goals and policies of
the consolidated entity and of the banks. The Company's capital policies are
designed to retain sufficient amounts for healthy financial ratios, considering
future planned asset growth and to leverage stockholders' equity to a desirable
degree. The Company's banks were "well capitalized" based on the regulatory
defined minimums of a Tier I leverage ratio of 5%, a Tier I capital ratio of 6%
and a total capital ratio of 10%.
Stockholders' equity was 10.3% of assets at December 31, 1997, an increase from
10.2% at December 31, 1996. Unrealized gain or loss on securities held for
sale, net of applicable income taxes, is recorded directly to stockholders'
equity. Exclusive of the $1.2 million unrealized net gain on securities held
for sale, net of applicable income taxes, stockholders' equity increased $8.9
million, or 6.2%, during 1997. This compares to an increase, exclusive of the
$0.6 million unrealized net loss on securities held for sale, net of applicable
income taxes, of $17.0 million, or 13.4%, during 1996. The capital base has
been strengthened through the issuance of common stock and earnings retention.
Common stock was issued through various shareholder and employee plans and for
the savings bank acquisition in 1996. The earnings retention rate, which the
board of directors adjusts through declaration of cash dividends, was 49.4% for
1997, 64.0% for 1996 and 68.8% for 1995. The board of directors raised the
quarterly dividend to $0.14 per share in the third quarter of 1995, to $0.15 per
share in the second quarter of 1996 to $0.19 per share in the fourth quarter of
1996 and to $0.22 per share in the third quarter of 1997. Stock dividends of 5%
were declared in April 1995, in January 1996 and January 1997.
Proceeds from the sale of common stock through shareholder and employee plans
amounted to $1.8 million in 1997, $1.7 million in 1996 and $2.2 million in 1995.
During 1996, the board of directors authorized the repurchase of up to 400,000
shares of the Company's common stock in the open market. A total of 64,606 were
repurchased during 1997 for $0.9 million and 89,005 shares were repurchased
during 1996 for $1.9 million. Following the fourth dividend in 1997, the
Company terminated the stockholders' dividend reinvestment plan and cancelled
the repurchase authorization pursuant to the merger agreement with Union
Planters Corporation dated November 17, 1997.
Subsidiary bank dividends are the principal source of funds for the Company's
payment of dividends to its stockholders. At December 31, 1997, approximately
$28.7 million in retained earnings of the banks was available for dividend
23
payments to the Company without regulatory approval or without reducing capital
of the respective banks below minimum standards. 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 14.90% and 13.64%,
respectively, at December 31, 1997 compared with 14.33% and 13.15%, respectively
at December 31, 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 9.76% at December 31,
1997, compared with 9.55% at December 31, 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 December 31,
1997, all of the Company's insured depository institutions met the criteria to
be classified as "well capitalized".
RESULTS OF OPERATIONS
Net income for the year ended December 31, 1997 was $16.2 million, down 5.8%
from $17.2 million for the year ended December 31, 1996, which was an increase
of 16.2% from $14.8 million for the year ended December 31, 1995. Increased
revenue was offset by additional provision for loan losses and noninterest
expense. Revenues improved due to loan growth and better fee income. Overhead
increased due to costs associated with consolidation of some bank systems,
consulting fees and merger related expenses. Basic earnings per common share
for the year ended December 31, 1997 was $1.62, down 7.4% from $1.75 for the
year ended December 31, 1996, and compared to $1.54 for the year ended
December 31, 1995. Basic earnings per common share for the fourth quarter of
1997, decreased 45.3% to $0.29 from $0.53 for the fourth quarter of 1996. The
effect of stock options, the Company's only dilutive securities, is minimal.
Earnings per common share assuming dilution for the year ended December 31,
1997 was $1.59, compared to $1.72 for the year ended December 31, 1996, and to
$1.51 for the year ended December 31, 1995. Return on average stockholders'
equity for the years ended December 31, 1997, 1996 and 1995 was 10.86%, 12.75%
and 12.46%, respectively. Return on average assets for the years ended 1997,
1996 and 1995 was 1.12%, 1.29% and 1.19%, respectively.
NET INTEREST INCOME
The operating results of the Company depend primarily on its net interest
income, which is the difference between interest income earned on
interest-bearing assets and interest expense on interest-bearing liabilities,
consisting mainly 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.
24
For the year ended December 31, 1997, net interest income, on a tax-equivalent
(TE) basis, increased 6.4%, or $3.6 million to $59.7 million compared to $56.1
million for 1996. For the year ended December 31, 1996, net interest income
(TE) increased 13.3%, or $6.6 million from $49.5 million for 1995. The 1997
increase is attributable to increased volume of earning assets, while volume and
interest-rate spread improvement played a balanced role in the 1996 increase.
Net interest income (TE) as a percent of average earning assets was 4.32%, 4.41%
and 4.18% for the years ended December 31, 1997, 1996 and 1995, respectively.
Management attributes the 1997 drop to the concentration on secured real estate
lending and competitive consumer loan markets. The banks generally maintain a
relatively balanced position between volumes of rate-repricing assets and
liabilities to guard to some degree against adverse effects to net interest
income from possible fluctuations in interest rates.
PROVISION FOR LOAN LOSSES
The Company's primary business of making real estate, consumer and commercial
loans entails potential loan losses, the magnitude of which depends on a variety
of economic factors affecting borrowers which are beyond the control of the
Company. The provision for loan losses reflects management's judgement of the
cost associated with credit risk inherent in the loan portfolio. The provision
for loan losses amounted to $5.0 million for 1997, an increase of 85.2% compared
to $2.7 million for 1996, which was an increase of 22.7% compared to $2.2
million in 1995. The provision for loan losses as a percentage of average loans
was 0.47% for the year ended December 31, 1997, up from 0.28% for the year ended
December 31, 1996 and 0.25% for the year ended December 31, 1995. The increase
in the 1997 provision was essential to provide for the growth in outstanding
loans and the continuing trend of increasing consumer loan chargeoffs.
Net chargeoffs for 1997 were $3.4 million compared to $1.7 million for 1996 and
$1.0 million for 1995. Net chargeoffs were $1.0 million in both the third and
fourth quarters of 1997. As a percentage of average loans, net chargeoffs were
0.32% for 1997, up from 0.18% for 1996 and 0.11% for 1995. The allowance for
loan losses is maintained at a level which management considers adequate to
absorb estimated potential losses in the loan portfolio, after reviewing the
individual loans and in relation to risk elements in the portfolios and giving
consideration to the prevailing economy and anticipated changes. At December
31, 1997, the allowance for loan losses is 1.49% of outstanding loans compared
1.42% of outstanding loans at December 31, 1996. The December 31, 1997
allowance is 126% of nonperforming assets compared to 121% at December 31, 1996.
NONINTEREST INCOME
During the last two years, the Company has continued to engage outside
consulting firms to review banking products, services and charges. As a result,
fees from traditional deposit services as well as revenues from brokerage
services, trust services and other commission business have been increased by
management's focus on improving all areas of noninterest income. Noninterest
income is an important but not yet significant source of revenue for the
Company, representing 15.0% of tax equivalent net revenues in 1997, compared to
13.1% in 1995 and 13.7% in 1995. Noninterest income amounted to $10.5 million
in 1997, a 23.5% increase compared to $8.5 million in 1996 which was an increase
of 7.6% compared to $7.9 million in 1995.
25
Service charges on deposit accounts, the largest component of noninterest
income, increased 26.2% in 1997 and 7.5% in 1996. The increases are primarily
attributable to a change in the assessment of overdraft fees. This level of
increase is not expected to continue in future years.
Trust fees for 1997 increased 12.4% from 1996 which increased 9.0% from 1995.
These increases match the growth in the amount of trust assets managed which
were primarily in estate and personal trust accounts. The fall in insurance
commissions is due to more competition. Income from bankcards, investment
brokerage services and property and casualty insurance products all generated
higher level of fees in 1997 due to account growth.
NONINTEREST EXPENSE
The ratio of noninterest expense net of noninterest income exclusive of
securities gains to average total assets has been very consistent despite many
re-engineering efforts, and was 1.99% for 1997, 1.97% for 1996 and 1.96% for
1995. Since internal asset growth is not expected to reach significant levels,
management wants to focus on controlling the rate of increase of noninterest
expense through more employee productivity. The Company consolidated one of the
previously separate corporate subsidiaries into the lead bank during 1997 and
six in 1995 and 1994 to allow the personnel at all locations to better focus on
consistent quality customer service, increasing the volume of business and to
reduce a small amount of redundant costs. Also during 1997, two data processing
systems were converted to the Company's primary data processor to allow for
uniform product delivery and better employee utilization.
Noninterest expense for 1997, which includes costs associated with consolidation
of bank systems, additional consulting fees and merger related expenses,
increased 12.9%, to $39.3 million, compared to $34.8 million for 1996.
Noninterest expense for 1996, reflecting higher equipment and data processing
costs, increased 8.1%, compared to $32.2 million for 1995. Noninterest expense
for 1995 decreased 0.3% due to reduced deposit insurance rates and the absence
of merger-related professional fees.
Salaries and employee benefits increased 8.4% in 1997, compared to 4.1% in 1996.
Staffing levels, considering the branch acquisition in 1997 and the savings bank
acquisition in 1996, were comparable at December 31, 1997 and 1995. The
Company has made investments in equipment and facilities of approximately $8.6
million during the last three years as technology has advanced and the need to
leverage personnel costs has intensified. Occupancy expense increased 11.5% in
1997, 2.5% in 1996 and 5.5% in 1995. Equipment expense increased 23.9% in 1997,
15.2% in 1996 and 13.2% in 1995 due to depreciation and maintenance of new
equipment. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets which range from two to ten years for
equipment. Much of the recent years' equipment purchases are electronic and
technology sensitive items which the Company depreciates over a five year or
shorter period. Management plans to continue to invest in technology for new
product delivery systems.
Due to the current level of soundness of the Federal Deposit Insurance
Corporation (FDIC), deposit insurance assessments are now a minimal amount. In
the second quarter of 1995, the FDIC reduced the rate paid by most commercial
26
banks from $0.23 to $0.04 per $100 of insured deposits and effective January
1996, the rate was reduced to a $2,000 minimum per bank. All of the Company's
subsidiaries received the lowest applicable deposit assessment rates from the
FDIC. In the third quarter of 1996, the FDIC made a special assessment on
savings banks' deposits of $0.657 for every $100 of saving bank deposits on
March 31, 1995 to support the failing savings bank industry. The amount of the
special assessment paid in 1996 by the Company's savings bank subsidiaries was
$1.3 million. Management expects the level of deposit insurance expense to be
insignificant in 1998.
Increased data processing expense is attributable to a greater volume of
activity and the outsourcing of some activities. The increase was 18.9% in 1997
and 15.4% in 1996. Excluding system conversion costs, the increase in 1997
was 12.2%. Kentucky Bankshare tax legislation was passed in 1997, reforming the
assessment of this tax. The tax increased 5.2% in 1997 and increased 13.6% in
1996. The banks are required to maintain significant noninterest-bearing
balances with the Federal Reserve and to pay fees to regulatory agencies for
periodic examinations by the agencies.
The significant $1.5 million increase in legal, accounting and consulting fees
in 1997 are due to the combining of subsidiaries, product and system reviews by
consultants and the Union Planters merger.
INCOME TAXES
The Company's income tax planning is based on the goal of maximizing, long-term,
after-tax profitability. Income tax expense is impacted by the mix of taxable
versus tax-exempt revenues from securities and loans as well as certain
nondeductible expenses. The Company manages the effective tax rate to some
degree based upon changing tax laws, particularly alternative minimum tax
provisions, the availability and price of nontaxable debt securities and other
portfolio considerations.
The decrease in income tax expense for 1997 and the increase in 1996 are
attributable to corresponding changes in operating earnings and increasingly
higher effective tax rates in both years. The Company's effective income tax
rate was 32.9%, 31.7% and 30.4%, for the years ended December 31, 1997, 1996 and
1995, respectively. The effective tax rate increased due to the continued
decline in nontaxable income and an increase in nondeductible merger-related
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. The Company's objective of liquidity
management is to ensure the ability to access funding which enables each bank to
27
efficiently satisfy the cash flow requirements of depositors and borrowers. ALM
involves the funding and investment strategies necessary to maintain an
appropriate balance between interest sensitive assets and liabilities as well as
to assure adequate liquidity.
The Company monitors funds available from a number of sources to meet its
objectives. The primary source of liquidity for the banks, in addition to loan
repayments, is their debt securities portfolios. Securities classified as held
for sale are those that the Company intends to use as part of its
asset/liability management and that may be sold prior to maturity in response to
changes in interest rates, resultant prepayment risks and other factors. The
Company's access to the retail deposit market through individual locations in
nine different counties has been a reliable source of funds. Additional funds
for liquidity are available by borrowing federal funds from correspondent banks,
Federal Home Loan Bank borrowings and brokered deposits. Various types of
analyses are performed to ensure adequate liquidity, and to evaluate the
desirability of the relative interest rate sensitivity of assets and
liabilities. Management considers current liquidity positions of the 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 does not make interest bets, but instead seeks to
fairly closely match the duration of repricing assets and liabilities over time.
The Company's ALM policy provides limits for interest rate risk. Declines in
simulated net interest income for the following twelve months are limited to 5%
based upon immediate up or down shifts in interest rate of 200 basis points. At
December 31, 1997, this simulation estimated net interest income exposure to be
4.9%. Simulated declines in economic value are limited to 20.0% of capital. At
December 31, 1997, the estimated economic exposure was 5.9% of capital.
Currently, the Company does not employ interest rate swaps, financial futures or
options to affect interest rate risks.
The banks and the Company collectively measure their level of earnings
exposure to future interest rate movements. Simulation and interest rate gap
analyses are used to scrutinize the sensitivity of net interest income over a
relatively short (1-2 years) time horizon. The analyses are used to examine the
impact on earnings of an immediate interest rate shock as well as other
forecasted interest rate scenarios. Each scenario incorporates what management
believes to be the most reasonable assumptions about such variables as volumes,
prepayment rates for mortgage assets and repricing characteristics. A valuation
analysis is also performed to measure the sensitivity of the Company's net
interest income. This analysis involves discounting projected future cash flows
of assets, liabilities and off-balance sheet positions to arrive at an estimated
net present economic value.
28
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Table 5
Interest Rate Sensitivity
Analysis 1-90 91-365 Total at >1 - <3 >3 - <5 >5 - <15 Over 15
December 31, 1997 Days Days 1 year years years years years Total
___________________________________________________________________________________________________________________________________
(in thousands)
Rate Sensitive Assets
Securities, at cost
U.S. treasury
and agencies $0 $13,211 $13,211 $17,029 $41,307 $4,475 $1,544 $77,566
Mortgage-backed 12,360 29,479 41,839 42,318 34,660 43,237 2,732 164,786
Municipal bonds 1,585 2,040 3,625 7,689 8,351 42,772 176 62,613
Other 7,471 66 7,537 35 1,601 0 0 9,173
------- ------- ------- ------- --------- --------- --------- ---------
21,416 44,796 66,212 67,071 85,919 90,484 4,452 314,138
Loans 330,681 424,711 755,392 168,413 101,948 74,822 3,272 1,103,847
------- ------- ------- ------- --------- --------- --------- ---------
352,097 469,507 821,604 235,484 187,867 165,306 7,724 1,417,985
Rate Sensitive Liabilities
Deposits
Transaction and savings 238,814 0 238,814 30,739 30,739 153,694 22,407 476,393
Time 152,233 250,929 403,162 186,593 16,563 3,776 0 610,094
Short-term borrowings 57,759 56,713 114,472 0 0 0 0 114,472
Long-term borrowings 33,703 2,420 36,123 937 837 3,596 1,611 43,104
------- ------- ------- ------- --------- --------- --------- ---------
482,509 310,062 792,571 218,269 48,139 161,066 24,018 1,244,063
------- ------- ------- ------- --------- --------- --------- ---------
Period Gap ($130,412) $159,445 $29,033 $17,215 $139,728 $4,240 ($16,294) $173,922
======= ======= ======= ======= ========= ========= ========= =========
Cumulative Gap at 12/31/97 ($130,412) $29,033 $29,033 $46,248 $185,976 $190,216 $173,922 $173,922
</TABLE>
Management made the following assumptions in preparing the Interest Rate
Sensitivity Analysis:
1 Assets and liabilities are generally scheduled according to their
earliest repricing dates regardless of their contractual maturities.
2 Nonaccrual loans are included in the rate-sensitive category.
3 The scheduled maturities of mortgage-backed securities assume
principal prepayments on dates estimated by management, relying
primarily on current and concensus interest-rate forecasts in
conjunction with historical prepayment schedules.
4 Transaction and savings deposits that have no contractual maturities
are scheduled according to management's best estimate of their re-
pricing in response to changes in market rates.
29
DATA PROCESSING SYSTEMS AND THE YEAR 2000 RISK FACTOR
In June 1997, the Company implemented its "Y2K Project" to address a potential
problem with which substantially all users of automated data processing and
information systems are faced. This problem arises from the use by older
systems of only two digits, rather than the full four digits, to represent the
year applicable to a transaction. Computer systems so programmed may not
operate properly when the last two digits or the year become "00" as will occur
on January 1, 2000. In some cases inputting a date later than December 31,
1999, would cause a computer to stop operating while in other cases incorrect
output may result. This potential problem could adversely effect a wide variety
of automated information systems such as mainframe applications, personal
computers, communication systems and other information systems routinely
utilized in all industries.
Substantially all of the date-sensitive software/applications utitlized by the
Company is provided by outside vendors. The Company primarily uses a
third-party to provide "core" operating system/application software to process
data pertaining to its demand deposits, saving accounts, CDs and other deposits,
loans and like items. On August 15, 1997, this third-party provider certified
the Company's core operating system to be Year-2000 compliant, and testing is
expected to be completed by December of 1998.
Other third-party-provided application software is used to process substan-
tially all of the Company's other data, such as credit cards, trust accounts,
investment-security management, accounts payable and others. Testing of these
systems is expected to be completed by September of 1998 and Year-2000
compliance achieved prior to December of 1998 either through installation of
presently available software upgrades or through installation of, and conversion
to, presently available alternative systems. Each third-party provider is
contractually bound at its own expense to bring its software into Year-2000
compliance and to maintain it in compliance should problems be identified during
testing. By December of 1998, testing of all third-party-provided software and
hardware is expected to be completed.
The banks continue to bear some risk arising from the advent of the Year-2000
and could be adversely affected should significant bank customers fail to
address the issue appropiately. At present, management has no reason to believe
that any customer with which it has significant banking relationships are
failing to take appropriate action to effect Year-2000 compliance or that its
software/application vendors will be unable to perform under their contracts.
Based on currently available information, management does not anticipate that
the cost to address the Year 2000 issues will have a material adverse impact on
the Company's financial condition, results of operations, or liquidity.
NEW ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued Statement of Financial
Accounting Stardards No. 130 and No. 131. They are effective for the
Company's next year financial statements. Management does not believe these
statements will have a material impact on the Company's financial statements.
30
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Independent Auditors' Report
_______________________________________________________________________________
The Board of Directors and Stockholders
Peoples First Corporation
We have audited the accompanying consolidated balance sheets of Peoples First
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, changes in stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based upon our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Peoples First
Corporation and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
January 23, 1998
31
December 31, December 31,
CONSOLIDATED BALANCE SHEETS 1997 1996
_______________________________________________________________________________
(in thousands)
ASSETS
Cash and due from banks $46,820 $43,285
Securities held for sale 217,871 182,352
Securities held for investment 98,622 121,959
Loans held for sale 2,140 1,886
Loans receivable, net 1,085,265 1,021,634
Goodwill and other intangible assets 12,106 10,923
Premises and equipment 20,310 19,376
Other assets 17,863 16,349
--------- ---------
$1,500,997 $1,417,764
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Demand deposits $90,354 $85,376
Interest-bearing transaction accounts 402,955 335,977
Savings deposits 73,438 85,145
Time deposits 610,094 608,755
--------- ---------
1,176,841 1,115,253
Short-term borrowings 114,472 132,167
Long-term borrowings 43,104 14,013
Other liabilities 11,853 11,782
--------- ---------
Total liabilities 1,346,270 1,273,215
Stockholders' Equity
Common stock 7,818 7,812
Surplus 70,627 69,691
Retained earnings 74,754 66,762
Unrealized net gain on
securities held for sale 1,528 284
--------- ---------
154,727 144,549
--------- ---------
$1,500,997 $1,417,764
========= =========
Fair value of securities held for investment $102,191 $125,061
Common shares issued and outstanding 10,007 9,999
See accompanying notes to consolidated financial statements. 32
Year Ended December 31,
CONSOLIDATED STATEMENTS OF INCOME 1997 1996 1995
_______________________________________________________________________________
(in thousands except per share data)
INTEREST INCOME
Interest and fees on loans $96,948 $87,872 $78,487
Taxable interest on securities 16,733 15,842 16,082
Nontaxable interest on securities 3,658 3,837 4,017
Interest on short-term investments 133 122 160
------- ------- -------
117,472 107,673 98,746
INTEREST EXPENSE
Interest on deposits 51,461 46,902 45,608
Other interest expense 8,120 6,657 5,544
------ ------ ------
59,581 53,559 51,152
------ ------ ------
Net Interest Income 57,891 54,114 47,594
Provision for Loan Losses 5,041 2,664 2,167
------ ------ ------
Net Interest Income after
Provision for Loan Losses 52,850 51,450 45,427
Noninterest Income 10,548 8,535 7,944
Noninterest Expense 39,280 34,843 32,158
------ ------ ------
Income Before Income Tax Expense 24,118 25,142 21,213
Income Tax Expense 7,931 7,978 6,446
------ ------ ------
NET INCOME $16,187 $17,164 $14,767
====== ====== ======
EARNINGS PER COMMON SHARE
Basic $1.62 $1.75 $1.54
Assuming dilution 1.59 1.72 1.51
CASH DIVIDENDS PER COMMON SHARE 0.82 0.63 0.48
See accompanying notes to consolidated financial statements. 33
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Unrealized net
gain (loss) Debt on
CONSOLIDATED STATEMENTS OF CHANGES Common Retained on securities ESOP
IN STOCKHOLDERS' EQUITY stock Surplus earnings held for sale shares Total
______________________________________________________________________________________________________________________
(in thousands, except share data)
BALANCE AT DECEMBER 31, 1994 $6,422 $34,859 $73,739 ($4,624) ($133) $110,263
Net income 14,767 14,767
Cash dividends declared ($0.48 per share) (4,604) (4,604)
Common stock dividends declared (5%) 665 16,359 (17,024) 0
Issuance of 168,938 common shares pursuant
to shareholder and employee plans 120 2,051 2,171
Reduction of ESOP debt 25 25
Change in unrealized net gain
(loss) on securities held for sale 5,550 5,550
------ ------ ------ ------ ------ -------
BALANCE AT DECEMBER 31, 1995 7,207 53,269 66,878 926 (108) 128,172
Net income 17,164 17,164
Cash dividends declared ($0.63 per share) (6,169) (6,169)
Common stock dividend declared (5%) 372 10,739 (11,111) 0
Issuance of 87,457 common shares pursuant
to shareholder and employee plans 65 1,696 1,761
Issuance of 315,002 common shares
for acquisition 234 5,803 6,037
Repurchase of 89,005 common shares (66) (1,816) (1,882)
Reduction of ESOP debt 108 108
Change in unrealized net gain
(loss) on securities held for sale (642) (642)
------ ------ ------ ------ ------ -------
BALANCE AT DECEMBER 31, 1996 $7,812 $69,691 $66,762 $284 $0 $144,549
Net income 16,187 16,187
Cash dividends declared ($0.82 per share) (8,195) (8,195)
Issuance of 72,127 common shares pursuant
to shareholder and employee plans 56 1,770 1,826
Repurchase of 64,606 common shares (50) (834) (884)
Change in unrealized net gain
(loss) on securities held for sale 1,244 1,244
------ ------ ------ ------ ------ -------
BALANCE AT DECEMBER 31, 1997 $7,818 $70,627 $74,754 $1,528 $0 $154,727
====== ====== ====== ====== ====== =======
</TABLE>
See accompanying notes to consolidated financial statements. 34
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Year Ended December 31,
CONSOLIDATED STATEMENTS OF CASH FLOWS 1997 1996 1995
____________________________________________________________________________________________
OPERATING ACTIVITIES
Net income $16,187 $17,164 $14,767
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,681 3,126 2,752
Net premium amortization 135 575 953
Provision for loan losses 5,041 2,664 2,167
Net increase in loans held for sale (254) (377) (553)
Provision for deferred income taxes (972) 352 (316)
Increase (decrease) in accrued items (1,807) (152) 3,167
Other, net (1,886) (1,026) (718)
------ ------ ------
Net Cash Provided by Operating
Activities 20,125 22,326 22,219
INVESTING ACTIVITIES
Proceeds from sales of securities
held for sale 3,677 0 12,086
Proceeds from maturities, calls and
prepayments of securities held for sale 11,620 24,266 4,000
Proceeds from maturities, calls and
prepayments of securities held for investment 11,278 26,263 30,307
Principal collected on mortgage-backed
securities held for sale 25,045 17,412 9,045
Principal collected on mortgage-backed
securities held for investment 20,633 21,545 14,332
Purchase of securities held for sale (73,467) (73,565) (33,033)
Purchase of securities held for investment (8,590) (6,502) (1,775)
Net increase in loans (69,068) (78,072) (109,011)
Purchases of premises and equipment (3,379) (2,044) (3,190)
Net cash received in acquisition 0 1,185 0
------ ------ ------
Net Cash Used by Investing Activities (82,251) (69,512) (77,239)
See accompanying notes to consolidated financial statements. 35
CONSOLIDATED STATEMENTS OF Year Ended December 31,
CASH FLOWS - CONTINUED 1997 1996 1995
____________________________________________________________________________________________
(in thousands)
FINANCING ACTIVITIES
Net increase in deposits $61,588 $25,620 $48,521
Net increase (decrease) in other short-term borrowings (17,695) 34,447 8,903
Proceeds from long-term borrowings 43,500 0 139
Repayments of long-term borrowings (14,409) (830) (1,919)
Proceeds from issuance of common stock 401 696 1,418
Repurchase of common stock (884) (1,882) 0
Cash dividends paid (6,840) (5,104) (3,851)
------ ------ ------
Net Cash Provided by Financing Activities 65,661 52,947 53,211
------ ------ ------
Cash and Cash Equivalents
Decrease 3,535 5,761 (1,809)
Beginning of Year 43,285 37,524 39,333
------ ------ ------
End of Year $46,820 $43,285 $37,524
====== ====== ======
SUPPLEMENTAL DISCLOSURES
Cash paid for interest expense $58,764 $54,279 $48,642
Cash paid for income taxes 8,500 8,824 5,558
NONCASH INVESTING AND FINANCING TRANSACTIONS
Other real estate transferred
from loans, net 397 108 30
Dividends reinvested 1,356 1,065 753
Common stock issued in acquisition 0 6,037 0
</TABLE>
See accompanying notes to consolidated financial statements. 36
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Peoples First Corporation (Company) through its subsidiaries, Peoples First
National Bank and Trust Company and Peoples First, F.S.B., operates principally
in a single business segment offering a full range of banking services to
individual and corporate customers in the western Kentucky and contiguous
interstate area. The Company and the subsidiary banks are subject to the
regulations of various Federal and state agencies and undergo periodic
examination by regulators.
The accounting policies and reporting practices of the Company and its
subsidiaries conform to generally accepted accounting principles and general
practices within the banking industry. In preparing financial statements,
management is required to make assumptions and estimates which affect the
Company's reported amounts of assets and liabilities and the results of
operations. Estimates and assumptions involve future events and may change.
The more significant accounting policies are summarized below.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated. Prior period financial statements are also restated to include
the accounts of companies which are acquired and accounted for as pooling of
interests. Results of operations of companies acquired subject to purchase
accounting are included from the dates of acquisition. In accordance with
purchase accounting, assets and liabilities of purchased companies are stated at
fair values, less accumulated amortization and depreciation since the dates of
acquisition. The excess of cost over fair value of the net assets acquired is
being amortized on the straight-line method over a fifteen-year period.
SECURITIES HELD FOR SALE AND INVESTMENT
At acquisition, securities are classified into one of three categories: trading,
held for sale or investment. Transfers of debt securities between categories
are recorded at fair value at the date of transfer. Unrealized gains or losses
associated with transfers of debt securities from the investment to the held for
sale category are recorded and maintained as a separate component of stock-
holders' equity. The unrealized gains or losses included as a separate
component of stockholders' equity for debt securities transferred to the
investment from the held for sale category are maintained and amortized into
earnings over the remaining life of the debt securities as an adjustment to
yield in a manner consistent with the amortization or accretion of premiums or
discounts on the associated securities.
Trading securities are bought and held principally with the intention of selling
them in the near term. The Company currently has no trading securities.
Securities that are being held for indefinite periods of time, including secur-
ities that management intends to use as a part of its asset/liability strategy,
or that may be sold in response to changes in interest rates, changes in prepay-
ment risk, to meet liquidity needs, the need to increase regulatory capital or
other similar factors, are classified as securities held for sale and are stated
37
at fair value. Fair value is based on market prices quoted in financial publi-
cations or other independent sources. Net unrealized gains or losses are
excluded from earnings and reported, net of applicable income taxes, as a
separate component of stockholders' equity until realized. Securities for which
the Company has the ability and positive intent to hold until maturity are
classified as securities held for investment and are carried at cost, adjusted
for amortization of premiums and accretion of discounts, which are recognized as
adjustments to interest income on the level yield method.
Certain changes in circumstances and other events that are isolated,
nonrecurring and unusual for the Company that could not have been reasonably
anticipated may cause the Company to change its intent to hold a certain
security to maturity without necessarily calling into question its intent to
hold other securities for investment.
Realized gains or losses on securities held for sale or investment are accounted
for using the specific security. A decline in the fair value of any security
held for sale or investment below cost that is deemed other than temporary
results in a charge to earnings and the establishment of a new cost basis for
the security. Mortgage-backed securities represent a significant portion of the
security portfolios. Amortization of premiums and accretion of discounts on
mortgage-backed securities are analyzed in relation to the corresponding
prepayment rates, both historical and estimated, using a method which
approximates the level yield method.
LOANS HELD FOR SALE
The Company's operations include a limited amount of mortgage banking. Mortgage
banking activities include the origination of residential mortgage loans for
sale to various investors. Mortgage loans originated and intended for sale in
the secondary market, principally under programs with the Government National
Mortgage Association (GNMA) or the Federal National Mortgage Association (FNMA),
are carried at the lower of cost or market value. Mortgage banking revenues,
including origination fees, servicing fees, net gains on sales of servicing
rights, net gains or losses on sales of mortgages and other fee income amount to
less than 1% of the Company's total revenue for the years ended December 31,
1997, 1996 and 1995. Loans sold with retained servicing rights are also an
immaterial amount.
LOANS RECEIVABLE
Loans receivable held for investment are carried at cost, as the Company has the
ability and it is management's intention to hold them to maturity. Interest on
commercial and real estate mortgage loans is accrued if deemed collectible and
credited to income based upon the principal amount outstanding.
The Company evaluates the collectibility of both contractual interest and
contractual principal of all receivables when assessing the need for loss
recognition. When in the opinion of management the collection of interest on a
loan is unlikely or when either principal or interest is past due over 90 days,
38
that loan is generally placed on nonaccrual status. When a loan is placed in
nonaccrual status, accrued interest for the current period is reversed and
charged against earnings and accrued interest from prior periods is charged
against the allowance for loan losses. A loan remains on nonaccrual status
until the loan is current as to payment of both principal and interest and/or
the borrower demonstrates the ability to pay and remain current. Interest
payments received on nonaccrual loans are applied to principal if there is any
doubt as to the collectibility of total principal, otherwise these payments are
recorded as interest income.
The Company recognizes interest income on nonaccrual impaired loans equal to the
amount of interest received, if any, in cash. All changes in the present value
of estimated future cash flows are recorded as an adjustment to the allowance
for loan losses and ultimately the provision for loan losses. No interest
income is recognized for changes in present value attributable to the passage of
time.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions for loan losses charged
to operations and is maintained at a level adequate to absorb estimated credit
losses associated with the loan portfolio, including binding commitments to lend
and off-balance sheet credit instruments. The allowance for loan losses is
decreased by charge offs, net of recoveries. At the end of each quarter, or
more frequently if warranted, management uses a systematic, documented approach
in determining the appropriate level of the allowance for loan losses.
Management's approach provides for general and specific allowances and is based
upon current economic conditions, past loan loss experience, collection
experience, risk characteristics of the loan portfolio, assessment of collateral
values and such other factors which in management's judgement deserve current
recognition in estimating potential loan losses.
Certain impaired loans are reported at the present value of expected future cash
flows discounted at the loan's effective interest rate, or at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent, by allocating a portion of the allowance for loan losses
to such loans. If these allocations cause the allowance for loan losses to be
increased, such increase is recorded as provision for loan losses.
GOODWILL AND OTHER INTANGIBLE ASSETS
Net assets of subsidiaries acquired in purchase transactions are recorded at
fair value at the date of acquisition. The excess of cost over net assets
acquired (goodwill) is amortized by systematic charges in the statement of
income over the period benefited. Management evaluates the periods of
amortization continually to determine whether later events and circumstances
warrant revised estimates. Currently, amortization is provided on a
straight-line basis over fifteen years. Accumulated amortization was $5.1
million at December 31, 1997 and $4.1 million at December 31, 1996.
Amortization expense was $977,724, $879,164 and $829,884, for the years ended
December 31, 1997, 1996 and 1995, respectively.
39
Included on the consolidated balance sheets, are core deposit intangibles
arising from purchase acquisitions in 1997 and 1996. The carrying amount at
December 31, 1997 is $2,497,628. Currently, amortization of the intangible
asset is provided on an accelerated basis over ten years. Accumulated
amortization was $190,056 at December 31, 1997 and $21,724 at December 31, 1996.
Amortization expense was $168,332 and $21,724 for the years ended December 31,
1997 and 1996, respectively.
The Company recognizes a loss on impaired assets, other than loans, when the
carrying amount of the asset may not be recoverable. Management periodically
evaluates whether events or circumstances have occurred that would result in
impairment in the value or life of goodwill or other intangibles. Management
considers an intangible to be potentially impaired if internal management
reports for respective business units show a net loss before amortization of
intangibles. The recoverability of the asset is then evaluated using
undiscounted cash flow projections.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. The provision for depreciation and amortization is computed using
the straight-line method over the estimated useful lives of the assets. Esti-
mated useful lives on buildings range from ten to thirty years and two to ten
years on equipment. Leasehold improvements are amortized over the term of the
related leases. Expenditures for major renewals and betterments of premises and
equipment are capitalized and those for maintenance and repairs are expensed as
incurred.
OTHER REAL ESTATE
Real estate acquired through foreclosure or deed in lieu of foreclosure is in-
cluded in other assets, and is recorded at the lower of cost or the property's
fair value at the time of foreclosure less estimated disposal costs, if any.
The excess of cost over fair value of other real estate at the date of
acquisition is charged to the allowance for loan losses. Subsequent reductions
in carrying value to reflect current fair value and any other period costs are
charged to expense as incurred.
STOCK OPTIONS
The Company recognizes no compensation cost for stock option grants in the
financial statements.
INCOME TAXES
Income tax expense is reported as the total of current income taxes payable and
the net change in deferred income taxes payable provided for temporary
differences. Deferred income taxes reflect the net tax effects of temporary
differences between the carrying values of assets and liabilities for financial
reporting purposes and the values for income tax purposes. Deferred income
taxes are recorded at the statutory Federal rates in effect at the time that the
temporary differences are expected to reverse. The measurement of deferred tax
assets is reduced, if necessary, by the amount of any tax benefits that, based
upon management's judgment of available evidence, are not expected to be
realized. The significant components of deferred tax assets and liabilities are
40
principally related to unrealized net gain or loss on securities, provision for
loan losses, amortization of premiums on debt securities, depreciation and
deferred compensation. The Company files a consolidated Federal income tax
return which includes its subsidiaries.
PER COMMON SHARE (EPS) DATA
Share and per share information have been adjusted to give effect to stock
dividends in the three years ended December 31, 1997.
EPS Reconciliation Per share
Year Ended December 31, 1997 Income Shares amount
_______________________________________________________________________________
(in thousands)
Basic EPS
Income available to
common stockholders $16,187 9,998 $1.62
====
Effect of dilutive securities
Stock options -- 190
------ ------
Diluted EPS $16,187 10,188 $1.59
====
EPS Reconciliation Per share
Year Ended December 31, 1996 Income Shares amount
_______________________________________________________________________________
(in thousands)
Basic EPS
Income available to
common stockholders $17,164 9,787 $1.75
====
Effect of dilutive securities
Stock options -- 169
------ ------
Diluted EPS $17,164 9,956 $1.72
====
EPS Reconciliation Per share
Year Ended December 31, 1995 Income Shares amount
_______________________________________________________________________________
(in thousands)
Basic EPS
Income available to
common stockholders $14,767 9,600 $1.54
====
Effect of dilutive securities
Stock options -- 204
------ ------
Diluted EPS $14,767 9,804 $1.51
====
41
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
cash and due from banks and highly liquid securities purchased with a maturity
of three months or less to be cash equivalents.
RECLASSIFICATIONS
Certain amounts in the 1996 and 1995 consolidated financial statements have been
reclassified to conform with the 1997 presentation. The reclassifications had
no effect on previously reported stockholders' equity or net income.
2. BUSINESS COMBINATIONS
During the three year period ended December 31, 1997, the Company was a party
to one business combination, which was accounted for using the purchase method
of accounting. Results of operations subject to purchase accounting are
included from the date of acquisition. Disclosure of pro forma condensed
results of operations as if this acquisition were consummated as of the
beginning of the period have been omitted due to the immaterial effect on
operations.
On August 30, 1996, the Company consummated the acquisition of Peoples First,
F.S.B., formerly Guaranty Federal Savings Bank, and subsequent merged the
Savings Bank into Peoples Bank during 1997. The Company acquired all of the
outstanding shares of the Savings Bank in exchange for 315,002 shares of Peoples
First Corporation common stock. The Saving Bank had three locations in
Clarksville, Tennessee, immediately southeast of the market area served by the
Company's other subsidiary banks. Immediately prior to the acquisition, the
savings bank had total assets of approximately $55.9 million.
On October 9, 1997, the lead bank consummated the purchase of Republic Bank &
Trust Company's Benton, Kentucky branch. The cash purchase included one branch
office facility and deposits of approximately $33.0 million. This purchase
doubled the lead bank's presence in Marshall County, Kentucky.
On November 17, 1997, the Company entered into a definitive Agreement and Plan
of Merger (Agreement) with Union Planters Corporation (Union Planters). Under
the agreement, each common outstanding share of the Company will be exchanged
for 0.6 share of Union Planters' common stock. Each of the Company's out-
standing incentive stock option and nonqualified stock option will be converted
to options to acquire Union Planters' common stock at the same 0.6 exchange
ratio. In connection with the Agreement, the Company granted Union Planters an
option to purchase 19.9% of its common stock in certain circumstances. The
transaction is subject to regulatory approval, Company shareholder approval and
other customary terms and conditions. The merger is expected to be consummated
in May 1998.
3. CASH AND DUE FROM BANKS
The Company's banking subsidiaries are required to maintain certain reserve
balances in cash with Federal Reserve Banks (FRB). The reserve balances
maintained in accordance with FRB requirements, partially satisfied by vault
cash on hand, as of December 31, 1997 and 1996 were $8.8 million and $8.0
million, respectively. The average amount of required reserves were $7.7
million and $12.8 million, respectively, for the years ended December 31, 1997
and 1996.
42
4. SECURITIES HELD FOR SALE AND INVESTMENT
The amortized cost and fair value of securities held for sale as of
December 31, 1997 and 1996 are summarized as follows:
Gross Gross
Securities Held For Sale Amortized unrealized unrealized Fair
December 31, 1997 cost gains losses value
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies $74,858 $700 ($84) $75,474
Mortgage-backed securities 131,585 1,875 (136) 133,324
Federal Home Loan Bank
stock 7,472 0 0 7,472
Federal Reserve Bank stock 1,601 0 0 1,601
------- ------- ------- -------
$215,516 $2,575 ($220) $217,871
======= ======= ======= =======
Gross Gross
Securities Held For Sale Amortized unrealized unrealized Fair
December 31, 1996 cost gains losses value
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies $58,604 $307 ($310) $58,601
Mortgage-backed securities 108,487 916 (501) 108,902
Federal Home Loan Bank
stock 13,395 30 0 13,425
Federal Reserve Bank stock 1,424 0 0 1,424
------- ------- ------- -------
$181,910 $1,253 ($811) $182,352
======= ======= ======= =======
The amortized cost and fair value of securities held for investment as of
December 31, 1997 and 1996 are summarized as follows:
Securities Gross Gross
Held for Investment Amortized unrealized unrealized Fair
December 31, 1997 cost gains losses value
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies $2,708 $3 ($12) $2,699
Mortgage-backed securities 33,200 322 (67) 33,455
State and political
subdivisions 62,614 3,323 0 65,937
Other 100 0 0 100
------- ------- ------- -------
$98,622 $3,648 ($79) $102,191
======= ======= ======= =======
43
Securities Gross Gross
Held for Investment Amortized unrealized unrealized Fair
December 31, 1996 cost gains losses value
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies $7,102 $7 ($35) $7,074
Mortgage-backed securities 53,819 486 (168) 54,137
State and political
subdivisions 60,938 2,830 (18) 63,750
Other 100 0 0 100
------- ------- ------- -------
$121,959 $3,323 ($221) $125,061
======= ======= ======= =======
Proceeds from sales of securities during 1997 and 1995 were $3,676,900 and
$12,085,690, respectively. Gross gains of $0 and $178,143 and no gross losses
were realized on those sales during 1997 and 1995, respectively. There were no
sales of securities during 1996.
The amortized cost, estimated fair value and the weighted average yield of
securities held for sale and held for investment at December 31, 1997, by
estimated maturity, are shown below. Actual maturities will differ from the
depicted maturities because of the borrowers' right to call or prepay
obligations with or without prepayment penalties. Management evaluates, on an
ongoing basis, the potential maturities for asset/liability purposes. Yields on
tax-exempt obligations have not been computed on a tax-equivalent basis.
Securities Held for Sale Weighted
Maturity Distribution Amortized Fair average
December 31, 1997 cost value yield
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies
1 year or less $13,002 $12,986 5.49%
Over 1 through 5 years 56,716 57,266 6.44
Over 5 through 10 years 5,140 5,222 6.68
Over 10 years 0 0 --
Mortgage-backed securities
1 year or less 9,721 9,763 6.54
Over 1 through 5 years 99,128 100,437 6.76
Over 5 through 10 years 15,232 15,523 6.98
Over 10 years 7,504 7,601 6.27
Federal Home Loan Bank
stock 7,472 7,472 7.17
Federal Reserve Bank stock 1,601 1,601 6.00
------- -------
$215,516 $217,871 6.59%
======= ======= ====
44
Securities Held for Investment Weighted
Maturity Distribution Amortized Fair average
December 31, 1997 cost value yield
_______________________________________________________________________________
(in thousands)
U.S. treasury and agencies
1 year or less $209 $208 4.99%
Over 1 through 5 years 2,499 2,491 6.27
Mortgage-backed securities
1 year or less 12,691 12,685 5.75
Over 1 through 5 years 14,829 15,020 7.05
Over 5 through 10 years 3,238 3,268 5.90
Over 10 years 2,443 2,481 7.04
State and political subdivisions
1 year or less 4,811 4,853 6.38
Over 1 through 5 years 16,827 17,689 6.25
Over 5 through 10 years 29,305 31,174 5.78
Over 10 years 11,670 12,222 5.36
Other
Over 1 through 5 years 100 100 7.88
------- -------
$98,622 $102,191 6.07%
======= ======= ====
At December 31, 1997 and 1996, securities with carrying values of approxi-
mately $186.4 million and $151.8 million, respectively, were pledged to secure
repurchase agreements, public and trust deposits and for other purposes as
required by law. Amounts advanced under repurchase agreements represent
short-term borrowings and are reflected as liabilities in the consolidated
balance sheets.
5. LOANS RECEIVABLE
The Company's lending activities are concentrated primarily in western Kentucky,
southern Illinois, northwestern Tennessee and southeastern Missouri. The loan
portfolio is well diversified and consists of business loans extending across
many industry types, as well as loans to individuals. As of December 31, 1997
and 1996, total loans to any group of customers engaged in similar activities
and having similar economic characteristics, as defined by standard industrial
classifications, did not exceed 10% of total loans, although the geographical
concentration is a necessary factor for regional banks.
45
Major classification of loans receivable are as follows:
December 31, 1997 1996
_______________________________________________________________________________
(in thousands)
Commercial, financial and agricultural $119,924 $120,283
Real estate
Construction 24,157 29,933
Residential mortgage 468,330 421,129
Commercial mortgage 188,502 174,576
Consumer, net of unearned income of $1,410 and
$4,854 at December 31, 1997 and 1996 298,724 289,653
Other 2,070 855
--------- ---------
1,101,707 1,036,429
Allowance for loan losses (16,442) (14,795)
--------- ---------
$1,085,265 $1,021,634
========= =========
The Company evaluates each customer's creditworthiness on a case by case basis.
The amount of collateral obtained, if deemed necessary by the Company upon
extension of credit, is based on management's credit evaluation of the borrower.
Collateral varies but may include accounts receivable, inventory, property,
plant and equipment, income producing commercial properties, real estate and
other property owned by the borrowers.
Activity in the allowance for loan losses was as follows for the three-year
period ended December 31, 1997:
Allowance for Loan Losses
Year Ended December 31, 1997 1996 1995
_______________________________________________________________________________
(in thousands)
Balance at beginning of year $14,795 $13,371 $12,188
Allowance associated with loans acquired --- 481 ---
Provision charged to expense 5,041 2,664 2,167
Loans charged off (3,742) (2,524) (1,307)
Recoveries of loans
previously charged off 348 803 323
------ ------ ------
Net loans charged off (3,394) (1,721) (984)
------ ------ ------
Balance at end of year $16,442 $14,795 $13,371
====== ====== ======
Nonaccrual and renegotiated loans totaled $8.4 million and $7.4 million at
December 31, 1997 and 1996, respectively. Loans, except large groups of
smaller-balance homogeneous loans, for which the full collection of principal
46
and interest is not probable, or a delay in payments is expected, are evaluated
for impairment. The Company measures and reports impaired loans that are not
part of a homogenous pool of similar 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 December 31,
1997 and 1996 is as follows:
Impaired Loans
December 31, 1997 1996
_______________________________________________________________________________
(in thousands)
Recorded investment in impaired loans $6,300 $4,454
Less portion for which no allowance
for loan losses is allocated 0 325
------ ------
Portion of impaired loan balance for
which an allowance for loan losses
is allocated $6,300 $4,129
====== ======
Portion of allowance for loan losses
allocated to the impaired loan balance $1,638 $1,142
====== ======
Information regarding impaired loans is as follows for the years ended
December 31, 1997 and 1996:
Impaired Loans
Year Ended December 31, 1997 1996
_______________________________________________________________________________
(in thousands)
Average investment in impaired loans $5,176 $4,926
Interest income recognized on
impaired loans 572 488
Interest income recognized on
impaired loans on cash basis 38 0
Certain officers and directors of the Company and its subsidiaries and certain
corporations and individuals related to them are loan customers of the Company's
banks. The activity of these loans during the years ended December 31, 1997 and
1996 is summarized below. Such loans were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other customers. These loans did not involve more
than the normal risk of collectibility.
47
Loans to Officers and Directors
Year Ended December 31, 1997 1996
_______________________________________________________________________________
(in thousands)
Balance at beginning of year $23,007 $13,445
Additions 642 9,905
Repayments (438) (743)
Changes in officer and director status (14,803) 400
------ ------
Balance at end of year $8,408 $23,007
====== ======
6. PREMISES AND EQUIPMENT
A summary of premises and equipment is as follows:
December 31, 1997 1996
_______________________________________________________________________________
(in thousands)
Land $3,528 $2,738
Buildings 20,112 19,580
Equipment 16,282 14,544
Leasehold improvements 994 994
------ ------
40,916 37,856
Accumulated depreciation and amortization (20,606) (18,480)
------ ------
$20,310 $19,376
====== ======
The amount of depreciation and amortization related to premises and equipment
that was charged to operating expenses in 1997, 1996 and 1995 was $2,439,843
$2,148,864 and $1,857,202 respectively.
7. DEPOSIT LIABILITIES
The aggregate amount of time deposits, each with a minimum balance of $100,000,
was $105.6 million and $102.5 million at December 31, 1997 and 1996,
respectively. Interest expense on time deposits over $100,000 was $6.4 million,
$5.3 million and $6.0 million for the years ended December 31, 1997, 1996 and
1995, respectively. Also included in deposit liabilities were brokered time
deposits of $13.4 million and $15.5 million at December 31, 1997 and 1996,
respectively. At December 31, 1997, the scheduled maturities of time deposits
were as follows:
48
Time Deposit Maturities
For the years ending December 31,
__________________________________________________________________
(in thousands)
1998 $380,395
1999 151,931
2000 57,677
2001 12,258
2002 and thereafter 7,833
-------
$610,094
=======
8. SHORT-TERM BORROWINGS
Federal funds purchased, repurchase agreements and U.S. treasury notes generally
represent borrowings with overnight maturities as do certain short-term advances
from the Federal Home Loan Bank (FHLB) of Cincinnati. Information pertaining to
the subsidiary banks' short-term borrowings is summarized below:
Short-term Borrowings 1997 1996 1995
_______________________________________________________________________________
(dollars in thousands)
Federal funds purchased
Average balance $21,125 $19,284 $13,414
Year end balance 26,824 21,525 15,100
Highest month-end balance 46,725 33,100 35,000
Average interest rate 5.69% 5.44% 6.07%
Year end interest rate 5.82% 6.40% 5.60%
Repurchase agreements
Average balance $27,273 $28,041 $25,794
Year end balance 33,810 28,415 23,869
Highest month-end balance 33,810 36,624 32,120
Average interest rate 4.69% 4.48% 4.64%
Year end interest rate 4.43% 4.74% 4.05%
Short-term FHLB advances
Average balance $48,382 $63,161 $46,733
Year end balance 50,800 79,400 54,500
Highest month-end balance 79,900 83,700 54,500
Average interest rate 5.72% 5.51% 6.19%
Year end interest rate 5.95% 5.54% 5.85%
U.S. treasury notes
Average balance $3,505 $1,973 $0
Year end balance 3,038 2,826 0
Highest month-end balance 11,828 4,899 0
Average interest rate 5.32% 5.06% --
Year end interest rate 5.26% 5.16% --
At December 31, 1997, the subsidiary banks had total lines-of-credit for Federal
funds purchased from unaffiliated banks of $55.0 million, of which $28.2 million
was undrawn and available, and total lines-of-credit for U.S. treasury notes of
$15.0 million, of which $11.9 million was undrawn and available.
49
9. LONG-TERM BORROWINGS
Information pertaining to the subsidiary banks' long-term borrowings is
summarized below:
December 31, 1997 1996
__________________________________________________________________
(in thousands)
Federal Home Loan Bank advances $43,104 $14,013
====== ======
The subsidiary banks obtain various short-term and long-term advances from the
FHLB under Blanket Agreements for Advances and Security Agreements (Agreements).
The Agreements entitle the subsidiary banks to borrow funds from the FHLB to
fund mortgage loan programs and satisfy other funding needs. At December 31,
1997, the subsidiary banks had total secured lines-of-credit from the FHLB of
$235.6 million, of which $141.7 million was undrawn and available. Interest
rates on long-term advances at December 31, 1997 range from 5.10% to 8.10%.
Most all interest rates are variable and at December 31, 1997, no rates are
fixed for more than a one-year period. FHLB advances are collateralized by the
banks' FHLB stock, other securities in the approximate amount of $9.5 million
and certain single-family first mortgage loans in the approximate amount of
$339.2 million. As members of the FHLB system, the Company's subsidiary banks
must hold a minimum of FHLB stock equal to one percent of home mortgage related
assets. Additional FHLB stock ownership is required as the level of advances
increases. The subsidiary banks are in compliance with the FHLB stock ownership
requirements with a total required investment of $7.5 million at December 31,
1997. The long-term advances provide for scheduled monthly payments but may be
prepaid at the option of the subsidiary banks with the payment of a premium.
Annual minimum principal repayment requirements for long-term borrowings for the
years 1998 through 2002 are $1,040,459, $10,575,667, $20,504,617, $545,424 and
$3,574,931, respectively.
10. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual
amount of those instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Standby
letters of credit are conditional commitments issued by the Company to guarantee
the performance of a customer to a third party. These off-balance-sheet
financial instruments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since some of the financial
instruments may expire without being drawn upon, the total amounts do not
50
necessarily represent future cash requirements. Commitments to extend credit
and standby letters of credit are subject to the same underwriting and collater-
alizing standards as on-balance-sheet items.
Contractual commitments to extend credit and standby letters of credit at
December 31, 1997 and 1996 are summarized as follows:
Financial Instruments with
Off-Balance-Sheet Risk
December 31, 1997 1996
_______________________________________________________________________________
(in thousands)
Contractual commitments to extend credit $136,256 $126,331
Standby letters of credit 15,160 11,882
Of the total commitments to extend credit at December 31, 1997 and 1996, $0 and
$1,000, respectively, represent fixed-rate loan commitments.
11. EMPLOYEE BENEFITS
The Company maintains a noncontributory Employee Stock Ownership Plan (ESOP)
and an employer matching 401(k) Plan. The plans cover substantially all of
the Company's employees.
Employer contributions to the ESOP are determined annually by the Company's
board of directors and were $260,000, $236,130 and $215,360 for the years ended
1997, 1996 and 1995, respectively. The ESOP's investments include 230,990 and
300,363 shares of the Company's common stock at December 31, 1997 and 1996,
respectively. The fair value of the Company's common stock owned by the ESOP
was $9.0 million and $7.3 million at December 31, 1997 and 1996, respectively.
Participants may elect to receive their benefits either in a lump-sum cash
amount or in shares of Company stock.
Under the 401(k) Plan, participants may voluntarily contribute a percentage of
their salary through payroll deductions. The Company is currently committed to
make contributions to the 401(k) Plan annually in an amount equal to 100% of the
first 3% contribution of each participant's base salary. For the years ended
December 31, 1997, 1996 and 1995, the Company's required matching contribution
amounted to $302,496, $258,747 and $243,924, respectively. Employees have
several investment options in which contributions may be invested.
Post retirement benefits other than pensions are not provided for the Company's
employees. Eligible retired employees may for a period of time maintain certain
health care benefits through policies of the Company at the retired employee's
expense. There was no cost for employee benefits for retired employees in 1997,
1996 and 1995.
12. STOCKHOLDERS' EQUITY
AUTHORIZED CAPITAL STOCK
The Company has six million authorized shares of no par preferred stock and
thirty million authorized shares of no par, $0.7812 stated value common stock.
51
SHARE PURCHASE RIGHTS PLAN
In January of 1995, the Board of Directors of the Company adopted a Share
Purchase Rights Plan and distributed a dividend of one Preferred Share Purchase
Right (Right) for each outstanding common share of the Company and for each
common share issued thereafter. The Rights are generally designed to deter
coercive takeover tactics and to encourage all persons interested in acquiring
control of the Company to deal with each shareholder on a fair and equal basis.
Each Right trades in tandem with its respective share of common stock until the
occurrence of certain events, in which case it would separate from the common
stock and entitle the registered holder, subject to the terms of the Rights
Agreement, to purchase certain equity securities at a price below their market
value. The Company has not issued any of the authorized no par preferred stock.
DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
In 1987, the Board of Directors of the Company adopted the Peoples First
Corporation Share Owner Dividend Reinvestment and Stock Purchase Plan (DRIP),
and amended the plan during 1994. The DRIP provided for the issuance of
1,203,930 shares of authorized but previously unissued common stock. On certain
investment dates, shares may be purchased with all or a portion of reinvested
dividends or with optional cash payments not to exceed $3,000. The price of
shares purchased pursuant to the DRIP is the average market price reported by
NASDAQ for the last five trading days of the month preceding the dividend
payment month. At December 31, 1997 and 1996, 694,930 shares and 756,032 shares
were reserved for issuance under the DRIP. Shares issued under the DRIP totaled
61,102, 74,717 and 71,858 shares in 1997, 1996 and 1995, respectively. After
the fourth quarter dividend cycle of 1997, the Board of Directors terminated the
DRIP.
STOCK OPTION PLAN
The Peoples First Corporation 1986 Stock Option Plan (Option Plan), as amended
in 1994, authorizes the granting to key employees of the Company incentive stock
options and nonqualified stock options to purchase common stock of the Company
at market value at the time the options are granted. The Option Plan authorizes
grants of options to purchase up to ten percent of the Company's outstanding
common shares. The authorized number of option shares at December 31, 1997 was
1,000,712 of which 150,675 is available for further grant under the Option Plan.
Shares sold under the Option Plan may be either unissued authorized shares or
shares reacquired by the Company. Options granted are exercisable, subject to
vesting and other requirements, at varying times from the first through the
tenth year after the grant date. Optionees may exercise their options with cash
or with shares of the Company's common stock.
No compensation cost is recognized for stock option grants in the financial
statements. Had the Company determined compensation cost based on the fair
value at the grant date for its stock options, the Company's net income and
net income per common share would have been the pro forma amounts indicated
below, considering only options granted in 1997, 1996 and 1995. The full impact
of calculating compensation cost for stock options is not reflected because
compensation cost is reflected over the options' vesting period of up to ten
years and compensation cost for options granted prior to January 1, 1995 is not
considered.
52
Pro Forma Net Income
Year Ended December 31, 1997 1996 1995
_______________________________________________________________________________
(in thousands, except per share data)
Net Income
As reported $16,187 $17,164 $14,767
Pro forma 16,120 17,103 14,749
Earnings per Common Share - Basic
As reported 1.62 1.75 1.54
Pro forma 1.62 1.75 1.54
Earnings per Common Share - Assuming dilution
As reported 1.59 1.72 1.51
Pro forma 1.59 1.72 1.51
The per share weighted-average fair value of stock options granted during 1997,
1996 and 1995 was $5.87, $4.92 and $5.03 on the date of grant using an
option-pricing model (Black Scholes) with the following weighted-average
assumptions: 1997 - 3.67% expected dividend yield, 24.72% expected volatility,
6.29% risk-free interest rate and ten year expected life; 1996 - 3.28% expected
dividend yield, 24.63% expected volatility, 6.16% risk-free interest rate and
eight year expected life; 1995 - 2.50% expected dividend yield, 23.21% expected
volatility, 5.53% risk-free interest rate and ten year expected life.
Weighted
average
Number exercise
Stock Option Plan Activity of shares price
_______________________________________________________________________________
Outstanding at December 31, 1994 602,844 11.04
Granted 43,549 21.32
Exercised (114,281) 7.67
Forfeited (25,051) 13.93
-------
Outstanding at December 31, 1995 507,061 12.53
Granted 82,974 23.22
Exercised (12,740) 8.59
Forfeited (10,304) 19.56
-------
Outstanding at December 31, 1996 566,991 $14.06
Granted 15,000 26.13
Exercised (11,025) 9.70
Forfeited (13,891) 20.81
-------
Outstanding at December 31, 1997 557,075 $14.31
=======
At December 31, 1997, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $6.40 - $26.13 and 4.5
years, respectively. At December 31, 1997 and 1996, the number of shares
subject to options that were exercisable was 557,075 and 329,709, respectively.
53
RETAINED EARNINGS RESTRICTION
In connection with the Company's savings bank subsidiary conversion from mutual
to stock form of ownership during 1991, the subsidiary restricted the amount of
retained earnings at that date by establishing a liquidation account equal to
$6,750,000 for the purpose of granting to eligible depositors a priority in the
event of future liquidation. Only in such an event, an eligible depositor who
continues to maintain an account will be entitled to receive a distribution from
the liquidation account. The total amount of the liquidation account decreases
in an amount proportionately corresponding to decreases in the deposit account
balances of the eligible account holders.
DIVIDEND LIMITATIONS
Payment of dividends by the subsidiary banks, which is the principal source of
funds for payment of cash dividends by the Company to its shareholders, are
subject to various national and/or state regulatory restrictions. At December
31, 1997, total retained earnings of the Company's direct subsidiaries was
approximately $89.2 million, of which $28.7 million was available for payment of
dividends without approval by the applicable regulatory authority.
REGULATORY CAPITAL
The Company and its subsidiary banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory, and possibly
additional discretionary, actions by the regulators that, if undertaken, could
have a direct material effect on the Company's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Company and its subsidiary banks must meet specific capital
guidelines that involve quantitative measures of the entity's assets,
liabilities and certain off-balance-sheet items calculated under regulatory
accounting practices. The Company's and subsidiary banks' capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulators to ensure capital adequacy
require the Company and subsidiary banks to maintain minimum amounts and ratios
of total and Tier I capital (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier I capital to average assets (as defined).
Managements believes, as of December 31, 1997, that the Company and subsidiary
banks meet all capital adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notification from the Office of the
Comptroller of the Currency categorized the Company's only significant
subsidiary as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized the Company must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the following table. There are no conditions or events since
those notifications that management believes have changed the institutions'
category.
54
The Company's and Peoples Bank's actual capital amounts and ratios are also
presented in the following table. Totals of $0.0 and $3.7 million were
effectively deducted from capital for interest-rate risk in 1997 and 1996,
respectively.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Regulatory Capital Actual Adequacy Purposes Action Provisions
December 31, 1997 and 1996 Amount Ratio Amount Ratio Amount Ratio
______________________________________________________________________________________________________________________
(amounts in thousands)
As of December 31, 1997:
Total Capital to Risk Weighted Assets
Company $154,040 14.61% $84,335 8.00% $105,419 10.00%
Peoples Bank 127,963 13.35 76,656 8.00 95,819 10.00
Tier I Capital to Risk Weighted Assets
Company 140,824 13.36 42,168 4.00 63,251 6.00
Peoples Bank 115,945 12.10 38,328 4.00 57,492 6.00
Tier I Capital to Average Assets
Company 140,824 9.56 58,916 4.00 73,645 5.00
Peoples Bank 115,945 8.95 51,830 4.00 64,788 5.00
As of December 31, 1996:
Total Capital to Risk Weighted Assets
Company $144,908 14.33% $80,914 8.00% $101,143 10.00%
Peoples Bank 120,572 13.77 70,045 8.00 87,556 10.00
Tier I Capital to Risk Weighted Assets
Company 132,986 13.15 40,457 4.00 60,686 6.00
Peoples Bank 109,920 12.55 35,022 4.00 52,534 6.00
Tier I Capital to Average Assets
Company 132,986 9.55 55,688 4.00 69,609 5.00
Peoples Bank 109,920 9.42 46,690 4.00 58,362 5.00
</TABLE>
13. INCOME TAXES
The current and deferred portions of income tax expense were as follows:
Year Ended December 31, 1997 1996 1995
_______________________________________________________________________________
(in thousands)
Current taxes $8,903 $7,626 $6,762
Deferred taxes (972) 352 (316)
----- ----- -----
Income tax expense $7,931 $7,978 $6,446
===== ===== =====
55
The following is a reconciliation between the amount of income tax expense and
the amount of tax computed by applying the statutory Federal income tax rates:
Year Ended December 31, 1997 1996 1995
_______________________________________________________________________________
(in thousands)
Tax computed at statutory rates $8,598 $8,800 $7,425
Increase (decrease) in taxes
resulting from:
Tax-exempt income (1,162) (1,266) (1,328)
Goodwill and other intangible
asset amortization 343 308 290
Other, net 152 136 59
----- ----- -----
Income tax expense $7,931 $7,978 $6,446
===== ===== =====
Not all temporary differences are accounted for through income tax expense on
the consolidated statements of income. The tax effects of temporary
differences, that give rise to significant elements of the deferred tax assets
and deferred tax liabilities are as follows:
December 31, 1997 1996
_______________________________________________________________________________
(in thousands)
Deferred tax assets:
Allowance for loan losses $5,494 $4,871
Deferred compensation 257 487
Other 184 111
----- -----
5,935 5,469
Deferred tax liabilities:
Unrealized security gains (139) (35)
Stock dividends on securities (885) (675)
Premises and equipment (1,409) (1,346)
Other (512) (470)
----- -----
(2,945) (2,526)
----- -----
Net deferred tax assets $2,990 $2,943
===== =====
Deferred tax assets have not been reduced by a valuation allowance. Based on
the weight of available evidence, management believes it is more likely than not
all of the deferred tax assets will be realized. Neither current or deferred
taxes have been provided for approximately $3.3 million of income at December
31, 1997 and 1996 which represents allocations for bad debt deductions for tax
purposes only. Under existing tax regulations, if the amounts that qualify for
Federal income tax purposes are later used for purposes other than bad debt
losses, including distributions in liquidation, such distributions will be
subject to Federal income tax at the then current corporate rate.
56
14. CONTINGENCIES
LEGAL PROCEEDINGS
In the ordinary course of business, there are various legal proceedings pending
against the Company and its subsidiaries. Management, after consultation with
legal counsel, is of the opinion that the ultimate resolution of these
proceedings will have no material effect on the consolidated financial condition
or results of operations of the Company.
15. SUPPLEMENTAL INCOME STATEMENT INFORMATION
Details of noninterest income and noninterest expense are as follows:
Noninterest Income
Year Ended December 31, 1997 1996 1995
_______________________________________________________________________________
(in thousands)
Service fees on deposits $5,199 $4,119 $3,831
Net securities gains 0 0 178
Trust department fees 1,495 1,330 1,220
Insurance commissions 507 578 664
Bankcard fees 695 648 565
Other income 2,652 1,860 1,486
------ ------ ------
$10,548 $8,535 $7,944
====== ====== ======
Noninterest Expense
Year Ended December 31, 1997 1996 1995
_______________________________________________________________________________
(in thousands)
Salaries $15,096 $13,854 $13,302
Employee benefits 2,634 2,500 2,411
Occupancy expense 2,022 1,814 1,769
Equipment expense 2,689 2,171 1,885
FDIC insurance expense 208 1,637 1,338
Data processing expense 3,080 2,590 2,245
Bankshare taxes 1,612 1,533 1,349
Goodwill and other intangible
asset amortization 1,146 901 830
Legal, accounting and consulting fees 1,996 534 705
Other expense 8,797 7,309 6,324
------ ------ ------
$39,280 $34,843 $32,158
====== ====== ======
16. PARENT COMPANY FINANCIAL INFORMATION
Following are condensed balance sheets of Peoples First Corporation (parent
company only) as of December 31, 1997 and 1996, and the related condensed
statements of income and cash flows for the years ended 1997, 1996 and 1995:
57
Condensed Balance Sheets
December 31, 1997 1996
__________________________________________________________________
(in thousands)
ASSETS
Cash in subsidiary bank $6,305 $3,329
Investment in subsidiaries 148,108 141,257
Other assets 562 320
------- -------
$154,975 $144,906
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Other liabilities $248 $357
Stockholders' equity
Common stock 7,818 7,812
Surplus 70,627 69,691
Retained earnings 74,754 66,762
Unrealized net gain on
securities held for sale 1,528 284
------- -------
154,727 144,549
------- -------
$154,975 $144,906
======= =======
Common shares issued and outstanding 10,007 9,999
58
Condensed Statements of Income
Year Ended December 31, 1997 1996 1995
_______________________________________________________________________________
(in thousands)
INCOME
Dividends from subsidiaries $11,500 $9,100 $5,078
Other income 4 3 3
------ ------ ------
11,504 9,103 5,081
EXPENSE
Interest expense 6 11 44
Legal and accounting fees 962 217 284
Other expense 380 390 378
------ ------ ------
1,348 618 706
------ ------ ------
Income before income tax benefit
and equity in undistributed
income of subsidiaries 10,156 8,485 4,375
Income tax benefit 425 200 164
Income before equity in ------ ------ ------
undistributed income
of subsidiaries 10,581 8,685 4,539
Equity in undistributed
income of subsidiaries 5,606 8,479 10,228
------ ------ ------
NET INCOME $16,187 $17,164 $14,767
====== ====== ======
59
Condensed Statement of Cash Flows
Year Ended December 31, 1997 1996 1995
_______________________________________________________________________________
(in thousands)
OPERATING ACTIVITIES
Net income $16,187 $17,164 $14,767
Adjustments to reconcile net income to net
cash provided by operating activities:
Equity in undistributed
income of subsidiaries (5,606) (8,479) (10,228)
Amortization and other, net (282) 137 (271)
Net Cash Provided by ------ ------ ------
Operating Activities 10,299 8,822 4,268
FINANCING ACTIVITIES
Repayments of notes payable 0 0 (1,530)
Proceeds from issuance of common stock 401 696 1,418
Repurchase of common stock (884) (1,882) 0
Cash dividends paid (6,840) (5,104) (3,851)
------ ------ ------
Net Cash Used by Financing Activities (7,323) (6,290) (3,963)
Net Increase (Decrease) in Cash 2,976 2,532 305
and Cash Equivalents
Cash and Cash Equivalents at
Beginning of Year 3,329 797 492
------ ------ ------
Cash and Cash Equivalents at End of
Year $6,305 $3,329 $797
====== ====== ======
SUPPLEMENTAL DISCLOSURES
Cash paid for interest expense $0 $0 $53
Cash received for income taxes (244) (558) (345)
NONCASH INVESTING AND FINANCING TRANSACTIONS
Dividends reinvested 1,356 1,065 753
17. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
To value financial instruments for both on- and off-balance sheet assets and
liabilities where it is practicable to estimate that value, quoted market prices
are utilized by the Company where readily available. If quoted market prices
are not available, fair values are based on estimates using present value and
other valuation techniques. These techniques are significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. The calculated fair value estimates, therefore, cannot be substantiated
by comparison to independent markets and, in many cases, could not be realized
in immediate settlement of the instrument. Certain financial instruments are
excluded from disclosure requirements. Accordingly, the aggregate fair value
amounts presented are not intended to represent the underlying value of the
Company.
60
The following methods and assumptions were used in estimating the fair value for
financial instruments.
CASH, DUE FROM BANKS, ACCRUED INTEREST RECEIVABLE, ACCRUED INTEREST PAYABLE
AND SHORT-TERM BORROWINGS
The carrying amount reported for cash, due from banks, accrued interest receiv-
able, accrued interest payable and short-term borrowings approximates the fair
value for those assets and liabilities.
DEBT AND EQUITY SECURITIES
For securities held both for sale and investment, fair values are based on
quoted market prices or dealer quotes, if available. If a quoted market price
is not available, fair value is estimated using quoted prices for similar
securities.
LOANS
Loan balances are assigned fair values based on a discounted cash flow analysis.
The discount rate is based on the treasury yield curve, with rate adjustments
for credit risk, liquidity, servicing costs and the prepayment uncertainty.
DEPOSITS
The fair value for demand deposits and interest-bearing deposits with no fixed
maturity date is considered to be equal to the amount payable on demand or
maturity date. Time deposits are assigned fair values based on a discounted
cash flow analysis using discount rates which approximate interest rates
currently being offered on liabilities with comparable maturities.
LONG-TERM BORROWINGS
The fair value of long-term borrowings is based on a discounted cash flow
analysis with a discount rate based on current incremental borrowing rates for
similar types of arrangements.
UNRECOGNIZED FINANCIAL INSTRUMENTS
No fair value of loan commitments is presented since the Company does not
generally collect fees for loan commitments. The fair value of guarantees and
letters of credit is based on equivalent fees that would be charged for similar
agreements and is less than $100,000 for 1997 and 1996.
61
The book values and estimated fair values for financial instruments as of
December 31, 1997 and 1996 are reflected below.
Financial Instruments
December 31, 1997 Book value Fair value
_______________________________________________________________________________
(in thousands)
Financial Assets
Cash and due from banks $46,820 $46,820
Securities held for sale 217,871 217,871
Securities held for investment 98,622 102,191
Loans held for sale 2,140 2,140
Loans receivable, net 1,085,265 1,136,838
Accrued interest receivable 10,910 10,910
Financial Liabilities
Deposits 1,176,841 1,183,277
Short-term borrowings 114,472 114,472
Long-term borrowings 43,104 43,157
Accrued interest payable 7,035 7,035
Financial Instruments
December 31, 1996 Book value Fair value
_______________________________________________________________________________
(in thousands)
Financial Assets
Cash and due from banks $43,285 $43,285
Securities held for sale 182,352 182,352
Securities held for investment 121,959 125,061
Loans held for sale 1,886 1,886
Loans receivable, net 1,021,634 1,063,034
Accrued interest receivable 9,850 9,850
Financial Liabilities
Deposits 1,115,253 1,118,860
Short-term borrowings 132,167 132,167
Long-term borrowings 14,013 13,854
Accrued interest payable 6,297 6,297
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the years ended December 31, 1997, 1996 and 1995 and in the subsequent
interim period, there has been no change in, or disagreements on accounting
matters with, the Company's independent auditor.
62
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's Board of Directors consists of 17 members, divided into three
classes. Directors are elected to three-year terms, and one class of directors
is elected at each annual meeting of shareholders.
The Company's Articles of Incorporation provide that the number of its directors
will be fixed from time to time by the Board of Directors. Between meetings of
shareholders held for the election of directors, the Board of Directors may
increase or decrease the number of directors last approved by the shareholders
by thirty percent (30%) or less. Any vacant directorship, whether resulting
from an increase in the number of directors or otherwise, may be filled by the
affirmative vote of the majority of the Directors then in office, whether or not
a quorum of the Board of Directors exists at the time of the vote, for a term of
office continuing only until the next election of directors by the shareholders.
A decrease in the number of directors, however, will not have the effect of
shortening the term of any incumbent director.
The following information is furnished as of December 31, 1997, with respect to
each of the Company's directors and nondirector executive officers. Unless
otherwise indicated, each person has been engaged in the listed occupation for
the past five years.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Shares of
Director or Common
Name, Age, Principal Occupation or Position, Executive Stock
Other Directorships Officer Term Beneficially Percentage
since ends Owned (1) of Class (2)
DIRECTORS
Walter L. Apperson, 64 1992 2000 1,981 *
President and Chief Executive Officer,
Murray Ledger and Times, a daily newspaper
Glen Berryman, 59 1996 1998 8,520 *
Independent insurance agent,
Berryman Insurance
William R. Dibert, 59 1989 2000 11,101 *
President and Chief Executive Officer of Crounse
Corporation, a river transportation company
Joe Dick, 69 1992 1998 30,599 (3) *
Vice Chairman of the Corporation
R. E. Fairhurst, Jr., 50 1987 2000 114,943 (4) 1.10%
Owner of Fairhurst Realty, real estate broker
William Rowland Hancock, 49 1989 1998 42,154 (5) *
President of Hancock Fabrics, Inc., a
fabric retailer
63
Shares of
Director or Common
Name, Age, Principal Occupation or Position, Executive Stock
Other Directorships Officer Term Beneficially Percentage
since ends Owned (1) of Class (2)
DIRECTORS - CONTINUED
James T. Holloway, 66 Consultant, Peoples Security 1994 1999 54,491 (6) *
Finance Co. Director, Southern Finance Co.
Dennis W. Kirtley, 53 1994 2000 92,277 (7) *
President and Chief Executive Officer
of First Kentucky Federal Savings Bank
Allan B. Kleet, 48 1986 1999 122,346 (8) *
Principal Accounting Officer
of the Corporation
Aubrey W. Lippert, 56 1983 2000 222,537 (9) 2.10%
Chairman of the Board, President, and Chief
Executive Officer of the Corporation;
Chairman of the Board and Chief Executive Officer
of PFNB
Joe Harry Metzger, 67 1983 1998 27,275 (10) *
Vice President of R & M Grocery Co.
Jerry L. Page, 63 1983 1998 135,219 (11) 1.30%
Business Consultant
Rufus E. Pugh, 62 1987 1999 8,796 (12) *
President of Golden Eagle Distributing, Inc.
a wholesale beer distributor
Neal H. Ramage, 58 1989 1999 48,537 (13) *
President of Peoples First of Livingston County
Allan Rhodes, Jr., 46 1991 2000 19,841 (14) *
President of Bluegrass Honda-BMW, Inc., an
automobile dealership
Mary Warren Sanders, 48 1992 1999 89,463 (15) *
Certified Public Accountant with Michael D.
Pierce, CPA
Victor F. Speck, Jr., 61 1987 1999 42,813 (16) *
President of Pico Properties, Real Estate
Investments
Former President of Welders Supply Company, Inc.,
a supplier of welding products and equipment
64
Shares of
Director or Common
Name, Age, Principal Occupation or Position, Executive Stock
Other Directorships Officer Term Beneficially Percentage
since ends Owned (1) of Class (2)
EXECUTIVE OFFICERS
George B. Shaw, 51 1993 9,044 (17) *
President of PFNB
Former President and Chief
Executive Officer of Bowling
Green Bank & Trust Co.
David A. Long, 36 1996 7,679 (18) *
Chief Operating Officer of PFNB
Former President and Chief Executive
Officer of Peoples First Marshall County.
</TABLE>
* Represents 1% or less of the outstanding Common Stock.
(1) In the table above, the named person has sole voting and dispositive power
with respect to the reported shares unless otherwise indicated. When joint
ownership is noted, the joint owners share voting and dispositive power with
respect to the shares. When holdings of a family member are included but are
noted as being held "individually," the family member has sole voting and
investment powers with respect to the indicated shares. Employees of the
Corporation or PFNB have voting but no investment power with respect to shares
held in the employee's ESOP account.
(2) Shares of Common Stock subject to currently exercisable options are deemed
outstanding for computing the percentage of class of the person holding such
options but are not deemed outstanding for computing the percentage of calss of
any other person.
(3) Includes 586 shares held jointly by Mr. Dick and his wife.
(4) Of the listed shares, Mr. Fairhurst's wife holds 6,112 shares individually,
and Mr. Fairhurst's sons hold 1,110 shares. In addition, Mr. Fairhurst holds
67,788 shares as trustee for two trusts created by his father's estate, with
respect to which he has sole voting and investment power.
(5) Includes 9,529 shares held jointly by Mr. Hancock and his wife and 2,258
shares owned by Mr. Hancock's minor children.
(6) Includes 53,762 shares owned jointly by Mr. Holloway and his wife.
(7) Includes 72,188 shares held jointly by Mr. Kirtley and his wife, 1,312
shares held individually by Mr. Kirtley's wife and 3,744 shares held in Mr.
Kirtley's First Kentucky Federal ESOP account for which he has voting but no
investment power.
65
(8) Includes 117,768 shares subject to currently exercisable stock options, 753
shares held individually by Mr. Kleet's wife, and 3,825 shares held in Mr.
Kleet's ESOP account. Mr. Kleet disclaims beneficial ownership of the share
held by his wife.
(9) Includes 157,479 shares subject to currently exercisable stock options and
24,277 shares held in Mr. Lippert's ESOP account, and 210 shares held by Mr.
Lippert as custodian for his grandchildren.
(10) Includes 23,889 shares held individually by Mr. Metzger's wife.
(11) Includes 112,843 shares held in trust for the joint benefit of Mr. Page and
his wife.
(12) Includes 2,210 shares held jointly by Mr. Pugh and his wife.
(13) Includes 22,689 shares subject to currently exercisable stock options, 904
shares held in Mr. Ramage's ESOP account, and 24,755 shares held jointly by Mr.
Ramage and his wife.
(14) Includes 19,378 shares held jointly by Mr. Rhodes and his wife.
(15) Includes 9,908 shares held individually by Ms. Sanders' husband and 78,594
held in trust of which Ms. Sanders is beneficial owner with voting and
dispositive rights.
(16) Includes 5,594 shares held individually by Mr. Speck's wife.
(17) Includes 8,764 shares subject to currently exercisable stock options, and
49 shares held in Mr. Shaw's ESOP account.
(18) Includes 5,478 shares subject to currently exercisable stock options and
1,594 shares held in Mr. Long's ESOP account.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
directors and officers of the Corporation and persons who beneficially own ten
percent or more of the Common Stock to file reports with the Securities and
Exchange Commission and the Corporation with respect to their beneficial
ownership of the Corporation's equity securities. Based on its review of the
reports furnished to the Corporation during and with respect to 1997, the
Corporation believes that its directors, officers, and beneficial owners have
filed all required reports in a timely manner.
66
Item 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth information with respect to the compensation of
the Corporation's Chief Executive Officer and its most highly compensated
executive officers whose total annual salary and bonus for 1997 exceeded
$100,000.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Annual Compensation
Other
Annual Long-Term All other
Name and Principal compensa- compensation compensa-
Position Year Salary Bonus tion(1) options(#) tion(2)
Aubrey W. Lippert 1997 $290,000 $0 $0 $0 $8,977
Chairman of the Board, 1996 247,500 60,241 0 15,750 8,936
President and Chief 1995 225,000 43,402 0 13,230 8,798
Executive Officer
of the Corporation
Chairman of the Board
and Chief Executive
Officer of PFNB
Allan B. Kleet 1997 $181,385 $0 $0 $0 $8,977
Principal Accounting Officer 1996 143,774 34,994 0 33,600 8,490
of the Corporation 1995 138,244 26,667 0 6,836 8,036
George B. Shaw 1997 $136,000 $0 $0 $0 $7,590
President of PFNB 1996 155,700 0 0 0 8,875
1995 133,560 0 0 6,615 7,765
Dennis W. Kirtley 1997 $115,224 $9,132 $14,200 $0 $6,431
President and Chief 1996 112,224 9,132 14,200 0 5,827
Executive Officer of 1995 107,096 8,674 14,200 0 6,372
Peoples First, F.S.B.
</TABLE>
(1) Does not include perquisites, the value of which in all cases did not
exceed 10% of the total of the named individual's salary and bonus. Listed
amounts represent fees for service as directors of the Corporation and affiliate
Banks.
(2) The following amounts are included in the above table. Contributions made
under the Employee Stock Ownership Plans in 1997 were Mr. Lippert $3,631; Mr.
Kleet $3,631; Mr. Shaw $3,086; Mr. Kirtley $2,615. Contributions made under the
401(k) Plan in 1997 were: Mr. Lippert $4,800,; Mr. Kleet $4,800; Mr. Shaw
$4,080; Mr. Kirtley $3,457. Life insurance premiums paid in 1997 were Mr.
Lippert $546; Mr. Kleet $546; Mr. Shaw $424; Mr. Kirtley $359.
67
Options/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Individual Grants: Potential realizable
Number of % of total value at assumed
securities total options/ annual rates of stock
underlying SARs granted Exercise price appreciation for
options/ to employees or base Expiration option/SAR term
Name SARs granted in 1997 price date 5.00% 10.00%
____________________________________________________________________________________________
Aubrey W. Lippert 0 --- --- --- --- ---
Allan B. Kleet 0 --- --- --- --- ---
George B. Shaw 0 --- --- --- --- ---
Dennis W. Kirtley 0 --- --- --- --- ---
Aggregated Otion/SAR Exercises in Last Fiscal Year
and Fiscal Year End Option/SAR Values
Number of securities Value of unexercised
Shares underlying unexercised in-the-money options
acquired on Value options at year end at year end
Name exercise realized Exercisable Unexercisable Exercisable Unexercisable
____________________________________________________________________________________________
Aubrey W. Lippert 0 --- 157,479 0 $4,209,597 $0
Allan B. Kleet 0 --- 117,768 0 2,908,048 0
George B. Shaw 0 --- 23,980 0 497,458 0
Dennis W. Kirtley 0 --- 0 0 0 0
</TABLE>
68
Director Compensation
Nonemployee and employee directors other than Mr. Lippert and Mr. Kleet receive
an annual fee of $4,000 for their services. Directors may elect to defer
directors fees until they leave the Board. Deferred amount are deemed to have
been invested in either a 30 month certificate of deposit or (effective in May
1997) in Common Stock.
Joe Dick, Vice Chairman and a director of the Corporation and the former
President, Chief Executive Officer and Chairman of Bank of Murray (now Peoples
First of Calloway County), provided advisory services with respect to marketing,
business development and oeprations to Peoples First of Calloway County from his
retirement as of January 1, 1993 through December 31, 1997. For his consulting
services, Mr. Dick was paid $100,000 per year during the five-year term of a
consulting and non-competition agreement with the Corporation.
Dennis W. Kirtley, a director of the Corporation and President of First Kentucky
Federal Savings Bank, entered into a three-year employment agreement with First
Kentucky as of March 10, 1994. The employment agreement provided for Mr.
Kirtley's continued employment as President and Chief Executive Officer of First
Kentucky (which was merged with PFNB effective February 12, 1998) for three
years from that date at a base salary, wich was $115,224 in 1997. The agreement
also provided for the payment of compensation and other benefits to Mr. Kirtley
upon termination of his employment in certain circumstances during the term of
the agreement.
69
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1997, certain information
with respect to each person known to the Corporation to beneficially own five
percent or more of the outstanding Common Stock, as well as the aggregate number
of shares of Common Stock beneficially owned by all of the directors and
officers of the Corporation and executive officers of the Corporation's
affiliate banks (the "Banks") as a group.
Number of
shares and
nature of
beneficial Percentage
Name and Address ownership of class
________________________________________________________________________________
Peoples First National 1,147,544 11.5%
Bank and Trust Company (1)
100 S. 4th Street
P.O. Box 1920
Paducah, Kentucky 42001
All Directors and Officers
of the Corporation and Executive
Officers of the Banks as a
Group (29) persons 1,165,406 11.2%
(2) (3)
(1) Includes 847,181 share PFNB holds in a Fiduciary capacity, as trustee,
executor or otherwise, including 693,024 shares held with sole voting and
dispositive power, and 154,157 shares held with shared voting and dispositive
power. In addition, PFNB holds 300,363 shares as Trustee for the Corporation's
Employee Stock Ownership Plan (the "ESOP"), with respect to which PFNB has sole
dispositive power. PFNB must vote 300,363 shares as specifically directed by
each ESOP member with respect to the shares allocated to that member's account.
(2) The number of shares owned by individual directors and executive officers
of the Corproation and the nature of their beneficial ownership are set forth in
the table under "Item 10. Directors and Executive Officers of the Registrant."
Other officers of the Corporation and executive officers of the Banks
beneficially own 114,562 shares.
(3) Shares of Common Stock subject to options that are or will become
exercisable within 60 days have been deemed outstanding for computing the
percentage of class of the group, whose members hold the options, but are not
deemed outstanding for computing the percentage of class of any other person.
70
Item 13. CERTAIN RELATIONSAHIPS AND RELATED TRANSACTIONS.
The Corporation's subsidiary PFNB has engaged, and may engage in the future, in
banking transactions in the ordinary course of business with various directors
and officers of the Corporation and the Banks and with many of their associates.
Loans to these parties have been made on substantially the same terms (including
interest rates and collateral) as those prevailing at the time for comparable
transactions with others, and in the opinion of management, such loans did not
involve more than normal risk of collectability, or present other unfavorable
features. The aggegate balance of outstanding loans to directors and officers
of the Corporation and the Banks and certain corporations and individuals
related to such persons totaled $8.4 million or 5.4% of the Corporation's
stockholders' equity as of December 31, 1997.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements are incorporated herein by reference
and listed in Item 8 hereof.
(2) Financial Statement Schedules - None
(3) List of Exhibits filed with original:
(3.1) Amended and Restated Articles of Incorporation of Peoples
First Corporation are incorporated herein by reference
to Exhibit 3(1) to the Registrant's Form 10-K for the year
ended December 31, 1994.
(3.2) Bylaws and Amendments of Peoples First Corporation are
incorporated herein by reference to Exhibit 3(b) to the
Registrant's Form 10-K for the year ended December 31, 1992.
(10.1)Peoples First Corporation 1986 Stock Option Plan is
incorporated herein by reference to Exhibit 10 to Form
10-Q/A for the quarter ended March 31, 1994.
(21) Subsidiaries of Registrant.
(23) Consent of KPMG Peat Marwick LLP, independent public
accountants.
(27) Financial Data Schedules (SEC use only).
(99) Undertakings.
71
(b) Reports on Form 8-K
Peoples First Corporation filed a current report on Form
8-K dated November 17, 1997 on November 24, 1997 to report the
execution of a definitive Plan and Agreement of Merger with
Union Planters Corporation
72
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
PEOPLES FIRST CORPORATION
Date: 03/11/98 /s/ Aubrey W. Lippert
Aubrey W. Lippert
President and Chairman
of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant, in
the capacities and on the dated indicated.
Signature Title Date
_____________________ ______________________ ________
/s/ Aubrey W. Lippert President and Chairman 03/11/98
Aubrey W. Lippert of the Board
/s/ Allan B. Kleet Principal Accounting Officer 03/11/98
Allan B. Kleet
/s/ William R. Dibert Director 03/11/98
William R. Dibert
/s/ Joe Dick Director 03/11/98
Joe Dick
/s/ Richard E. Fairhurst, Jr. Director 03/11/98
Richard E. Fairhurst, Jr.
/s/ William Rowland Hancock Director 03/11/98
William Rowland Hancock
/s/ Dennis W. Kirtley Director 03/11/98
Dennis W. Kirtley
73
Signature Title Date
_____________________ ______________________ ________
/s/ Jerry L. Page Director 03/11/98
Jerry L. Page
/s/ Rufus E. Pugh Director 03/11/98
Rufus E. Pugh
/s/ Victor F. Speck, Jr. Director 03/11/98
Victor F. Speck, Jr.
74
Peoples First National Bank & Trust Company
Fourth and Kentucky Avenue
Paducah, Kentucky 42002-2200 Wholly owned
Peoples First, F.S.B.
214 North First Street
Central City, Kentucky 42330-0110 Wholly owned
The Board of Directors
Peoples First Corporation:
We consent to incorporation by reference in the Registration Statements No.
33-28301 on Form S-3 and No. 33-28304 on Form S-8 of Peoples First Corporation
of our report dated January 23, 1998, relating to the consolidated balance
sheets of Peoples First Corporation and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in stock-
holders' equity, and cash flows for each of the years in the three-year period
ended December 31, 1997, which report appears in the December 31, 1997 annual
report on Form 10-K of Peoples First Corporation.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
March 11, 1998
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 46,820
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 217,871
<INVESTMENTS-CARRYING> 98,622
<INVESTMENTS-MARKET> 102,191
<LOANS> 1,101,707
<ALLOWANCE> 16,442
<TOTAL-ASSETS> 1,500,997
<DEPOSITS> 1,176,841
<SHORT-TERM> 114,472
<LIABILITIES-OTHER> 11,853
<LONG-TERM> 43,104
<COMMON> 7,818
0
0
<OTHER-SE> 146,909
<TOTAL-LIABILITIES-AND-EQUITY> 1,500,997
<INTEREST-LOAN> 96,948
<INTEREST-INVEST> 20,391
<INTEREST-OTHER> 133
<INTEREST-TOTAL> 117,472
<INTEREST-DEPOSIT> 51,461
<INTEREST-EXPENSE> 59,581
<INTEREST-INCOME-NET> 57,891
<LOAN-LOSSES> 5,041
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 39,280
<INCOME-PRETAX> 24,118
<INCOME-PRE-EXTRAORDINARY> 24,118
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,187
<EPS-PRIMARY> 1.62
<EPS-DILUTED> 1.59
<YIELD-ACTUAL> 4.32
<LOANS-NON> 5,848
<LOANS-PAST> 4,451
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 26,500
<ALLOWANCE-OPEN> 14,795
<CHARGE-OFFS> 3,742
<RECOVERIES> 348
<ALLOWANCE-CLOSE> 16,442
<ALLOWANCE-DOMESTIC> 16,442
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represents a
fundamental change in the information set forth in the
registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the Registrant's Annual Report pursuant to section 13(a)
or section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemni-
fication is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemni-
fication against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being regis-
tered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
