<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________________ to ________________
Commission file number 0-13653
-----------------
THE PEOPLES BANCTRUST COMPANY, INC.
-----------------------------------
(Exact name of registrant as specified in its charter)
Alabama 63-0896239
- ----------------------------------- -------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) or No.)
310 Broad Street, Selma, Alabama 36701
- ----------------------------------------- ----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (334) 875-1000.
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
--------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
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 registrant's voting stock is traded on the NASDAQ SmallCap Market. The
aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the price ($25.00 per share) at which the
stock was sold on March 20, 1996, was approximately $3,216,075. For purposes of
this calculation, the term "affiliate" refers to all executive officers and
directors of the registrant and all stockholders beneficially owning more than
10% of the registrant's Common Stock.
As of the close of business on March 20, 1996, 1,693,694 shares of the
registrant's Common Stock were outstanding.
Documents Incorporated By Reference
Part II:
Annual Report to Stockholders for the year ended December 31, 1995.
Part III:
Portions of the definitive proxy statement for the Annual Meeting of the
Shareholders to be held on April 9, 1996.
<PAGE>
PART I
ITEM 1. BUSINESS
THE PEOPLES BANCTRUST COMPANY, INC. AND THE PEOPLES BANK AND TRUST COMPANY
The Peoples BancTrust Company, Inc. ("BancTrust") is a bank holding company
incorporated under the laws of the State of Alabama in April 1984. BancTrust is
registered under the Bank Holding Company Act of 1956, as amended (the "Holding
Company Act"). BancTrust is the holding company for The Peoples Bank and Trust
Company ("Peoples Bank"), which was chartered by the State of Alabama in 1902
and acquired by BancTrust in April 1985.
BancTrust and Peoples Bank are headquartered in Selma, Alabama. Peoples
Bank conducts a general commercial and full-service retail banking business in
Dallas, Autauga and Butler counties and surrounding areas of Alabama. In
addition, Peoples Bank offers trust and financial management services. Peoples
Bank provides banking services to individuals, corporations and others. Peoples
Bank's services also include the sale of traveler's checks, the rental of safe
deposit facilities, collection of domestic and foreign items, issuance of
cashier's checks and money orders, 24-hour Automated Teller Machine ("ATM")
service, bank by mail and night depository and other customary banking services.
Peoples Bank makes commercial, personal, construction and real estate loans and
accepts both demand and time deposits. Peoples Bank offers a wide variety of
other financial products through its brokerage department and insurance agency.
Peoples Bank is a member of the Federal Deposit Insurance Corporation
("FDIC"), and its deposit accounts are insured by the Bank Insurance Fund
("BIF") to a maximum of $100,000 for each insured depositor. Peoples Bank is
subject to supervision and regulation by the Board of Governors of the Federal
Reserve System (the "FRB") and the State Banking Department of the State of
Alabama (the "Banking Department"). There are also various requirements and
restrictions under the laws of the United States of America and the State of
Alabama which affect the operations of Peoples Bank. These laws include usury
requirements, restrictions relating to investments and other requirements. See
"Regulation, Supervision and Governmental Policy."
BancTrust's executive offices and the main office of Peoples Bank are
located at 310 Broad Street, Selma, Alabama 36701. Peoples Bank also operates
four branches in Selma, four branches in Prattville, two branches in Greenville
and one branch in each of Plantersville, Georgiana and McKenzie, Alabama.
BancTrust's telephone number is (334) 875-1000.
LENDING ACTIVITIES
Loan Composition. The following table sets forth, in dollar amounts and in
----------------
percentages, a five-year comparison of major categories of BancTrust's loans.
<TABLE>
<CAPTION>
At December 31
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial and industrial................. $ 61,984 $ 48,829 $ 42,006 $ 37,039 $ 40,270
Real estate - mortgage(1)................. 57,359 50,092 43,685 38,141 38,133
Personal.................................. 71,695 66,170 51,299 38,465 38,827
Overdrafts and credit line................ 5,090 4,365 4,929 3,514 2,719
-------- -------- -------- -------- --------
Total loans............................. $196,128 $169,456 $141,919 $117,159 $119,949
======== ======== ======== ======== ========
Less:
Unearned discount....................... $ 4,996 $ 6,478 $ 4,943 $ 3,907 $ 4,628
Allowance for loan losses............... 2,005 2,039 2,205 1,898 1,264
-------- -------- -------- -------- --------
Total loans, net...................... $189,127 $160,939 $134,771 $111,354 $114,057
======== ======== ======== ======== ========
</TABLE>
- -----------------------------------------
(1) Includes real estate-construction loans.
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<PAGE>
The above loans include agricultural loans totaling approximately $15.6
million, $13.6 million, $7.9 million, $7.2 million and $8.7 million at December
31, 1995, 1994, 1993, 1992 and 1991, respectively. See Note 6 of Notes to
Consolidated Financial Statements in BancTrust's Annual Report to Stockholders
for the year ended December 31, 1995 which is incorporated herein by reference.
Loan Maturities. The following table reflects at December 31, 1995 the
---------------
dollar amount of loans maturing or subject to rate adjustment based on their
contractual terms to maturity. Loans with fixed rates are reflected based upon
the contractual repayment schedule while loans with variable interest rates are
reflected based upon the contractual repayment schedule up to the contractual
rate adjustment date. Demand loans, loans having no stated schedule of
repayments and loans having no stated maturity are reported as due within three
months.
<TABLE>
<CAPTION>
One - After
0-3 Months 4-12 Months Five Years Five Years Total
---------- ----------- ---------- ---------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Commercial and industrial.......... $ 45,991 $ 5,864 $ 6,634 $ 3,495 $ 61,984
Real estate-mortgage (1)........... 20,941 11,841 17,923 6,654 57,359
Personal, overdrafts and........... 15,547 20,318 40,831 89 76,785
credit lines.....................
-------- -------- -------- -------- --------
$ 82,479 $ 38,023 $ 65,388 $ 10,238 $ 196,128
========= ========= ========= ========= =========
Loans with fixed interest
rates............................ $ 32,728 $ 25,118 $ 47,810 $ 8,028 $ 113,684
Loans with variable
interest rates................... 49,751 12,905 17,578 2,210 82,444
--------- --------- --------- --------- ---------
$ 82,479 $ 38,023 $ 65,388 $ 10,238 $ 196,128
========= ========= ========= ========= ========
</TABLE>
____________________________
(1) Includes real estate-construction loans of $3,136,000, all of which mature
within one year.
Notes 1 and 6 of Notes to Consolidated Financial Statements in BancTrust's
Annual Report to Stockholders for the year ended December 31, 1995 (Exhibit No.
13) are incorporated herein by reference.
Commercial and Industrial Loans. BancTrust's primary lending activity
-------------------------------
consists of the origination of commercial and industrial loans. Such loans are
generally originated in BancTrust's primary lending area. BancTrust's
commercial and industrial loans are made for a variety of business purposes,
including working capital, inventory and equipment and capital expansion. At
December 31, 1995, commercial and industrial loans outstanding totaled $61.9
million, or 32.7% of BancTrust's total net loan portfolio. The terms for
commercial and industrial loans are generally less than one year. Commercial
and industrial loan applications must be supported by current financial
information on the borrower and, where appropriate, by adequate collateral.
Approval of the loans is subject to the borrower qualifying for the loan under
BancTrust's underwriting standards. These types of loans are generally
considered to be a higher credit risk than other loans originated by BancTrust.
Real Estate Mortgage Loans. BancTrust also originates one-to-four family,
--------------------------
owner-occupied residential mortgage loans secured by property located in
BancTrust's primary market area. The majority of BancTrust's residential
mortgage loans consists of loans secured by owner-occupied, single-family
residences. At December 31, 1995, BancTrust had $57.4 million, or 30.3% of its
total net loan portfolio, in real estate mortgage loans.
Personal Loans. At December 31, 1995, BancTrust's personal loan portfolio
--------------
totaled $76.8 million, or 40.6% of BancTrust's total net loan portfolio.
BancTrust's personal loan portfolio is comprised of automobile
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<PAGE>
loans (including automobile loans requested by dealers), home improvement loans,
unsecured personal notes, mobile home loans, boat loans, credit card loans, and
loans secured by savings deposits. Although personal loans tend to have a higher
risk of default than other loans, management believes that its loan loss
experience with its personal loan portfolio is favorable. However, the
performance of such loans will be affected by the local economy.
Lending Limits. BancTrust's limit for unsecured loans to individual
--------------
customers is 10% of the capital accounts of BancTrust. The limit for unsecured
and secured loans combined to individual customers is 20% of the capital
accounts of BancTrust, subject to certain terms and conditions. For customers
desiring loans in excess of BancTrust's lending limits, BancTrust may loan on a
participation basis, with its correspondent banks taking the amount of the loan
in excess of BancTrust's lending limits. In other cases, BancTrust may refer
such borrowers to larger banks or other lending institutions.
Nonaccrual, Past Due, Restructured and Potential Problem Loans. BancTrust
--------------------------------------------------------------
classifies its problem loans into four categories: non-accrual loans, past-due
loans, restructured loans, and potential problem loans. At December 31, 1995,
there were no material amounts of potential problem loans which were not
included in the other three categories of problem loans.
When management determines that a loan no longer meets the criteria for
performing loans and that collection of interest appears doubtful, the loan is
placed on nonaccrual status. All loans which are 90 days past due are
considered nonaccrual, unless they are adequately secured and there is
reasonable assurance of full collection of principal and interest. Management
closely monitors all loans which are contractually 90 days past due,
restructured or on nonaccrual status. These loans are summarized as follows:
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a
nonaccrual basis............................... $ 1,503 $ 1,348 $ 2,055 $ 2,851 $ 3,616
Accruing loans which are contractually
past due 90 days or more as to
interest or principal payments................. -- -- 71 -- --
Accruing loans, the terms of which have
been restructured to provide a reduction
or deferral of interest or principal
because of a deterioration in the financial
position of the borrower....................... 301 275 295 338 441
The gross interest income that would
have been recorded in the period then
ended if the nonaccrual and restructured
loans had been current in accordance with
their original terms and had been outstanding
through the period or since origination, if
held for part of the period.................... 96 72 131 164 419
The amount of interest income on nonaccrual
and restructured loans that was included
in net income for the period................... 36 21 34 27 46
</TABLE>
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<PAGE>
Management of BancTrust has identified certain loans aggregating
approximately $6,700,000 at December 31, 1995 (including loans identified in the
above table) which it has determined require special attention due to potential
weaknesses. The largest five loans aggregated approximately $3,337,664 and
ranged in size from $307,500 to $1,505,881. No other loan exceeded $227,189.
It is management's opinion that the allowance for loan losses (see below) is
adequate to absorb potential losses related to such loans. Aggressive efforts
continue to reduce principal, secure additional collateral and improve the
overall payment status of these loans.
The following table sets forth BancTrust's potential problem loans at
December 31, 1995 by loan category and the amount and type of collateral
securing such loans.
<TABLE>
<CAPTION>
Loan Category/Collateral Amount
- ------------------------ ------
(In thousands)
<S> <C>
Commercial and Industrial:
Collateralized by Real Estate................$ 3,297
Collateralized by Other (1).................. 2,211
Unsecured.................................... 143
--------
5,651
--------
Real Estate-Mortgage
Personal:
Collateralized by Real Estate................ 1,009
Collateralized by Other...................... 0
Unsecured.................................... 40
--------
1,049
--------
Total......................................$ 6,700
========
</TABLE>
_________________
(1) Includes approximately $2,167,000 of loans collateralized by accounts
receivable, inventory, furniture and fixtures and automobile dealer floor
plans.
Loan Loss Experience. Notes 1 and 6 of Notes to Consolidated Financial
- --------------------
Statements contained in BancTrust's Annual Report to Stockholders for the year
ended December 31, 1995 (Exhibit No. 13) is incorporated herein by reference.
The allowance for possible loan losses at BancTrust is maintained at a
level which, in management's opinion, is adequate to absorb all potential losses
on loans then present in the loan portfolio. The amount of the allowance is
affected by: (1) loan charge-offs, which decrease the allowance; (2) recoveries
on loans previously charged-off, which increase the allowance; and (3) the
provision of possible loan losses charged to income, which increase the
allowance. In determining the provision for possible loan losses, it is
necessary for management to monitor fluctuations in the allowance resulting from
actual charge-offs and recoveries, and to periodically review the size and
composition of the loan portfolio in light of current and anticipated economic
conditions in an effort to evaluate portfolio risks. Ultimately, the amount of
the provision is that amount sufficient to maintain the allowance at a level
which reflects management's judgment of those risks.
-5-
<PAGE>
The following is a summary of activity in the allowance for loan losses for
the periods:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year.......... $2,039,578 $2,204,807 $1,897,695 $ 1,264,191 $1,290,323
Charge-offs:
Commercial and industrial........... 388,115 184,455 440,911 558,946 727,251
Real estate-mortgage (1)............ 20,300 34,256 10,413 57,855 123,715
Personal............................ 1,198,805 906,959 932,071 997,806 977,635
Overdraft and credit line........... 14,226 22,302 27,045 37,277 7,814
---------- ---------- ---------- ---------- ----------
Total charge-offs................. 1,621,446 1,147,972 1,410,440 1,651,884 1,836,415
Recoveries:
Commercial and industrial........... 51,359 113,259 395,319 1,002,883 263,197
Real estate-mortgage................ 20,763 21,747 105,989 124,874 166,920
Personal............................ 665,065 495,000 529,529 421,811 431,478
Overdraft and credit line........... 1,571 4,737 15,023 10,988 1,688
---------- ---------- ---------- ---------- ----------
Total recoveries.................. 738,758 634,743 1,045,860 1,560,556 863,283
Net charge-offs....................... ( 882,688) (513,229) (364,580) (91,328) (973,132)
Additions charged to operations....... 848,001 348,000 483,605 724,832 947,000
Addition due to acquisition........... -- -- 188,087 -- --
---------- ---------- ---------- ---------- ----------
Balance at end of year................ $2,004,891 $2,039,578 $2,204,807 $1,897,695 $1,264,191
========== ========== ========== ========== ==========
Ratio of net charge-offs to average
loans outstanding, net of unearned
discount, during the period......... 46% . 32% .28% .08% .79%
========== ========== ========== ========== ==========
</TABLE>
________________
(1) Includes real estate-construction loans.
The following table presents an allocation of BancTrust's allowance for
loan losses at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------------- -------------- -------------- -------------- ---------------
% Amount % Amount % Amount % Amount % Amount
---- ------ ---- ------ ---- ------ ---- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial.................. 38% $ 762 40% $ 816 42% $ 926 47% $ 892 48% $ 607
Real estate-mortgage (1)................... 18 361 15% 307 31% 684 28% 532 15% 190
Personal................................... 42 842 43% 877 25% 551 23% 436 35% 442
Overdraft and credit line.. 2 40 2 40 2% 44 2% 38 2% 25
--- ------ --- ------ --- ------ --- ------ --- ------
Total Allowance.......................... 100% $2,005 100% $2,040 100% $2,205 100% $1,898 100% $1,264
====== === ====== === ====== === ====== === ======
</TABLE>
___________________________________________
(1) Includes real estate-construction loans.
-6-
<PAGE>
INVESTMENT ACTIVITIES
Securities by Category. The following table sets forth the amount of
----------------------
securities by major categories held by BancTrust at December 31, 1995, 1994 and
1993.
<TABLE>
<CAPTION>
At December 31,
---------------------------------
Investment Securities 1995 1994 1993
- --------------------- ------ ------ ------
(In thousands)
<S> <C> <C> <C>
U.S. Treasury, U.S. Agencies and corporations.............. $ -- $23,949 $11,642
Obligations of states and political
subdivisions............................................. -- 2,151 3,735
Corporate and other securities............................. -- 1,087 --
------- ------- -------
$ -- $27,187 $15,377
======= ======= =======
</TABLE>
There were no investment securities at December 31, 1995.
<TABLE>
<CAPTION>
At December 31,
---------------------------------
Securities Available for Sale 1995 1994 1993
- ----------------------------- ----- ------- ------
(In thousands)
<S> <C> <C> <C>
U.S. Treasury, U.S. Agencies and corporations.............. $56,888 $60,882 $78,974
Obligations of states and political
subdivisions............................................. 2,875 1,680 2,862
Corporate and other securities............................. 37,824 13,246 15,111
------- ------- -------
$97,587 $75,808 $96,947
======= ======= =======
</TABLE>
Corporate and other securities as of December 31, 1995, were comprised of
the following:
<TABLE>
<CAPTION>
Securities
Available
For Sale
----------
<S> <C>
Corporate notes................................. $10,610
Collateralized mortgage obligations............. 21,264
Mortgage backed securities...................... 3,349
Mutual funds.................................... 1,376
Common stock.................................... 1,225
-------
$37,824
=======
</TABLE>
All rated corporate notes are in the A1 to AAA range. One non-rated
security, an in-state general obligation bond, was issued by a public utility
company. All collateralized mortgage obligations are either guaranteed by the
Federal National Mortgage Association or the Federal Home Loan Mortgage
Corporation or have AAA ratings. Common stock holdings include investments in
the Federal Reserve Bank, Federal Home Loan Bank and another local bank, which
is closely monitored by management.
Management considers all of the above securities to have a relatively low
level of risk.
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<PAGE>
For information regarding the amortized cost and approximate market value
of securities at December 31, 1995, 1994 and 1993, see Note 5 of Notes to
Consolidated Financial Statements contained in BancTrust's Annual Report to
Stockholders for the year ended December 31, 1995 (Exhibit No. 13) which is
incorporated herein by reference.
Maturity Distributions of Securities. The following table sets forth the
------------------------------------
distributions of maturities of securities at amortized cost as of December 31,
1995.
<TABLE>
<CAPTION>
Maturity (in years) No Specific
----------------------------------------------------------------------------------------
0-3 Months 4-12 Months Over 1 to 5 Over 5 to 10 Over 10 Due Date
---------- ----------- ----------- ------------ ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury, U.S.
agencies and corps $5,940 $17,650 $ 30,050 $ 3,200
Obligations of states and
political subdivisions...... 0 450 1,190 895 $ 330
Corporate and other
securities.................. 1,000 1,673 11,275 1,511 20,160 $ 2,600
------ ------- -------- -------- ------- --------
Total......................... $6,940 $19,773 $ 42,515 $ 5,606 $20,490 $ 2,600
====== ======= ======== ======== ======= ========
Weighted Average
Yield (%)(1)................ 5.21% 4.97% 5.71% 5.84% 6.13% 6.23%
====== ======= ======== ======== ======= ========
</TABLE>
__________________
(1) Yields on tax-exempt obligations have been computed on a tax-equivalent
basis using an incremental rate of 34%.
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties. For information regarding the amortized cost
and approximate market value of securities at December 31, 1995, by
contractual maturity, see Note 5 of Notes to Consolidated Financial
Statements contained in BancTrust's Annual Report to Stockholders for the
year ended December 31, 1995 (Exhibit No. 13) which is incorporated herein
by reference.
On January 1, 1994, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities" (SFAS 115). SFAS 115 modifies accounting
principles for accounting and reporting for investments in equity
securities that have readily determinable fair values and for all
investments in debt securities. SFAS 115 requires that those investments be
classified as either held-to-maturity, trading or available-for-sale
securities. Debt securities that BancTrust has the positive intent and
ability to hold to maturity are classified as held-to-maturity securities
and reported at amortized cost. Debt and equity securities that are bought
and held principally for the purpose of selling them in the near term are
classified as trading securities and reported at fair value, with
unrealized gains and losses included in earnings. Debt and equity
securities not classified as either held-to-maturity or trading securities
are classified as available-for-sale securities and reported at fair value,
with unrealized gains and losses excluded from earnings and reported in a
separate component of stockholders' equity. At December 31, 1995,
securities available-for-sale had a net unrealized loss of $222,000 (net of
tax benefits of $115,000).
DEPOSITS
Deposits are the primary source of funds for BancTrust. BancTrust's
deposits consist of checking accounts, regular savings deposits, NOW
accounts, Money Market Accounts, market rate Certificates of Deposit and
Jumbo Certificates of Deposit. Deposits are attracted from individuals,
partnerships and corporations in BancTrust's market area. In addition,
BancTrust obtains deposits from state and local entities and, to a lesser
-8-
<PAGE>
extent, U.S. Government and other depository institutions. BancTrust does not
accept brokered deposits. As of December 31, 1995, BancTrust's total deposits
were $272.8 million.
The following table indicates the amount of BancTrust's certificates of
deposit and other time deposits of $100,000 or more by time remaining until
maturity as of December 31, 1995.
<TABLE>
<CAPTION>
Certificates Other Time
Maturity Period of Deposits Deposits
--------------- ------------ --------
(In thousands)
<S> <C> <C>
Three months or less................. $11,447 $ 7,545
Over three through six months........ 4,011 4,631
Over six through twelve months....... 2,392 ---
Over twelve months................... 1,234 ---
------- -------
Total.............................. $19,084 $12,176
======= =======
</TABLE>
The following table sets forth the average balances and average interest
rates based on daily balances for deposits for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------
1995 1994 1993
------------------ ------------------ ------------------
Average Average Average Average Average Average
Deposits Rate Deposits Rate Deposits Rate
-------- -------- -------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand deposits.. $ 42,206 -- % $ 40,637 -- % $ 33,751 -- %
Interest bearing demand deposits...... 64,419 3.82 65,951 3.50 45,397 3.32
Savings deposits...................... 30,351 3.00 31,393 2.86 26,602 3.10
Time deposits......................... 129,866 5.71 112,984 4.29 107,407 3.83
-------- -------- --------
Total deposits...................... $266,842 4.04 $250,965 3.83 $213,157 3.59
======== ======== ========
</TABLE>
COMPETITION
In order to compete effectively, BancTrust relies substantially on local
commercial activity; personal contacts by its directors, officers, other
employees and shareholders; personalized services; and its reputation in the
communities it serves.
BancTrust is presently competing in its market area with four Alabama
holding companies. It also competes with four independent banks, several credit
unions, and various other nonbank financial companies.
The banking business in Alabama generally, and BancTrust's primary service
areas specifically, are highly competitive with respect to both loans and
deposits. BancTrust competes with many larger banks and other financial
institutions which have offices over a wide geographic area. These larger
institutions have certain inherent advantages, such as the ability to finance
wide ranging advertising campaigns and promotions and to allocate their
investment assets to regions offering the highest yield and demand. They also
offer services such as international banking, which are not offered directly by
BancTrust (but could be offered indirectly through correspondent institutions);
and by virtue of their larger total capitalization (legal lending limits to an
individual consumer or corporation are limited to a percentage of BancTrust's
total capital accounts), such banks have
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<PAGE>
substantially higher lending limits than does BancTrust. Other entities, both
governmental and in private industry, raise capital through the issuance and
sale of debt and equity securities and thereby indirectly compete with BancTrust
in the acquisition of deposits.
Under the federal Bank Holding Company Act of 1956 (the "Holding Company
Act"), as amended by the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Riegle-Neal Act"), Alabama banks and their holding companies
may be acquired by out-of-state banks or their holding companies, and Alabama
banks and their holding companies may acquire out-of-state banks without regard
to whether the transaction is prohibited by the laws of any state. Under the
Riegle-Neal Act and Alabama law, the FRB may not approve the acquisition of a
bank in Alabama if such bank has not been in existence for at least five years
or, if following the acquisition, the acquiring bank holding company and its
depository institution affiliates would control 30% or more of the deposits in
depository institutions in Alabama. In addition, the Riegle-Neal Act authorizes
the federal banking agencies, effective June 1, 1997, to approve interstate
merger transactions without regard to whether such transactions are prohibited
by the law of any state, unless the home state of one of the banks opts out of
the Riegle-Neal Act by adopting a law that applies equally to all out-of-state
banks and expressly prohibits merger transactions involving out-of-state banks.
Alabama has enacted legislation that expressly authorizes, effective May 31,
1997, Alabama banks to participate in interstate mergers in accordance with the
Riegle-Neal Act. The effect of the Riegle-Neal Act may be to increase
competition within the State of Alabama among banking institutions located in
Alabama and from banking companies located anywhere in the country.
EMPLOYEES
As of December 31, 1995, BancTrust employed 221 persons, including
executive officers, loan officers, bookkeepers, tellers and others. None of
BancTrust's employees are presently represented by a union or covered under a
collective bargaining agreement. Management of BancTrust considers that their
employee relations are excellent.
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<PAGE>
RETURN ON EQUITY AND ASSETS
The following table shows the percentage return on equity and assets of
BancTrust for the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Return on assets:
Net income/average total assets.......... 1.03% .82% .89%
Return on equity:
Net income/average equity................ 10.51% 8.30% 8.32%
Dividend payout ratio:
Dividends declared per share/net income
per share.............................. 28.65% 18.18%* 16.61%*
Equity to assets ratio:
Average equity/average total assets...... 9.77% 9.88% 10.66%
</TABLE>
* Earnings per share has been restated to reflect a two-for-one stock split
effected in the form of a stock dividend on March 15, 1995.
LIQUIDITY AND RATE SENSITIVITY
The following table sets forth the maturity distribution of BancTrust's
interest-earning assets and interest-bearing liabilities as of December 31,
1995, BancTrust's interest rate sensitivity gap (i.e., interest rate sensitive
assets less interest rate sensitive liabilities), BancTrust's cumulative
interest rate sensitivity gap, the ratio of interest-earning assets to interest-
bearing liabilities, and BancTrust's cumulative interest rate sensitivity gap
ratio. For purposes of the table, except for fixed-rate installment loans and
savings deposits, an asset or liability is considered rate sensitive within a
specified period when it matures or could be repriced within such period in
accordance with its contractual terms. Regular savings and NOW accounts are
considered core deposits and are included in the "Over One Year" category, based
upon run off rates determined by the percentage of original deposits remaining.
<TABLE>
<CAPTION>
Over
0-3 Months 4-12 Months One Year Total
---------- ----------- -------- -----
Interest-Earning Assets: (Dollars in thousands)
<S> <C> <C> <C> <C>
Loans.............................. $68,318 $48,112 $ 79,698 $196,128
Securities......................... 9,754 19,685 68,485 97,924
Other assets....................... 4,187 4,187
------- ------- -------- --------
Total............................ $82,259 $67,797 $148,183 $298,239
======= ======= ======== ========
Interest-Bearing Liabilities:
Deposits........................... $63,365 $39,851 $125,809 $229,025
Borrowings......................... 5,019 -- 6,216 11,235
------- ------- -------- --------
Total............................ $68,384 $39,851 $132,025 $240,260
======= ======= ======== ========
Interest Sensitivity Gap............. $13,875 $27,946 $ 16,158 $ 57,979
======= ======= ======== ========
Cumulative Interest Sensitivity
Gap................................ $13,875 $41,821 $ 57,979 $ 57,979
======= ======= ======== ========
Ratio of Interest-Earning Assets to
Interest-Bearing Liabilities....... 120.3% 170.1% 112.2% 124.1%
======= ======= ======== ========
Ratio of Cumulative Gap to
Total Assets....................... 4.4% 13.1% 18.2% 18.2%
======= ======= ======== ========
</TABLE>
-11-
<PAGE>
At December 31, 1995, BancTrust had a positive cumulative interest rate
sensitivity gap of $41,821,000 at 12 months. As a result, at December 31, 1995,
rising interest rates would increase the net interest margin in earnings over
the following 12 months. Falling rates would decrease the net interest margin
and earnings over the same period.
The foregoing table does not necessarily indicate the impact of general
interest rate movements on BancTrust's net interest yield because the repricing
of various categories of assets and liabilities is discretionary and is subject
to competition and other pressures. As a result, various assets and liabilities
indicated as repricing within the same period may in fact reprice at different
times and at different levels.
REGULATION, SUPERVISION AND GOVERNMENTAL POLICY
The following is a brief summary of certain statutes, rules and regulations
affecting BancTrust and Peoples Bank. A number of other statutes and
regulations have an impact on their operations. The following summary of
applicable statutes and regulations does not purport to be complete and is
qualified in its entirety by reference to such statutes and regulations.
Bank Holding Company Regulation. BancTrust is registered as a bank holding
-------------------------------
company under the Holding Company Act and, as such, subject to supervision and
regulation by the FRB. A bank holding company is required to furnish to the FRB
an annual report of its operations at the end of each fiscal year and to furnish
such additional information as the FRB may require pursuant to the Holding
Company Act. BancTrust is also subject to regular examination by the FRB.
Under the Holding Company Act, a bank holding company must obtain the prior
approval of the FRB before (i) acquiring direct or indirect ownership or control
of any voting shares of any bank or bank holding company if, after such
acquisition, the bank holding company would directly or indirectly own or
control more than 5% of such shares; (2) acquiring all or substantially all of
the assets of another bank or bank holding company; or (3) merging or
consolidating with another bank holding company.
The Holding Company Act, as amended by the Riegle-Neal Act, generally
permits the FRB to approve interstate bank acquisitions by bank holding
companies without regard to any prohibitions of state law. See "Competition".
Under the Holding Company Act, any company must obtain approval of the FRB
prior to acquiring control of the BancTrust or Peoples Bank. For purposes of
the Holding Company Act, "control" is defined as ownership of more than 25% of
any class of voting securities of BancTrust or Peoples Bank, the ability to
control the election of a majority of the directors, or the exercise of a
controlling influence over management or policies of the BancTrust or Peoples
Bank.
The Change in Bank Control Act and the regulations of the FRB thereunder
require any person or persons acting in concert (except for companies required
to make application under the Holding Company Act), to file a written notice
with the FRB before such person or persons may acquire control of the BancTrust
or Peoples Bank. The Change in Bank Control Act defines "control" as the power,
directly or indirectly, to vote 25% or more of any voting securities or to
direct the management or policies of a bank holding company or an insured bank.
The Holding Company Act also prohibits, with certain exceptions, a bank
holding company from acquiring direct or indirect ownership or control of more
than 5% of the voting shares of a company that is not a bank or a bank holding
company, or from engaging directly or indirectly in activities other than those
of banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these
-12-
<PAGE>
prohibitions involve certain non-bank activities which, by statute or by FRB
regulation or order, have been identified as activities closely related to the
business of banking or managing or controlling banks. The activities of
BancTrust and of its non-bank subsidiaries are subject to these legal and
regulatory limitations under the Holding Company Act and the FRB's regulations
thereunder. Notwithstanding the FRB's prior approval of specific nonbanking
activities, the FRB has the power to order a holding company or its subsidiaries
to terminate any activity, or to terminate its ownership or control of any
subsidiary, when it has reasonable cause to believe that the continuation of
such activity or such ownership or control constitutes a serious risk to the
financial safety, soundness or stability of any bank subsidiary of that holding
company.
The FRB has adopted guidelines regarding the capital adequacy of bank
holding companies, which require bank holding companies to maintain specified
minimum ratios of capital to total assets and capital to risk-weighted assets.
See "Capital Requirements."
The FRB has the power to prohibit dividends by bank holding companies if
their actions constitute unsafe or unsound practices. The FRB has issued a
policy statement on the payment of cash dividends by bank holding companies,
which expresses the FRB's view that a bank holding company should pay cash
dividends only to the extent that the company's net income for the past year is
sufficient to cover both the cash dividends and a rate of earning retention that
is consistent with the company's capital needs, asset quality, and overall
financial condition.
Bank Regulation. As an Alabama banking institution, Peoples Bank is
---------------
subject to regulation, supervision and regular examination by the Banking
Department. Peoples Bank is a member of the Federal Reserve System and thus is
subject to supervision and regular examination by the FRB under the applicable
provisions of the Federal Reserve Act and the FRB's regulations. The deposits
of Peoples Bank are insured by the FDIC to the maximum extent provided by law (a
maximum of $100,000 for each insured depositor). Alabama and federal banking
laws and regulations control, among other things, Peoples Bank's required
reserves, investments, loans, mergers and consolidations, issuance of
securities, payment of dividends, and establishment of branches and other
aspects of Peoples Bank's operations.
The FRB has adopted guidelines regarding the capital adequacy of state-
chartered banks that are members of the Federal Reserve System ("state member
banks"), which require such banks to maintain specified minimum ratios of
capital to total assets and capital to risk-weighted assets. See "Capital
Requirements."
The approval of regulatory authorities is required if the total of all the
dividends declared by the Bank in any calendar year exceeds the Bank's net
income as defined for that year combined with its retained net income for the
preceding two calendar years. The Bank obtained regulatory approval as
applicable for the payment of dividends in 1995, 1994, and 1993.
Peoples Bank is subject to restrictions imposed by federal law on
extensions of credit to, and certain other transactions with, BancTrust and
other affiliates, and on investments in the stock or other securities thereof.
Such restrictions prevent BancTrust and such other affiliates from borrowing
from Peoples Bank unless the loans are secured by specified collateral, and
require such transactions to have terms comparable to terms of arms-length
transactions with third persons. Further, such secured loans and other
transactions and investments by Peoples Bank are generally limited in amount as
to BancTrust and as to any other affiliate to 10% of Peoples Bank's capital and
surplus and as to BancTrust and all other affiliates to an aggregate of 20% of
Peoples Bank's capital and surplus. These regulations and restrictions may
limit BancTrust's ability to obtain funds from Peoples Bank for its cash needs,
including funds for acquisitions and for payment of dividends, interest and
operating expenses.
Under joint regulations of the federal banking agencies, including the FRB
and FDIC, state member banks must adopt and maintain written policies that
establish appropriate limits and standards for extensions of credit that are
secured by liens or interests in real estate or are made for the purpose of
financing permanent improvements to real estate. These policies must establish
loan portfolio diversification standards, prudent
-13-
<PAGE>
underwriting standards, including loan-to-value limits, that are clear and
measurable, loan administration procedures and documentation, approval and
reporting requirements. A bank's real estate lending policy must reflect
consideration of the Interagency Guidelines for Real Estate Lending Policies
(the "Interagency Guidelines") that have been adopted by the federal bank
regulators. The Interagency Guidelines, among other things, call upon depository
institutions to establish internal loan-to-value limits for real estate loans
that are not in excess of the loan-to-value limits specified in the Guidelines
for the various types of real estate loans. The Interagency Guidelines state
that it may be appropriate in individual cases to originate or purchase loans
with loan-to-value ratios in excess of the supervisory loan-to-value limits. The
aggregate amount of loans in excess of the supervisory loan-to-value limits,
however, should not exceed 100% of total capital and the total of such loans
secured by commercial, agricultural, multifamily and other non-one-to-four
family residential properties should not exceed 30% of total capital.
The FDIC has established a risk-based deposit insurance premium assessment
system for insured depository institutions. Under the system, the assessment
rate for an insured depository institution depends on the assessment risk
classification assigned to the institution by the FDIC, which is determined by
the institution's capital level and supervisory evaluations. Institutions are
assigned to one of three capital groups -- well-capitalized, adequately
capitalized or undercapitalized -- based on the data reported to regulators for
date closest to the last day of the seventh month preceding the semi-annual
assessment period. Well-capitalized institutions are institutions satisfying
the following capital ratio standards: (i) total risk-based capital ratio of
10.0% or greater; (ii) Tier 1 risk-based capital ratio of 6.0% or greater; and
(iii) Tier 1 leverage ratio of 5.0% or greater. Adequately capitalized
institutions are institutions that do not meet the standards for well-
capitalized institutions but that satisfy the following capital ratio standards:
(i) total risk-based capital ratio of 8.0% or greater; (ii) Tier 1 risk-based
capital ratio of 4.0% or greater; and (iii) Tier 1 leverage ratio of 4.0% or
greater. Undercapitalized institutions consist of institutions that do not
qualify as either well-capitalized or adequately capitalized institutions.
Within each capital group, institutions are assigned to one of three subgroups
on the basis of supervisory evaluations by the institution's primary supervisory
authority and such other information as the FDIC determines to be relevant to
the institution's financial condition and the risk posed to the deposit
insurance fund. Subgroup A consists of financially sound institutions with only
a few minor weaknesses. Subgroup B consists of institutions that demonstrate
weaknesses that, if not corrected, could result in significant deterioration of
the institution and increased risk of loss to the deposit insurance fund.
Subgroup C consists of institutions that pose a substantial probability of loss
to the deposit insurance fund unless effective corrective action is taken. The
assessment rates range from 0.23% of deposits for well capitalized institutions
in Subgroup A to 0.31% of deposits for undercapitalized institutions in Subgroup
C. Peoples Bank is a well capitalized institution.
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") required the federal bank regulatory agencies to prescribe, by
regulation, non-capital safety and soundness standards for all insured
depository institutions and depository institution holding companies. The
federal banking agencies, including the FRB and the FDIC, have proposed
standards covering internal controls, information systems and internal audit
systems, loan documentation, credit underwriting, interest rate exposure, asset
growth, compensation, fees and benefits, and standards for asset quality and
earnings sufficiency. An institution that fails to meet those standards would
be required to develop a plan acceptable to its primary federal regulator,
specifying the steps that the institution will take to meet the standards.
Failure to submit or implement such a plan may subject the institution to
regulatory sanctions. In addition, under the proposed regulations of the FRB, a
bank holding company would be required to ensure that its subsidiary bank will
return to compliance with the safety and soundness standards if a deficiency is
detected.
Supervision, regulation and examination of BancTrust and Peoples Bank by
the bank regulatory agencies are intended primarily for the protection of
depositors rather than for holders of BancTrust stock or of BancTrust as the
holder of the stock of Peoples Bank.
-14-
<PAGE>
Capital Requirements. The FRB has established guidelines with respect to
--------------------
the maintenance of appropriate levels of capital by registered bank holding
companies and state member banks. The regulations of the FRB impose two sets of
capital adequacy requirements: minimum leverage rules, which require bank
holding companies and banks to maintain a specified minimum ratio of capital to
total assets, and risk-based capital rules, which require the maintenance of
specified minimum ratios of capital to "risk-weighted" assets.
The regulations of the FRB require bank holding companies and state member
banks to maintain a minimum leverage ratio of "Tier 1 capital" (as defined in
the risk-based capital guidelines discussed in the following paragraphs) to
total assets of 3.0%. Although setting a minimum 3.0% leverage ratio, the
regulations state that only the strongest bank holding companies and banks, with
composite examination ratings of 1 under the rating system used by the federal
bank regulators, would be permitted to operate at or near such minimum level of
capital. All other bank holding companies and banks are expected to maintain a
leverage ratio of at least 1% to 2% above the minimum ratio, depending on the
assessment of an individual organization's capital adequacy by its primary
regulator. Any bank or bank holding company experiencing or anticipating
significant growth would be expected to maintain capital well above the minimum
levels. In addition, the FRB has indicated that whenever appropriate, and in
particular when a bank holding company is undertaking expansion, seeking to
engage in new activities or otherwise facing unusual or abnormal risks, it will
consider, on a case-by-case basis, the level of an organization's ratio of
tangible Tier 1 capital (after deducting all intangibles) to total assets in
making an overall assessment of capital.
The risk-based capital rules of the FRB require bank holding companies and
state member banks to maintain minimum regulatory capital levels based upon a
weighing of their assets and off-balance sheet obligations according to risk.
The risk-based capital rules have two basic components: a core capital (Tier 1)
requirement and a supplementary capital (Tier 2) requirement. Core capital
consists primarily of common stockholders' equity, certain perpetual preferred
stock (which must be noncumulative with respect to banks), and minority
interests in the equity accounts of consolidated subsidiaries; less intangible
assets, primarily goodwill. Supplementary capital elements include, subject to
certain limitations, the allowance for losses on loans and leases; perpetual
preferred stock that does not qualify for Tier 1 and long-term preferred stock
with an original maturity of at least 20 years from issuance; hybrid capital
instruments, including perpetual debt and mandatory convertible securities; and
subordinated debt and intermediate-term preferred stock.
The risk-based capital regulations assign balance sheet assets and credit
equivalent amounts of off-balance sheet obligations to one of four broad risk
categories based principally on the degree of credit risk associated with the
obligor. The assets and off-balance sheet items in the four risk categories are
weighted at 0%, 20%, 50% and 100%. These computations result in the total risk-
weighted assets.
The risk-based capital regulations require all banks and bank holding
companies to maintain a minimum ratio of total capital to total risk-weighted
assets of 8%, with at least 4% as core capital. For the purpose of calculating
these ratios: (i) supplementary capital will be limited to no more than 100% of
core capital; and (ii) the aggregate amount of certain types of supplementary
capital will be limited. In addition, the risk-based capital regulations limit
the allowance for loan losses includable as capital to 1.25% of total risk-
weighted assets.
The federal bank regulatory agencies, including the FRB and the FDIC, have
proposed to revise their risk-based capital requirements to ensure that such
requirements provide for explicit consideration by commercial banks of interest
rate risk. Under the proposed rule, a bank's interest rate risk exposure would
be quantified using either the measurement system set forth in the proposal or
the bank's internal model for measuring such exposure, if such model is
determined to be adequate by the bank's examiner. If the dollar amount of a
bank's interest rate risk exposure, as measured under either measurement system,
exceeds 1% of the bank's total assets, the bank would be required under the
proposed rule to hold additional capital equal to the dollar amount of the
excess. The management of Peoples Bank has not determined what effect, if any,
the proposed interest rate risk
-15-
<PAGE>
component would have on the capital of Peoples Bank if adopted as proposed. The
proposed interest rate risk component rule would not apply to bank holding
companies on a consolidated basis.
The FRB has issued final regulations that classify insured depository
institutions by capital levels and provide that the applicable agency will take
various prompt corrective actions to resolve the problems of any institution
that fails to satisfy the capital standards. Under such regulations, a "well-
capitalized" bank is one that is not subject to any regulatory order or
directive to meet any specific capital level and that has or exceeds the
following capital levels: a total risk-based capital ratio of 10%, a Tier 1
risk-based capital ratio of 6%, and a leverage ratio of 5%. An "adequately
capitalized" bank is one that does not qualify as "well capitalized" but meets
or exceeds the following capital requirements: a total risk-based capital of 8%,
a Tier 1 risk-based capital ratio of 4%, and a leverage ratio of either (i) 4%
or (ii) 3% if the bank has the highest composite examination rating. A bank not
meeting these criteria is treated as "undercapitalized," "significantly
undercapitalized," or "critically undercapitalized" depending on the extent to
which the bank's capital levels are below these standards. A bank that fails
within any of the three "undercapitalized" categories will be subject to certain
severe regulatory sanctions required by FDICIA and the regulations of the FRB.
As of December 31, 1995, Peoples Bank was "well-capitalized" as defined by the
regulations.
See Item 7. "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 13 of Notes to Consolidated Financial
Statements contained in BancTrust's Annual Report to Stockholders for the year
ended December 31, 1995 (Exhibit No. 13) which is incorporated herein by
reference.
Effects of Governmental Policy. The earnings and business of BancTrust and
------------------------------
Peoples Bank have been and will be affected by the policies of various
regulatory authorities of the United States, particularly the FRB. Important
functions of the FRB, in addition to those enumerated above, include the
regulation of the supply of money in light of general economic conditions within
the United States. The instruments of monetary policy employed by the FRB for
these purposes influence in various ways the overall level of investments,
loans, other extensions of credit and deposits, and the interest rates paid on
liabilities and received on interest-earning assets.
Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by Peoples Bank on its
deposits and its other borrowings and the interest received by Peoples Bank on
loans extended to customers and securities held in its investment portfolios
comprises the major portion of Peoples Bank's earnings. The earnings and gross
income of Peoples Bank thus have been and will be subject to the influence of
economic conditions generally, both domestic and foreign, and also to monetary
and fiscal policies of the United States and its agencies, particularly the FRB.
The nature and timing of any future changes in such policies and their impact on
Peoples Bank are not predictable.
Legislative Developments. Pending legislation that provides for a
------------------------
recapitalization of the Savings Association Insurance Fund ("SAIF") would, if
enacted, also require banks that are members of the BIF to pay 75% of the annual
interest on the bonds issued by the Financing Corporation ("FICO") to
recapitalize the predecessor to the SAIF, or approximately $600 million per year
for 23 years. Management cannot predict whether legislation requiring BIF member
banks to share liability for FICO's obligations will be enacted or, if it is
enacted, whether such liability would have a material effect on the Bank's BIF
deposit insurance premiums.
ITEM 2. PROPERTIES
The following is a brief description of each of BancTrust's facilities.
The Main Bank Building, located at 310 Broad Street in Selma, is a masonry
----------------------
and brick two-story building consisting of 40,000 square feet. The building was
renovated and enlarged in 1978. At that time, seven drive-up windows and two
walk-up windows were built. The property includes parking from Broad Street
-16-
<PAGE>
through to Washington Street and around the building. Peoples Bank owns the
building. In December 1987, Peoples Bank acquired a brick building adjoining
the parking lot for future expansion. In addition to office space utilized by
Peoples Bank, portions of this building are currently being leased to non-bank
tenants. In May 1989, Peoples Bank acquired a frame building adjacent to the
parking lot for future expansion. This structure has been converted to use as a
warehouse for supplies and equipment.
The Selma Mall Branch, located at 1383 Highland Avenue in Selma, is a
---------------------
masonry and brick one-story building consisting of 2,200 square feet. The
branch has four paying and receiving windows, three drive-up windows and two
walk-up windows. The land is leased. The lease expiration date is December 31,
1996.
The Wal-Mart Branch is located within the Wal-Mart Shopping Center at 1501
-------------------
Alabama Highway 14 East, Selma, Alabama. This branch was previously located in
the Winn Dixie Marketplace. This office, consisting of approximately 517 square
feet, is located adjacent to the main entrance of the Wal-Mart store and
provides four teller windows, new accounts/reception and a Branch Manager.
These quarters have been leased for an initial five-year period expiring
September 6, 2000, with an option for two additional five year periods.
The Satterfield Plaza Branch, located on the West Dallas side of the
----------------------------
Satterfield Plaza parking lot in Selma, is a frame, one-story building with two
drive-up windows. The space consists of 308 square feet, and the land is
leased. The lease expiration date is December 1998. The lease may be extended
for seven successive terms of five years each.
The Post Office Branch, located at 801 Alabama Avenue in Selma, was
----------------------
purchased by Peoples Bank from the Resolution Trust Corporation in July of 1994.
The branch, which was formerly the Selma Branch of Altus Federal Savings Bank,
is a masonry and brick two-story building consisting of approximately 7,000
square feet. The branch has two paying and receiving windows and one drive-up
window. Portions of the building are currently being leased to nonbank tenants.
The Plantersville Branch, located at the intersection of Highway 22 North
------------------------
and Oak Street in Plantersville, is a frame one-story building consisting of two
paying and receiving windows and one drive-up window. The building consists of
approximately 1,300 square feet and is owned by Peoples Bank.
The Greenville Bank Branch, located at 300 East Commerce Street in
--------------------------
Greenville, is a masonry and brick one-story building situated on an entire city
block and consists of approximately 6,400 square feet. The site consists of
drive-up teller lanes and parking. This branch has five paying and receiving
windows and three drive-up windows. Peoples Bank owns the building which was
renovated in 1987 and 1993.
The Butler Square Branch, located at Butler Square Mall in Greenville, is a
------------------------
masonry and brick one-story building with a partial basement located on the
street side of the Butler Square Shopping Mall. This branch has five paying and
receiving windows and three drive-up windows. The space consists of 4,600
square feet. Peoples Bank owns the building.
The Georgiana Branch, located at 132 North Miranda in Georgiana, is a
--------------------
masonry and brick one-story building with a wraparound parking lot. This branch
has three paying and receiving windows and two drive-up windows. The space
consists of 2,800 square feet. Peoples Bank leases the building. The
termination date of the lease is March 1997.
The McKenzie Branch, located in the corner property of U.S. Highway 31 and
-------------------
a state road in McKenzie, is a masonry and brick one-story building. This
branch has three paying and receiving windows and one drive-up window. The
space consists of 2,700 square feet and is owned by Peoples Bank.
-17-
<PAGE>
The Prattmont Branch, located at 801 South Memorial Drive in Prattville, is
--------------------
a masonry one-story building consisting of approximately 2,200 square feet. The
branch has five paying and receiving windows and two drive-up windows. The
building and land are owned by Peoples Bank.
The Prattville East Branch, located at 1805 East Main Street in Prattville,
--------------------------
is a masonry and brick one-story building consisting of approximately 2,500
square feet. The branch has five paying and receiving windows and two drive-up
windows. Peoples Bank owns the land and building.
The Prattville Downtown Branch, located at 148 East Main Street in
------------------------------
Prattville, is a masonry and brick one-story building consisting of
approximately 9,600 square feet. Peoples Bank owns the building which was
constructed in 1972, the 44,430 square foot lot on which the building is located
and an adjacent vacant lot. The site has two drive-up windows and eight paying
and receiving windows.
The Prattville Marketplace Branch, is located within the Winn Dixie
---------------------------------
facility in the Winn Dixie Marketplace #527, Midtown Shopping Center,
Prattville, Alabama. This office, consisting of approximately 385 square feet,
is located adjacent to the main entrance of the Winn Dixie Store and provides
three teller windows, new accounts/reception, and a Branch Manager. These
quarters have been leased for an initial five-year period expiring May 15, 2000,
with an option for two additional five-year periods.
ITEM 3. LEGAL PROCEEDINGS.
Management currently is not aware of any material legal proceedings to
which BancTrust or Peoples Bank is a party or to which any of their property is
subject, except as follows:
Lelon Roy Godwin and Mark N. Godwin v. Peoples Bank and Trust Company., et
--------------------------------------------------------------------------
al, Circuit Court of Autauga County, Alabama, Case No. CV-95-214-D. This case
- --
was filed on October 17, 1995. The complaint is based on alleged violations of
the Alabama mini-Code and other provisions of Alabama law relating to collateral
protection insurance placed on the plaintiff's truck. The complaint includes
counts for fraud, breach of fiduciary duty, as well as other counts. A jury
trial is demanded. The complaint seeks compensatory and punitive damages in an
unspecified amount. The complaint also seeks class action status for all
individuals against whom charges have been made for the purchase of collateral
protection insurance. The Bank denies the allegations of the complaint and
denies that class action certification is appropriate.
William L. Ammons, d/b/a Ammons Construction Company v. Peoples Bank and
------------------------------------------------------------------------
Trust Company , Circuit Court of Dallas County, Alabama, Case No. CV-95-295.
- -------------
This case was filed on October 18, 1995. The Plaintiff, a contractor, was
constructing a house for a customer of the Bank who had borrowed construction
monies for that purpose. The Bank customer sued the contractor, alleging that
he failed to complete the construction. The contractor now brings this action
contending that the Bank owes funds for the construction to him as a third party
beneficiary. He further alleges misrepresentation by the Bank and seeks
unspecified compensatory and punitive damages. A jury trial is demanded. The
Bank denies the allegations of the complaint. No discovery has taken place at
this time.
Walter Lee McMeans v. The Peoples Bank and Trust Company, et al, Circuit
---------------------------------------------------------------
Court of Lowndes County, Alabama, Case No. CV-96-26. This case was filed on
January 9, 1996. The Complaint alleges that the Bank, through its loan
officers, made representations to plaintiff concerning credit life insurance on
or about November 16, 1990, and subsequently placed collateral protection
insurance on the plaintiff's property at unconscionable costs. The Complaint
avers that the actions constitute fraud of various types, and negligence and
wanton supervision. Unspecified compensatory and punitive damages are claimed
and a jury trial is demanded. The Bank has not had an opportunity to fully
evaluate the nature of the claims on which this Complaint is based, but the loan
officers deny that any misrepresentations were made to the plaintiff.
-18-
<PAGE>
Edward Thomas v. The Peoples Bank and Trust Company, et al, Circuit Court
----------------------------------------------------------
of Mobile County, Alabama, Case No. CV-96-000193. This case was filed on
January 16, 1996. The complaint was amended on March 9, 1996. The plaintiff
alleges various causes of action against the codefendants with respect to the
application for and purchase of a life insurance policy, including fraudulent
misrepresentation and breach of contract. The complaint claims various injuries
and damages in an unspecified amount. As to the Bank, the complaint alleges
that the Bank negligently or wantonly failed to honor a check for a life
insurance premium when it was presented for payment. The Bank denies that it
wrongfully returned the check or is otherwise liable to the plaintiff in any
manner.
The Peoples Bank and Trust Company v. Stephen Limbaugh and Lisa C. Miller.
-------------------------------------------------------------------------
This suit was filed to collect an indebtedness on a repossessed automobile. The
defendants have filed a Counterclaim alleging that the vehicle was wrongfully
repossessed, and claiming unspecified compensatory and punitive damages. The
Counterclaim was initially filed in the District Court, having a limited
jurisdiction. It was amended on March 12, 1996, which amendment was received on
March 15, 1996, to claims damages in the unspecified amount and transferring the
case to the Circuit Court, which does not have the damage limitations of the
District Court. The facts of the case are being investigated, and it is too
early to determine the Bank's position.
See Note 10 of Notes to Consolidated Financial Statements contained in
BancTrust's Annual Report to Stockholders for the year ended December 31, 1995
(Exhibit 13) which is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders of BancTrust through a
solicitation of proxies or otherwise.
EXECUTIVE OFFICERS OF THE REGISTRANT
RICHARD P. MORTHLAND, 54, is currently Chairman of the Board and Chief
Executive Officer and a Director of Peoples Bank, and President, Chief Executive
Officer and a Director of BancTrust. Mr. Morthland has been an officer of
Peoples Bank since 1965 and a Director since February 1977.
ELAM P. HOLLEY, JR., 45, is currently President, Chief Administrative
Officer and a Director of Peoples Bank, and Secretary and a Director of
BancTrust. Mr. Holley has been an officer of Peoples Bank since November 1975
and a Director since January, 1988.
ANDREW C. BEARDEN, JR., 49, is currently Senior Vice President --
Retail/Operations Division of Peoples Bank. Mr. Bearden assumed this position
in September 1991. Prior to his current assignment, Mr. Bearden served as Vice
President and Trust Officer of Peoples Bank. Mr. Bearden was in private
practice as a certified public accountant prior to his employment with Peoples
Bank in 1985.
JOHN G. CHISOLM, 47, is currently Senior Vice President - Commercial
Division of Peoples Bank. Mr. Chisolm assumed this position in December 1992.
He has been employed by Peoples Bank since 1979, primarily in the commercial
lending area. Prior to his employment by Peoples Bank, Mr. Chisolm was employed
by American National Bank and Trust Company, Chattanooga, Tennessee for seven
years in its commercial lending division.
M. SCOTT PATTERSON, 53, is currently Senior Vice President-Financial
Services Division, Secretary and Investment Officer of Peoples Bank and
Assistant Secretary of BancTrust. Mr. Patterson has been in these
-19-
<PAGE>
positions since November 1985. Prior to coming to Peoples Bank in October 1983,
Mr. Patterson served for 20 years in the United States Air Force, retiring as a
Lieutenant Colonel.
VIRGINIA L. SELLERS, 62, is currently Vice President and Treasurer of
Peoples Bank and Treasurer of BancTrust. Mrs. Sellers has been an officer of
Peoples Bank since 1985. Prior to her employment by Peoples Bank in 1985, Mrs.
Sellers was Accounting Officer of SouthTrust Bank, Selma, Alabama for 20 years.
THOMAS J. GAY, 53, is currently Regional President of the Autauga County
Division of Peoples Bank, a title he assumed upon the merger of The Citizens
Bank, Prattville, Alabama into Peoples Bank in 1994. Mr. Gay had been employed
by The Citizens Bank since 1962.
WILLIAM S. JOHNSON, 46, is currently Regional President of the Butler
County Division of Peoples Bank. Prior to his coming to Peoples Bank in June
1993, Mr. Johnson was President of The Fort Deposit Bank in Fort Deposit,
Alabama for eight years.
Richard P. Morthland and M. Scott Patterson are brothers-in-law.
All officers serve at the discretion of the boards of directors of
BancTrust or Peoples Bank. There are no known arrangements or understandings
between any office and any other person pursuant to which he or she was or is to
be selected as an officer.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
For information concerning holders of common stock, high and low sales
prices and frequency and amount of dividends on BancTrust's Common Stock, see
"Stock Dividend and Price Information" incorporated herein by reference to
BancTrust's Annual Report to Stockholders for the year ended December 31, 1995
(Exhibit No. 13) which is incorporated herein by reference.
Although BancTrust has no established policy regarding dividends, BancTrust
and Peoples Bank, prior to its acquisition by BancTrust in April 1985, have paid
regular dividends in recent years. There can be no assurance, however, as to
whether or in what amounts dividends might be declared by BancTrust in the
future or whether such dividends, once declared, will continue. Future
dividends are subject to the discretion of the Board of Directors and depend on
a number of factors, including future earnings, financial condition, and capital
requirements, along with economic and market conditions.
The primary source of BancTrust's revenues (including funds to pay
dividends) is dividends from the Bank. Alabama law imposes certain restrictions
on the ability of BancTrust and Peoples Bank to pay dividends. See Item 1.
"Business--Regulation, Supervision and Governmental Policy" and Note 13 of Notes
to Consolidated Financial Statements contained in Banc Trust's Annual Report to
Stockholders for the year ended December 31, 1995 (Exhibit 13) which is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Five Year Comparison of
Selected Financial Data" in BancTrust's Annual Report to Stockholders for the
year ended December 31, 1995 (Exhibit No. 13) which is incorporated herein by
reference.
-20-
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in BancTrust's Annual
Report to Stockholders for the year ended December 31, 1995 (Exhibit No. 13)
which is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BancTrust's Consolidated Financial Statements together with the related
notes and the report of Coopers & Lybrand L.L.P., independent public
accountants, all as set forth in BancTrust's Annual Report to Stockholders for
the year ended December 31, 1995 (Exhibit No. 13) which are incorporated herein
by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of BancTrust is omitted from this Report as
BancTrust has filed a definitive proxy statement dated March 15, 1996, and the
information included therein under "Election of Directors-Directors" is
incorporated herein by reference. Information regarding the executive officers
of BancTrust is included under separate caption in Part I of this Form 10-K.
Item 405 of Regulation S-K disclosure is omitted from this Report as BancTrust
has filed a definitive proxy statement dated March 15, 1996, and the Item 405
disclosure therein under "Principal Holders of Common Stock" which is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is omitted from this Report as
BancTrust has filed a definitive proxy statement dated March 15, 1996, and the
information included therein under "Election of Directors" which is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is omitted from this Report as BancTrust
has filed a definitive proxy statement dated March 15, 1996, and the information
included therein under "Stock Ownership of Management" and "Principal Holders of
Common Stock" which is incorporated herein by reference.
-21-
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is omitted from this Report as BancTrust
has filed a definitive proxy statement dated March 15, 1996, and the information
included therein under "Election of Directors--Certain Transactions" which is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of BancTrust
included in the Annual Report to Stockholders for the year ended December 31,
1995, are incorporated herein by reference in Item 8 of this Report. The
remaining information appearing in the Annual Report to Stockholders is not
deemed to be filed as part of this Report, except as expressly provided herein.
1. Report of Independent Accountants.
2. Consolidated Balance Sheets - December 31, 1995 and 1994.
3. Consolidated Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993.
4. Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1995, 1994 and 1993.
5. Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993.
6. Notes to Consolidated Financial Statements.
(a)(2) All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and therefore have been omitted.
(a)(3) The following exhibits either are filed as part of this Report or
are incorporated herein by reference:
Exhibit No. 3. Articles of Incorporation and Bylaws
------------------------------------
(i) Articles of Incorporation - incorporated herein by
reference to Exhibit 3(i) to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992.
(ii) Bylaws - incorporated herein by reference to Exhibit No.
3.2 to the Registrant's Registration Statement on Form S-
14 (File No. 2-95573).
-22-
<PAGE>
Exhibit No. 10. 1992 Stock Option Plan
----------------------
Incorporated herein by reference to Exhibit 10 to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992.
Exhibit No. 13. Annual Report to Stockholders
-----------------------------
Except for those portions of the Annual Report to
Stockholders for the year ended December 31, 1995, which are
expressly incorporated herein by reference, such Annual
Report is furnished for the information of the Commission
and is not to be deemed "filed" as part of this Report.
Exhibit No. 21. Subsidiaries of the Registrant
------------------------------
A list of subsidiaries of the Registrant is included as an
exhibit to this Report.
Exhibit No. 23. Consent of Coopers & Lybrand L.L.P.
Exhibit No. 27. Financial Data Schedule
(b) Not applicable.
(c) Exhibits to this Form 10-K are attached or incorporated by reference
as stated above.
(d) None.
-23-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
behalf by the undersigned, thereunto duly authorized.
THE PEOPLES BANCTRUST COMPANY,
INC. (Registrant)
Date: March 29, 1996 By:/s/ Richard P. Morthland
----------------------------------------
Richard P. Morthland
Director, President and
Chief Executive Officer
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 and in the capacities indicated and on the dates indicated.
DATE: SIGNATURE AND TITLE:
<TABLE>
<S> <C>
/s/ Richard P. Morthland April 9, 1996
- -----------------------------
Richard P. Morthland
Director, President and Chief
Executive Officer
(Principal Executive Officer)
/s/ Virginia L. Sellers April 9, 1996
- -----------------------------
Virginia L. Sellers
Treasurer
(Principal Financial and
Accounting Officer)
/s/ Julius R. Brown April 9, 1996
- -----------------------------
Julius R. Brown
Director
/s/ Clyde B. Cox, Jr. April 9, 1996
- -----------------------------
Clyde B. Cox, Jr.
Director
</TABLE>
<PAGE>
<TABLE>
<S> <C>
/s/ Harry W. Gamble, Jr. April 9, 1996
- -----------------------------
Harry W. Gamble, Jr.
Director
/s/ Ted M. Henry April 9, 1996
- -----------------------------
Ted M. Henry
Director
/s/ Elam P. Holley, Jr. April 9, 1996
- -----------------------------
Elam P. Holley, Jr.
Director
/s/ A.D. Lovelady April 9, 1996
- -----------------------------
A.D. Lovelady
Director
/s/ James A. Minter, III April 9, 1996
- -----------------------------
James A. Minter, III
Director
/s/ Richard P. Morthland April 9, 1996
- ----------------------------
Richard P. Morthland
Director
/s/ C. Ernest Smith April 9, 1996
- -------------------------------
C. Ernest Smith
Director
/s/ Julius E. Talton April 9, 1996
- --------------------------------
Julius E. Talton
Director
/s/ Clinton S. Wilkinson, Jr. April 9, 1996
- -----------------------------
Clinton S. Wilkinson, Jr.
Director
</TABLE>
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Identity of Exhibit Page
- ------ ------------------- ----
<S> <C> <C>
3(i) Articles of Incorporation Incorporated by reference
3(ii) Bylaws Incorporated by reference
10 1992 Stock Option Plan Incorporated by reference
13 Sections of Annual Report to Stockholders
21 Subsidiaries
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 13
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
STOCK DIVIDEND AND PRICE INFORMATION
Beginning in June 1994, the common stock of the Company has been quoted on the
NASDAQ SmallCap Market under the symbol, "PBTC." Prior to that time, there was
not an established public trading market for the Company's common stock. Three
brokerage firms, A.G. Edwards, Morgan Keegan & Company, Inc. and Sterne Agee &
Leach, Inc., make a market in the common stock of the Company. Price of the
stock is quoted in local newspapers and, prior to being listed on NASDAQ, was
quoted in the National Daily Quotation Services "Pink Sheets"(TM).
The following is the known range of high and low sales prices for the common
stock for each full quarterly period within the two most recent fiscal years,
and the dividends declared. Data shown in the following table for periods prior
to March 15, 1995 has been restated to reflect the effect of a two-for-one stock
split effected in the form of a stock dividend paid March 15, 1995. Quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not reflect actual transactions.
<TABLE>
<CAPTION>
Dividends Declared
1995 High Low (per common share)
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Jan-Mar 19.00 15.00 .12
Apr-June 19.00 16.00 .13
July-Sept 17.00 14.00 .13
Oct-Dec 20.75 16.00 .13
<CAPTION>
Dividends Declared
1994 High Low (per common share)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Jan-Mar 16.00 14.00 .12
Apr-June 16.00 14.13 .12
July-Sept 15.50 14.00 .12
Oct-Dec 14.75 13.50 .12
</TABLE>
As of February 26, 1996, The Peoples BancTrust Company, Inc. had 800
stockholders of record and 1,693,694 shares of common stock outstanding.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1994 1993* 1992 1991
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $ 12,966,202 $ 11,344,017 $ 10,322,801 $ 8,807,342 $ 8,643,303
Provision for loan losses 848,001 348,000 483,605 724,832 947,000
Income before income tax 4,425,857 3,320,018 3,057,315 3,461,485 2,129,708
Provision for income tax 1,278,064 961,853 807,643 1,122,000 120,691
Net income 3,147,793 2,354,602 2,173,194 2,339,485 2,009,017
Net income per share ** 1.78 1.32 1.33 1.42 1.22
Cash dividend declared
and paid ** 0.51 0.48 0.44 0.40 0.35
Total assets, December 31 $318,311,020 $301,228,454 $281,870,570 $218,334,856 $221,221,649
</TABLE>
* Reflects acquisition of control of CeeBee Corporation.
** Restated to show effect of a 2-for-1 stock split in the form of a
stock dividend paid March 15, 1995.
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion focuses on the financial condition and results of
operations of The Peoples BancTrust Company, Inc. ("the Company"), and should be
read in conjunction with the consolidated financial statements included in this
report. Reference should be made to those statements and the selected financial
data presented elsewhere in this report for an understanding of the following
discussion and analysis.
ACQUISITIONS
At December 31, 1993, the Company owned 96.3% of the outstanding common stock of
CeeBee Corporation ("CeeBee"), the bank holding company for The Citizens Bank,
Prattville, Alabama ("Citizens Bank"). On February 18, 1994, CeeBee repurchased
the remaining 3.64% of the outstanding common stock as treasury stock resulting
in 100% ownership of CeeBee by the Company. On February 25, 1994, the net
assets of CeeBee were transferred to the Company, CeeBee was dissolved and
Citizens Bank was merged into the Company's subsidiary bank, The Peoples Bank
and Trust Company ("the Bank").
On May 20, 1994, the Bank acquired the deposits of the Selma Branch of Altus
Federal Savings Bank ("Altus"), which had been operating under the management of
the Resolution Trust Corporation ("RTC"), the Federal Government agency
established to oversee troubled thrift institutions. The Bank paid to the RTC
a franchise premium of $518,000 to acquire approximately $9,900,000 in deposits.
On June 20, 1994, the Company exercised its option to purchase the related real
estate previously occupied by Altus. The purchase price was $265,450 and
included the real estate and certain items of furniture and fixtures. The
appraised value, as reported by RTC, of the acquired assets was $283,650.
Conveyance was effected July 28, 1994.
BALANCE SHEET SUMMARY
LOANS
Loans comprise the Company's largest earning asset category and accordingly
generate the greatest yield. Therefore, most other assets and liabilities are
managed to accommodate fluctuations in the loan portfolio.
The average volume of loans, net of unearned interest, for 1995 was
$175,318,000. This volume was a 21% increase over the 1994 average of
$144,876,000.
Through continued emphasis on loan generation and because of improving local and
national economic conditions, loans net of unearned interest rose from the
December 31, 1994, total of $162,978,000 to the December 31, 1995, total of
$191,131,000. The consolidation of CeeBee, which had few loans by comparison to
its volume of deposits and the acquisition of the Altus deposits, caused the
Company's loan to deposit ratio to fall to 55.5% in May of 1994. At December
31, 1994, the loan to deposit ratio was 61.1%. As a result of the 1995 loan
growth, the Company's loan to deposit ratio at December 31, 1995, was 69.3%.
Commercial and Industrial loans reflected the largest segmental growth in the
loan portfolio for 1995, increasing from $48,829,000 at December 31, 1994 to
$61,984,000 at December 31, 1995. This $13,155,000 growth was partially the
result of several large loans extended to customers in the health care industry
and timber industry. Real estate loans grew by $7,267,000 to a total of
$57,359,000 at December 31, 1995. New home financing brought about by expanding
economics in Dallas, Butler, and Autauga Counties accounted for the balance of
the
<PAGE>
growth. Personal loans increased from $66,170,000 at December 31, 1994 to
$71,695,000 at December 31, 1995. The growth of $5,525,000 was primarily
attributable to new and used automobile financing. Credit lines increased by
$731,000 from $3,770,000 at December 31, 1994 to $4,501,000 at December 31,
1995.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents management's estimate of the
uncollectible loans within the Company's loan portfolio. The allowance for loan
losses is charged when it is determined that the prospects of payment of the
principal of a loan have significantly diminished. Recoveries, if any, are
credited back to the allowance. Through periodic reviews of the loan portfolio
that includes an analysis of such factors as current and expected economic
conditions, historical loss experience, levels of non-accruing loans and
delinquencies, the Company's personnel determine the appropriate level at which
to maintain the allowance for loan losses. Because the allowance is based on
assumptions and subjective judgement, it is not necessarily indicative of the
actual charge-offs which may ultimately occur.
The Company's allowance for loan losses totaled $2,005,000 at December 31, 1995
as compared to $2,040,000 at December 31, 1994. The resulting ratios of
allowance to total loans net of unearned interest were 1.05% and 1.25% for 1995
and 1994 respectively. The amount of loans determined by management that
require special attention due to potential weaknesses grew from $6,500,000 at
December 31, 1994 to $6,700,000 at December 31, 1995. Non-accruing loans,
expressed as a percentage of total loans net of unearned interest, remained
relatively stable at .79% at December 31, 1995 as compared to .83% at December
31, 1994. At its current level, the allowance for loan losses exceeds the
regulatory minimum requirement. Management believes that the current allowance
for loan losses remains adequate to absorb potential losses in the Company's
loan portfolio.
INVESTMENTS
At December 31, 1995, the Company's investment portfolio totaled $97,587,000 as
compared to $102,995,000 at December 31, 1994. The decline of $5,408,000 was
primarily the result of a strong loan demand allowing a shift in funds to the
higher yielding loan portfolio. The decline in the investment portfolio was
partially offset by an increase in market values of the remaining investment
portfolio.
At December 31, 1994, the Company's investment portfolio was segmented into two
categories with $27,186,000 held in the "held-to-maturity" classification and
$75,808,000 held in the "available-for-sale" classification. The Company has
held no investments in a "trading account."
During 1995, the entire portfolio was classified as "available-for-sale." The
results are that the entire portfolio is marked-to-market. The performance of
the securities market drove the value of the investment portfolio up by
approximately $3,362,000. At December 31, 1995, the portfolio had a net
unrealized loss of $222,000 (net of tax benefits of $115,000) as compared to a
net unrealized loss of $2,628,000 (net of tax benefits of $1,072,000) at
December 31, 1994. See Notes 1 and 5 of Notes to Consolidated Financial
Statements for additional discussion on Investment Securities.
SHORT TERM INVESTMENTS
The Company's short-term investments consist primarily of federal funds sold and
securities purchased under agreement to resell. These investments are
considered to be a valuable tool in managing the Company's liquidity position.
In addition, the utilization of short-term investments enhances interest income
on funds that might otherwise not be invested. Management closely monitors the
balances of short-term investments and seeks alternative uses for these funds.
<PAGE>
At December 31, 1995, the volume of short-term investments amounted to
$4,187,000 which was an increase of $1,053,000 over the December 31, 1994 total.
DEPOSITS
The Company relies primarily on its deposits to provide liquidity with which to
fund loans and investments. Total deposits amounted to $272,782,000 at December
31, 1995, as compared to $263,164,000 at December 31, 1994, which amounted to a
growth of 3.7%.
The growth was primarily attributable to a $20,000,000 increase in time deposits
offset by declines in demand and savings of $7,327,000 and $4,017,000,
respectively for the year ended December 31, 1995.
LIQUIDITY
Liquidity refers to the Company's ability to meet its cash flow needs, to
provide funds for operating expenses and to meet the borrowing needs and
withdrawal demands of customers on a timely basis. The Company actively manages
both assets and liabilities to achieve its desired level of liquidity.
In the ordinary course of its business, the Company's primary sources of cash
are interest and fee income, in addition to loan repayments and the maturity or
sales of other earning assets including investment securities. Approximately
27% of the total investment securities portfolio matures within one year. The
entire investment portfolio at December 31, 1995 was classified as available-
for-sale. These securities are readily marketable, high quality, securities
with a market value of $97,587,000. At December 31, 1995, liquid assets,
consisting primarily of cash on hand and short-term investments totaled
$18,602,000 compared to $23,182,000 at December 31, 1994.
The liability base provides liquidity through deposit growth, the rollover of
maturing deposits and accessibility to external sources of funds. The Company
is typically a seller of federal funds although, it may during occasional
fluctuations in liquidity factors, purchase federal funds or borrow from the
Federal Reserve Bank or Federal Home Loan Bank to meet its temporary cash needs.
At December 31, 1995, borrowed funds for short-term liquidity needs amounted to
$5,019,000 compared to $6,855,000 at year end 1994. Management considers the
Company's liquidity sources to be adequate to meet its current and projected
needs.
STOCKHOLDERS' EQUITY
Stockholders' equity, or capital, is a measure of the Company's net worth,
soundness and viability. The Company continues to exhibit a strong capital
position while paying consistent dividends to its stockholders. The capital
base allows the Company to take advantage of business opportunities and at the
same time ensures that the necessary resources are available to absorb inherent
business risk.
Total stockholders' equity amounted to $31,514,000 at December 31, 1995 as
compared to $27,630,000 at December 31, 1994. Net income for 1995 was
$3,148,000 with cash dividends declared in the amount of $861,500. Treasury
stock was acquired for the sum of $807,000. In addition to the net increase
provided by earnings less dividends and treasury stock acquisitions, capital was
increased by the change in unrealized losses in investments of $2,405,000.
Risk-based capital regulations adopted by the Federal Reserve Board require all
bank holding companies and banks to achieve and maintain specified ratios of
capital to risk-weighted assets. The risk-based capital rules weigh assets and
off-balance sheet obligations at 0%, 20%, 50% or 100%, depending upon the risk
classification of the
<PAGE>
asset or obligation. All bank holding companies and banks must maintain a
minimum total capital to total risk-weighted assets ratio of 8.00%, at least
half of which must be in the form of core, or Tier 1 capital (consisting of
stockholders' equity, less goodwill). The following table, "Risk-Based Capital
Ratios and Leverage Ratios," indicates that the Company's core capital ratio and
total capital ratio at December 31, 1995 were well above the minimum required by
regulators.
RISK-BASED CAPITAL RATIOS & LEVERAGE RATIOS
AT DECEMBER 31, 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Risk-Based Capital Ratios The Company The Bank
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Tier 1 Capital -........................
Stockholders' Equity less goodwill $30,732 13.11% $31,069 13.26%
Minimum Required 9,375 4.0% 9,371 4.00%
----------------------------------------
Excess $21,357 9.11% $21,698 9.26%
----------------------------------------
Total Capital
Tier 1 Capital plus allowances for $32,737 13.97% $33,074 14.12%
loan losses
Minimum Required 18,751 8.0% 18,742 8.00%
----------------------------------------
Excess $14,040 5.97% $14,332 6.12%
- --------------------------------------------------------------------------------
Total Risk-weighted assets $234,336 $234,278
- --------------------------------------------------------------------------------
Leverage Ratios The Company The Bank
- --------------------------------------------------------------------------------
Tier 1 Capital $30,732 9.67% $31,069 9.76
Minimum Leverage Requirement 9,549 3.00% 9,548 3.00%
----------------------------------------
Excess $21,183 6.67% $21,521 6.76%
</TABLE>
INCOME SUMMARY
The Company's net income for the year ended December 31, 1995 was $3,148,000
which is a 33.7% increase over the prior year's net income of $2,355,000. Net
income for 1993 was $2,173,000. Earnings per share of common stock were $1.78
for 1995, $1.32 for 1994, and $1.33 for 1992. (Earnings per share for 1994 and
1993 have been restated to reflect a two-for-one stock split effected in the
form of a stock dividend on March 15, 1995.)
<PAGE>
NET INTEREST INCOME
Net interest income is the difference between the revenue earned from loans and
investments, and the interest expense related to interest-bearing deposits and
borrowed funds. Net interest income is the Company's largest source of income.
Net interest income is influenced by such factors as fluctuations in interest
rates and changes in the volume and mix of earning assets and interest-bearing
liabilities.
For the years indicated, the table, "Analysis of Changes in Interest Income and
Expense," shows the changes in each component of net interest income and
illustrates the degree to which these components were influenced by
fluctuations in volume and interest rates. The table, "Average Balance Sheets
and Analysis of Net Interest Income," details the Company's distribution of
average assets, liabilities and stockholders' equity and the interest rate
differentials for each illustrated.
<PAGE>
ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 Compared to 1994 1994 Compared to 1993
---------------------------------------------------------------------
Changes Changes Changes Changes
Total in Volume in Rates Total in Volume in Rates
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest Income on:
Loans $ 4,709 $ 3,016 $ 1,693 $ 2,048 $ 1,926 $ 122
Bankers' acceptances, commercial paper,
and federal funds. (4) (2) (2)
Taxable investment securities (280) (941) 661 650 1,015 (365)
Nontaxable investment securities (131) (78) (53) 120 113 7
Federal funds sold and securities
purchased under agreement to resell 223 90 133 (93) (229) 136
Interest bearing deposits in banks (38) (19) (19)
---------------------------------------------------------------------
Total Interest Income $ 4,521 $ 2,087 $ 2,434 $ 2,683 $ 2,804 ($ 121)
=============================================================================================================
Interest expense on:
Interest bearing demand deposits $ 155 $ (52) $ 207 $ 798 $ 715 $ 83
Savings deposits 11 (26) 37 74 141 (67)
Time deposits 2,567 792 1,775 728 221 507
Securities sold under agreement
to repurchase 50 4 46 50 47 3
Other borrowed funds 116 64 52 12 25 (13)
---------------------------------------------------------------------
Total Interest Expense $ 2,899 $ 782 $ 2,117 $ 1,662 $ 1,149 $ 513
Net change in net interest income
before loan losses $ 1,622 $ 1,305 $ 317 $ 1,021 $ 1,655 ($ 634)
=============================================================================================================
</TABLE>
The table describes the extent to which changes in interest rates and
changes in volume of interest-earning assets and interest-bearing
liabilities have affected the Company's interest income and expense during
the periods indicated. For each category of interest-earning assets and
interest-bearing liabilities, information is provided on changes
attributable to: (1) changes in volume (changes in volume multiplied by
old rate); (2) changes in rates (change in rate multiplied by old volume);
and (3) change in rate volume (change in rate multiplied by the change in
volume, allocated between volume change and rate change at the ratio that
each bears to the total change).
<PAGE>
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Loans, net* $175,318 $18,129 10.34% $144,876 $13,420 9.26% $124,069 $11,372 9.17%
Bankers' acceptances, commercial
paper, and term federal funds. 115 4 3.48%
Taxable investment securities 94,298 5,404 5.73% 108,623 5,684 5.23% 89,573 5,034 5.62%
Nontaxable investment securities 2,171 91 4.19% 3,873 222 5.73% 1,887 102 5.41%
Federal funds sold and securities
purchased under agreement to
resell 5,201 416 8.00% 3,738 193 5.16% 9,450 286 3.03%
Interest bearing deposits in banks 547 38 6.95%
----------------------------------------------------------------------------------------
Total interest earning assets $276,988 $24,040 8.68% $261,110 $19,519 7.48% $225,641 $16,836 7.46%
Non-Interest Earning Assets:
Cash and due from banks 15,920 14,165 11,291
Bank premises and equipment (net) 5,749 5,179 3,748
Other Assets 7,928 6,578 4,382
----------------------------------------------------------------------------------------
Total non-interest earning assets $ 29,597 $ 25,922 $ 19,421
----------------------------------------------------------------------------------------
Total Assets $306,585 $287,032 $245,062
================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Bearing Liabilities:
Interest bearing demand deposits $ 64,419 $ 2,462 3.82% $ 65,951 $ 2,307 3.50% $ 45,397 $ 1,509 3.32%
Savings deposits 30,351 910 3.00% 31,393 899 2.86% 26,602 825 3.10%
Time deposits 129,866 7,409 5.71% 112,984 4,842 4.29% 107,407 4,114 3.83%
Securities sold under agreement
to repurchase 3,939 132 3.35% 3,762 82 2.18% 1,586 32 2.02%
Other borrowed funds 2,460 161 6.54% 1,173 45 3.84% 587 33 5.62%
----------------------------------------------------------------------------------------
Total interest bearing liabilities $231,035 $11,074 4.79% $215,263 $ 8,175 3.80% $181,579 $ 6,513 3.59%
Non-interest bearing demand 41,634 40,637 33,751
deposits
Other liabilities 3,954 2,759 3,048
Minority interest 555
----------------------------------------------------------------------------------------
Total non-interest bearing $ 45,588 $ 43,396 $ 37,354
liabilities
----------------------------------------------------------------------------------------
Total liabilities $276,623 $258,659 $218,933
Stockholders' equity 29,962 28,373 26,129
----------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity $306,585 $287,032 $245,062
================================================================================================================================
Net interest income $12,966 $11,344 $10,323
Net yield on interest earning assets 4.68% 4.34% 4.57%
</TABLE>
* Average balances include non-accruing loans of approximately
$1,503,000,$1,348,000 and $2,055,000 in 1995, 1994 and 1993
<PAGE>
1995 VERSUS 1994
The Company's total interest income for the year 1995 amounted to $24,040,000
compared to a 1994 total of $19,519,000. The increase was the result of
increased loan demand driving the average volume of loans from a 1994 average of
$144,876,000 to a 1995 average volume of $175,318,000. This increased loan
volume was partially funded through a shift of funds from the investment
security portfolio into the loan portfolio and thereby earning at a higher rate
of interest. Interest rates on the loan portfolio increased from 9.26% in 1994
to 10.34% for 1995. Total average earning assets increased from $261,110,000 in
1994 to an average of $276,990,000 in 1995 for an increase of 6.09% in average
earning assets.
Interest income on the investment securities portfolio decreased 7% from
$5,906,000 in 1994 to $5,495,000 in 1995. The decrease in interest income is
primarily attributable to a 13% decline in average volume of investment
securities offset by an by an increase in the interest rate on taxable
investment securities from 5.23% in 1994 to 5.73% in 1995.
Interest income from federal funds sold and securities purchased under agreement
to resell totaled $416,000 in 1995 as compared to $193,000 in 1994. The
increase was primarily attributable to an increase in the average yield on
short-term investments from 5.16% in 1994 to 8.00% in 1995 coupled with an
increase in the average balance from $3,738,000 in 1994 to $5,201,000 in 1995.
Interest expense increased from $8,175,000 in 1994 to $11,074,000 in 1995. The
increase is primarily due to a 7% increase in the average balance of deposits
and due to increases in rates during 1995. Additionally, the Company's deposit
portfolio shifted from interest bearing demand deposits, consisting of NOW
accounts and insured money market demand accounts, and savings accounts to time
deposits which bear interest at higher rates. Management believes the shift
from interest bearing demand deposits and savings accounts into time deposits
indicates a strengthening of the economy with investors willing to make longer
commitments for deposited funds. As a result of the rising interest rates
during 1995 and the shift in the deposit portfolio, the Company's cost of funds
rose to 4.79% in 1995 from 3.8% in 1994.
Net interest income for 1995 was $12,966,000 as compared to the 1994 total of
$11,344,000 for an increase of 14.3%.
1994 VERSUS 1993
Interest income for 1994 totaled $19,519,000, as compared to $16,836,000 for
1993. The increase in interest income was due primarily to an increase in
average earning assets during 1994.
In 1994, interest income on loans totaled $13,420,000 as compared to a 1993
total of $11,372,000. This increase was the result of growth in the loan
portfolio during 1994. Average loan totals grow from $124,069,000 for 1994 to
$144,876,000 for 1995. This $20,807,000 increase in loan totals represents a
growth of 16.8% in the loan portfolio. The change in volume increased loan
income by $1,926,000. A higher average yield on loans also added to interest
income on loans.
Interest income from investment securities increased from $5,136,000 in 1993 to
$5,906,000 in 1994 due to an increase of $21,036,000 in the average volume of
securities during 1994. The growth in average volume was partially offset by a
decline in average yield from 1993 to 1994. The decrease in yields was
partially attributable to the amortization of the purchase premium paid for the
CeeBee securities portfolio.
<PAGE>
Interest earned in federal funds sold and securities purchased under agreement
to resell totaled $193,000 in 1994 as compared to the 1993 total of $286,000.
The $93,000 decrease was the result of a change in volume from $9,450,000 in
1993 to $3,738,000 in 1994.
Interest expense totaled $8,175,000 for 1994 as compared to $6,513,000 for 1993.
The increase was the result of increased deposit totals brought about by the Cee
Bee and Altus acquisitions. Total interest-bearing deposits grew from 1993
totals of $179,406,000 to $210,328,000 for an increase of $30,922,000 in average
volume. In addition to volume increases, the average cost of funds rose from
3.59% for 1993 to 3.80% for 1994.
The resulting net interest income increased by $1,021,000 from 1993 totals of
$10,323,000 to 1994 totals of $11,344,000.
PROVISION FOR LOAN LOSSES
The provision for loan losses is an expense item to earnings which replaces
reductions to the allowance for loan losses caused by actual net charge-offs and
establishes reserves for the growth of the loan portfolio. The provision for
loan losses in 1995 totaled $848,000 as compared to $348,000 in 1994. The 1994
provision was reduced from the 1993 provision of $484,000 due to management's
assessment following a large recovery in 1992. Actual charge-offs and
significant growth in the loan portfolio account for the increase in the
provision for loan losses from 1994 to 1995. Management continuously monitors
the allowance for loan losses and adjusts charges to the provision for loan
losses as it deems appropriate to maintain adequate reserves against future
losses. See Note 1 of Notes to Consolidated Financial Statements for additional
discussion of Allowance for Loan Losses.
NON-INTEREST INCOME
Additional fee income is generated for the Company through the wide variety of
financial services offered. With continued pressure on net interest income, the
Company views the expansion of fee income and the development of new services as
a major source of future earnings. The Company's primary sources of non-
interest income are fee-based trust services, deposit service charges, credit
life commissions, brokerage income, and commission income from the Company's
insurance subsidiary.
1995 VERSUS 1994
For 1995, non-interest income totaled $3,308,000 as compared to $3,192,000 for
1994. The increase of $116,000 is primarily attributable to an increase in
deposit service charges. For the year 1995, deposit service charges amounted
to $2,193,000 as compared to $2,042,000 for 1994. Credit life commissions
declined during 1995 by some $57,000. This decline was partially off-set
through increased commissions earned by the insurance subsidiary on other life
insurance products.
1994 VERSUS 1993
In 1994, non-interest income totaled $3,192,000 compared to $2,659,000 for 1993,
an increase of $533,000 which was primarily attributable to an increased level
of service charges on deposit accounts from the Cee Bee acquisition. The
increase in the volume of deposits resulted in a corresponding increase in
deposit service charges. For the year ended December 31, 1994, deposit service
charges were $2,042,000, a $303,000 increase over the 1993 total of $1,739,000.
Net gains on the sale of investment securities for 1994 was $125,000 compared to
$14,000 for 1993. During the last half of 1993, the Company initiated a new
accounts receivable financing program which generated approximately $7,000 in
income in 1993. In 1994, the first full year that this service was offered, net
fee income totaled $107,000.
<PAGE>
NON-INTEREST EXPENSE
1995 VERSUS 1994
The total non-interest expense for 1995 was $11,001,000 as compared to a total
of $10,868,000 for 1994. Salaries and benefits comprise the largest segment of
non-interest expense. During 1995, the salaries and benefits totaled $5,953,000
as compared to $5,449,000 for 1994. The increase of $504,000 was the result of
salary increases, additional employees and increased benefit cost. Increased
pension cost accounted for $112,000 of the total. Pension expense was increased
due to the down turn in the security markets during 1994 which impacted
negatively on the value of pension plan assets at January 1, 1995 the valuation
date for determination of annual pension cost. See Note 11 of the Notes to
Consolidated Financial Statements for a more complete discussion of pension
cost. Other expense categories such as automations and computer expense
exceeded 1994 levels. However, increased expenses were offset by a reduction in
the total Federal Deposit Insurance Corporation ("FDIC") premiums paid for
deposit insurance in 1995 as compared to 1994. FDIC premiums expensed for 1995
amounted to $305,000 as compared to $541,000 for 1994, resulting in a savings of
$236,000 due to a reduction in FDIC premiums. Additional savings were achieved
in other areas such as stationery and supplies by closer attention to inventory
levels and cost of supplies purchased.
1994 VERSUS 1993
The Company's non-interest expense for the year ended December 31, 1994 was
$10,868,000 compared to $9,441,000 in 1993. Salaries and employee benefits
increased from $4,954,000 in 1993 to $5,449,000 in 1994. Regular salary
increases, coupled with higher overtime expense due to the acquisition and
conversion of CeeBee and the installation of new automation equipment, were the
primary causes of the increased expense in 1994. Primarily as the result of
merging CeeBee into the Company, the establishment of local and wide area
computer networks and the installation of state-of-the-art image technology,
automation expense, stationery and supplies expense and the expense of premises
of fixed assets increased in 1994. Renovations to the former CeeBee buildings
and the purchase and renovation of the Selma branch Altus building also
contributed to a $147,000, or 11.5%, increase in the expense of premises and
fixed assets. The growth in the volume of deposits caused FDIC insurance
premiums to increase $123,000 in 1994 to $541,000.
PROVISION FOR INCOME TAX
1995 VERSUS 1994
Income before the charge for income tax was $4,426,000 for 1995 as compared to
$3,320,000 for 1994, an increase of 33.3%. The provision for income tax which
includes both federal and state taxes amounted to $1,278,000 for 1995. The
effective tax rate for 1995 and 1994 was 28.9% and 29.0% respectively. The
Company participates in multiple issues of low income housing credits which
reduced federal income taxes by 3.7% and 4.2% for 1995 and 1994, respectively.
1994 VERSUS 1993
Income before taxes for 1994 totaled $3,320,000 as compared to $3,057,000 for
1993. The provision for federal and state income tax was $962,000 for 1994 and
$808,000 in 1993. The resulting provision expressed as a percent of income
before taxes was 29.0% for 1994 and 26.4% for 1993. The lower rate in 1993 was
the result of an increase in tax-exempt income brought about by the
consolidation of CeeBee during 1993.
<PAGE>
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and related data presented herein have been prepared in
accordance with generally accepted accounting principles which require the
measurement of financial position and operating results in terms of historical
dollars, without considering changes in the relative purchasing power of money
over time due to inflation.
The majority of assets and liabilities of a financial institution are monetary
in nature and therefore differ greatly from most commercial and industrial
companies that have significant investments in fixed assets or inventories.
However, inflation does have an important impact on the growth of total assets
and creates the need to generate more equity capital in order to maintain an
appropriate equity to assets ratio. Another significant effect of inflation is
on non-interest expenses, which tend to rise during periods of inflation.
The Company's profitability, like that of most financial institutions, is
dependent to a large extent upon its net interest income. Management believes,
therefore, that changes in interest rates have a more significant impact on a
financial institution's performance than the effects of general levels of
inflation. Interest rates do not necessarily move in the same direction or in
the same magnitude as the price of goods and services, since such prices are
affected by inflation. Whenever interest-earning assets reprice to market
interest rates at a different pace than interest- bearing liabilities, net
interest income performance will be affected favorably or unfavorably during
periods of changes in general interest rates. In a volatile interest rate
environment, liquidity and the maturity structure of the Company's assets and
liabilities are critical to the maintenance of acceptable performance levels.
The Company is unable to predict future changes in market rates of interest and
their impact on the Company's profitability. Management, however, attempts to
maintain an essentially balanced position between rate sensitive assets and
liabilities in order to protect against wide interest rate fluctuations and
believes that its current rate sensitivity position is well matched, indicating
the assumption of minimal interest rate risk.
NEW ACCOUNTING STANDARDS
- ------------------------
The Company adopted SFAS No. 114, Accounting by Creditors for Impairment of a
Loan, as amended by SFAS No. 118, Accounting by Creditors for Impairment of a
Loan - Income Recognition Disclosure, on January 1, 1995. Under the new
standards, a loan is considered impaired, based on current information and
events, if it is probable that the Company will be unable to collect the
scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Uncollateralized loans are measured
for impairment based on the present value of expected future cash flows
discounted at the historical effective interest rate, while all collateral-
dependent loans are measured for impairment based on the fair value of the
collateral. The adoption of SFAS 114 and 118 resulted in no additional
provision for credit loses at January 1, 1995.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to be Disposed of (SFAS No. 121). SFAS
No. 121 requires that long-lived assets and certain identifiable intangibles to
be held and used by the entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. If the future undiscounted cash flows expected to result from
the use of the asset and its eventual disposition are less than the carrying
amount of the asset, an impairment loss is recognized. This statement also
requires that long-lived assets and certain intangibles to be disposed of be
reported at the lower of carrying amount of fair value less cost to sell. SFAS
No. 121 is effective for fiscal years beginning after December 15, 1995.
Management does not believe that the adoption of SFAS No. 121 will have a
material impact on the Company's financial statement.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, (SFAS No.
123) in October 1995. This statement defines a fair value
<PAGE>
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, (SFAS No.
123) in October 1995. This statement defines a fair value based method of
accounting for an employee stock option or similar equity instrument. However,
SFAS No. 123 allows an entity to continue to measure compensation costs for
those plans using the intrinsic value based method of accounting prescribed by
APB Opinion No. 25, Accounting for Stock Issued to Employees. Entities electing
to remain with the accounting in Opinion No. 25 must make proforma disclosures
of net income and earnings per share as if the fair value based method of
accounting defined in SFAS No. 123 had been applied.
Under the fair value based method, compensation cost is measured at the grant
date based on the value of the award and is recognized over the service period,
which is usually the vesting period. Under the intrinsic value based method,
compensation cost is the excess, if any, of the quoted market price of the stock
at the grant date or other measurement date over the amount an employee must pay
to acquire the stock. Most fixed stock option plans have no intrinsic value at
grant date, and under Opinion 25, no compensation cost is recognized for them.
SFAS No. 123 is effective for fiscal years beginning December 15, 1995. The
Company has elected to continue to measure compensation cost for their stock
option plan under the provisions in APB Opinion 25.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE PEOPLES BANCTRUST COMPANY, INC.
AND SUBSIDIARY
Consolidated Financial Statements
for the years ended December 31, 1995 and 1994
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
The Peoples BancTrust Company, Inc.
We have audited the accompanying consolidated balance sheets of The Peoples
BancTrust Company, Inc. and subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Peoples
BancTrust Company, Inc. and subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P
Birmingham, Alabama
January 26, 1996
1
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS
1995 1994
---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $14,414,350 $20,048,270
Federal funds sold and securities purchased under agreement to resell 4,187,419 3,134,206
--------------------------------------------
Cash and cash equivalents 18,601,769 23,182,476
Investment securities: held-to-maturity 27,186,478
Investment securities: available-for-sale 97,587,091 75,808,336
Loans, net of unearned discount 191,131,465 162,978,447
Allowance for loan losses (2,004,891) (2,039,578)
--------------------------------------------
Loans, net 189,126,574 160,938,869
Bank premises and equipment, net 5,961,720 5,718,419
Other real estate, net 113,123 392,214
Interest receivable 3,090,286 2,600,954
Intangible assets acquired, net of accumulated amortization of
$2,277,322 and $2,213,646 at December 31, 1995 and 1994,
respectively 781,880 845,556
Deferred income taxes 164,849 1,732,506
Income taxes receivable 480,036
Other assets 2,883,728 2,342,610
--------------------------------------------
Total assets $318,311,020 $301,228,454
---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - noninterest bearing $43,756,919 $ 47,734,367
Demand - interest bearing 65,298,460 68,648,226
Savings 27,640,447 31,657,778
Time 136,086,115 115,123,589
--------------------------------------------
Total deposits 272,781,941 263,163,960
Securities sold under agreements to repurchase 5,019,105 6,855,135
Other borrowed funds 6,215,638 437,868
Deferred income taxes 89,620 1,139,620
Interest payable 1,294,885 820,058
Dividends payable 18,420 11,435
Income taxes payable 255,515
Other liabilities 1,121,760 1,170,407
--------------------------------------------
Total liabilities 286,796,884 273,598,483
--------------------------------------------
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock, $.10 par value; 4,000,000 shares authorized;
1,781,452 shares issued at December 31, 1995 and 890,726
shares issued at December 31, 1994 (Note 3) 178,146 89,073
Additional paid-in capital 7,059,591 7,148,664
Net unrealized loss on investments (net of tax benefits of $114,547
and $1,071,643, respectively) (222,355) (2,627,504)
Retained earnings 25,786,339 23,500,041
Treasury stock, 87,758 and 18,807 shares, at cost, respectively (1,287,585 (480,303)
--------------------------------------------
Total stockholders equity 31,514,136 27,629,971
--------------------------------------------
$318,311,020 $301,228,454
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
- --------------------------------------------------------------------------------
for the years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans and bankers acceptances $18,129,566 $13,420,370 $11,263,148
Interest on investment securities:
U.S. Treasury securities 1,055,099 1,189,861 987,124
Obligations of other U.S. Government agencies and corporations 3,534,840 3,534,990 2,582,418
Obligations of state and political subdivisions and industrial
development bonds:
Nontaxable 90,696 221,502 214,835
Taxable 49,268 102,807 83,657
Other securities and interest-bearing deposits 764,885 856,442 1,417,905
Interest on federal funds sold and securities purchased under
agreement to resell 416,270 192,711 286,444
------------------------------------------------
Total interest income 240,040,624 19,518,683 16,835,531
Interest expense:
Deposits 10,781,202 8,048,365 6,447,361
Federal funds purchased, securities sold under agreements to
repurchase, and other borrowed funds 293,220 126,301 65,369
------------------------------------------------
Total interest expense 11,074,422 8,174,666 6,512,730
------------------------------------------------
Net interest income 12,966,202 11,344,017 10,322,801
Provision for loan losses 848,001 348,000 483,605
------------------------------------------------
Net interest income after provision for loan losses 12,118,201 10,996,017 9,839,196
Noninterest income:
Trust department income 292,003 272,347 256,563
Service charges on deposit accounts 2,192,844 2,041,821 1,738,691
Net securities gains 41,755 125,019 14,045
Credit life insurance commissions 63,527 120,286 102,215
Other 718,312 632,723 547,588
------------------------------------------------
Total noninterest income 3,308,441 3,192,196 2,659,102
Noninterest expenses:
Salaries and wages 4,970,892 4,635,545 4,207,642
Pensions and other employee benefits 981,839 813,292 746,261
Occupancy and furniture and equipment expenses 1,252,866 1,423,554 1,277,262
Other operating expenses 3,795,188 3,995,804 3,209,818
------------------------------------------------
Total noninterest expenses 11,000,785 10,868,195 9,440,983
------------------------------------------------
Income before income taxes, minority interest and
cumulative effect of change in accounting principles 4,425,857 3,320,018 3,057,315
Provision for income taxes 1,278,064 961,853 807,643
------------------------------------------------
Income before minority interest and cumulative
effect of change in accounting principle 3,147,793 2,358,165 2,249,672
Minority interest in earnings 3,563 45,478
------------------------------------------------
Income before cumulative effect of change
in accounting principle 3,147,793 2,354,602 2,204,194
Cumulative effect of change in accounting principle (31000)
------------------------------------------------
Net income $3,147,793 $2,354,602 $2,173,194
----------------------------------------------------------------------------------------------------------------------------
Earnings per share (1):
Weighted average number of shares outstanding (Note 3) 1,768,414 1,782,722 1,636,440
----------------------------------------------------------------------------------------------------------------------------
Earnings per weighted average common share (Note 3):
Income before cumulative effect of change in
accounting principle $1.78 $1.32 $1.35
Cumulative effect of change in accounting principle (.02)
------------------------------------------------
Net income per share (Note 3) $1.78 $1.32 $1.33
----------------------------------------------------------------------------------------------------------------------------
(1) Earnings per share data has been restated to reflect a two-for-one stock split effected in the form of a stock
dividend on March 15, 1995.
The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
for the years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
Additional Unrealized
Common Treasury Paid-In Gains Retained
Stock Stock Capital (Losses) Earnings Total
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $82,588 $5,121,149 $20,537,913 $25,741,650
Net income 2,173,194 2,173,194
Cash dividends declared
($.88 per share) (728,625) (728,625)
Treasury stock purchased
(22,996 shares) $(591,335) (591,335)
Treasury stock issued to
Employee Stock Ownership
Plan (4,189 shares) 111,032 111,032
Common stock issued to effect
acquisition (64,848 shares) 6,485 2,075,784 2,082,269
----------------------------------------------------------------------------------
Balance, December 31, 1993 89,073 (480,303) 7,196,933 21,982,482 28,788,185
Adjustment to beginning
balance for change in
accounting principle, net
of income taxes of $108,090 $(264,633) (264,633)
Net income 2,354,602 2,354,602
Change in unrealized gains
(losses), net of income
taxes of $963,554 (2,362,871) (2,362,871)
Cash dividends declared
($.96 per share) (837,043) (837,043)
Treasury stock purchased
(1,500 shares) (43,500) (43,500)
Treasury stock issued to
Employee Stock Ownership
Plan (1,500 shares) (43,500) (43,500)
Other (48,269) (48,269)
----------------------------------------------------------------------------------
Balance, December 31, 1994 89,073 (480,303) 7,148,664 (2,627,504) 23,500,041 27,629,971
Net income 3,147,793 3,147,793
Change in unrealized gains
(losses) net of income taxes
of $957,097 2,405,149 2,405,149
Cash dividends declared
($.51 per share) (861,495) (861,495)
Treasury stock purchased
(50,144 shares) (807,282) (807,282)
Two-for-one stock split (Note 3) 89,073 (89,073)
----------------------------------------------------------------------------------
Balance, December 31, 1995 $178,146 $(1,287,585) $7,059,591 $(222,355) $25,786,339 $31,514,136
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
for the years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $3,147,793 $2,354,602 $2,173,194
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 848,001 348,000 483,605
Depreciation, amortization, and accretion 1,135,106 1,260,083 1,102,511
Increase (decrease) in unearned discount (1,481,468) 1,530,051 1,036,104
Provision (benefit) for deferred income taxes, net (439,439) 71,965 397,823
Purchases of trading securities (36,913,782)
Proceeds from sales of trading securities 36,914,378
Gain on sale of securities (41,755) (125,019) (164,704)
Net (gain) loss on sale of other assets (99,964) (41,412) (30,675)
Write down of other real estate 50,593 74,292 132,896
Decrease (increase) in assets, net of acquisition:
Interest receivable (489,332) (259,329) (230,550)
Other assets (57,662) (383,551) (3,490,705)
Increase (decrease) in liabilities, net of acquisition:
Interest payable 474,827 196,666 (35,907)
Income taxes payable 735,551 (774,782) (465,574)
Other liabilities (249,663) (5,594,747) (3,764,198)
--------------------------------------------
Net cash provided by (used in) operating activities 3,532,588 (1,342,585) (11,714,976)
--------------------------------------------
Investing activities:
Proceeds from sales of investment securities 12,666,198
Proceeds from sales of investment securities: held-to-maturity 241,717 1,203,060
Proceeds from maturities and calls of investment securities 36,445,716
Purchases of investment securities, net of acquisitions (52,107,820)
Proceeds from maturities and calls of investment securities:
held-to-maturity 6,315,000 9,830,000
Purchases of investment securities: held-to-maturity (7,980,237) (21,336,585)
Proceeds from sales of investment securities: available-for-sale 6,280,558 22,716,645
Proceeds from maturities and calls of investment securities:
available-for-sale 20,373,454 9,232,505
Purchases of investment securities: available-for-sale (16,483,310) (16,400,285)
Net increase in loans, net of acquisitions (27,581,276) (28,060,223) (13,631,242)
Purchases of bank premises and equipment, net of acquisitions (1,870,992) (1,569,897) (541,284)
Proceeds from sale of other real estate and equipment 1,246,862 129,680 330,326
Investment in low income housing projects (553,000) (700,000)
Net decrease in banker's acceptances 1,984,790
Payment for purchase of Cee Bee, net of cash acquired (482,000)
--------------------------------------------
Net cash used in investing activities (20,011,224) (24,955,100) (8,958,645)
--------------------------------------------
Financing activities:
Net increase in deposits 9,617,981 21,661,633 8,588,735
Increase in short-term borrowings 3,941,740 4,189,364 1,354,319
Dividends paid (854,510) (834,045) (739,034)
Purchase of treasury stock (807,282) (480,303)
--------------------------------------------
Minority interest in consolidated subsidiary (232,928) 232,928
Minority interest-preferred stock in the Bank 2,000
-------------------------------------------
Net cash provided by financing activities 11,897,929 24,784,024 8,958,645
--------------------------------------------
Increase (decrease) in cash and cash equivalents (4,580,707) (1,513,661) 5,338,305
Cash and cash equivalents, beginning of year 23,182,476 24,696,137 19,357,832
--------------------------------------------
Cash and cash equivalents, end of year $18,601,769 $23,182,476 $24,696,137
- -----------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $10,599,605 $ 7,980,599 $ 7,456,233
- -----------------------------------------------------------------------------------------------------------------------
Income taxes $ 1,145,007 $ 1,655,000 $ 1,596,877
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Noncash investing activity:
The Company transferred investment securities: held to maturity having a net
book value of approximately $28,831,000 to investment securities:
available for sale during the year ended December 31, 1995.
During the year ended December 31, 1993, the Company purchased the stock of
Cee Bee for net consideration of approximately $2,562,000 of which
$2,082,000 consisted of the Company's common stock (64,848 shares).
See Note 4 for an allocation of the purchase price to noncash assets
acquired and liabilities assumed.
The accompanying notes are an integral part of these financial statements.
- -------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF CONSOLIDATION - The consolidated financial statements included
herein are those of The Peoples BancTrust Company, Inc. (the Company) and its
wholly owned subsidiary, The Peoples Bank and Trust Company (the Bank). At
December 31, 1993, the Company owned 96.36% of the outstanding common stock
of Cee Bee Corporation (Cee Bee), the bank holding company for The Citizens
Bank, Prattville, Alabama (Citizens Bank). On February 18, 1994, Cee Bee
repurchased the remaining 3.64% of its outstanding common stock, resulting in
100% ownership of Cee Bee by the Company. On February 25, 1994, the net
assets of Cee Bee were transferred to the Company, Cee Bee was dissolved, and
Citizens Bank was merged into the bank. All significant intercompany balances
and transactions have been eliminated.
NATURE OF OPERATIONS - The Company operates fourteen offices in rural and
suburban communities in south-central Alabama. The Company's primary source
of revenue is providing loans to customers, who are predominately small and
middle-market businesses and middle-income individuals.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVESTMENT SECURITIES - On January 1, 1994, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities (SFAS No. 115). The
adoption of SFAS No. 115 decreased shareholders' equity by $265,000 (net of
$108,000 in deferred income taxes) at January 1, 1994. In accordance with
SFAS No. 115, prior period financial statements have not been restated to
reflect the change in accounting principle. Under the statement investments
are classified as either held-to-maturity, trading, or available-for-sale
securities.
Investment Securities: held-to-maturity are securities for which management
has the ability and intent to hold on a long-term basis or until maturity.
These securities are carried at amortized cost, adjusted for amortization of
premiums, and accretion of discount to the earlier of the maturity or call
date.
Investment securities: available-for-sale represent those securities
intended to be held for an indefinite period of time, including securities
that management intends to use as part of its asset/liability strategy, or
that may be sold in response to changes in interest rates, changes in
prepayment risk, the need to increase regulatory capital or other similar
factors. Securities available-for-sale are recorded at market value with
unrealized gains and losses net of any tax effect, added or deducted directly
from shareholders' equity.
Securities carried in trading accounts are carried at market value with
unrealized gains and losses reflected in income.
At December 31, 1995, the Company classified all securities as available for
sale as part of an asset and liability strategy to maximize the flexibility
of its investment portfolio.
Realized and unrealized gains and losses are based on the specific
identification method.
LOANS - Loans are stated at face value, net of unearned discount, and the
allowance for loan losses. Unearned discounts on installment loans are
recognized as income over the terms of the loans by the sum-of-the-months-
digits method, which approximates the interest method. Interest on other
loans is credited to operations based on the principal amount outstanding.
Nonrefundable fees and costs associated with originating or acquiring loans
are recognized by the interest method as a yield adjustment over the life of
the corresponding loan.
ALLOWANCE FOR LOAN LOSSES - The Company adopted SFAS No. 114, Accounting by
Creditors for Impairment of a Loan, as amended by SFAS No. 118, Accounting by
Creditors for Impairment of a Loan - Income Recognition Disclosure, on
January 1, 1995. Under the new standards, a loan is considered impaired,
based on current information and events, if it is probable that the Company
will be unable to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan agreement.
Uncollateralized loans are measured for
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
impairment based on the present value of expected future cash flows
discounted at the historical effective interest rate, while all collateral-
dependent loans are measured for impairment based on the fair value of the
collateral. The adoption of SFAS 114 and 118 resulted in no additional
provision for credit losses at January 1, 1995.
At December 31, 1995, the recorded investment in loans for which impairment
has been recognized in accordance with SFAS 114 totaled $2,729,000 and these
loans had a corresponding valuation allowance of $634,000. The impaired loans
at December 31, 1995, were measured for impairment using the fair value of
the collateral as all of these loans were collateral dependent. For the year
ended December 31, 1995, the average recorded investment in impairment loans
was approximately $2,333,000. The Company recognized approximately $315,000
of interest on impaired loans during the portion of the year that they were
impaired.
The Company uses several factors in determining if a loan is impaired under
SFAS No. 114. The internal asset classification procedures include a thorough
review of significant loans and lending relationships and include the
accumulation of related data. This data includes loan payment status,
borrowers' financial data, and borrowers' operating factors such as cash
flows, operating income or loss, etc.
The allowance for loan losses is established through charges to earnings in
the form of a provision for loan losses. Increases and decreases in the
allowance due to changes in the measurement of the impaired loans are
included in the provision for loan losses. Loans continue to be classified as
impaired unless they are brought fully current and the collection of
scheduled interest and principal is considered probable. When a loan or
portion of a loan is determined to be uncollectible, the portion deemed
uncollectible is charged against the allowance and subsequent recoveries, if
any, are credited to the allowance.
Management's periodic evaluation of the adequacy of the allowance is based on
the Bank's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrowers' ability to
repay, estimated value of any underlying collateral, and current economic
conditions. While management believes that it has established the allowance
in accordance with generally accepted accounting principles and has taken
into account the views of its regulators and the current economic
environment, there can be no assurance that in the future the Bank's
regulators or its economic environment will not require further increases in
the allowance.
INCOME RECOGNITION OF IMPAIRED AND NONACCRUAL LOANS - Loans, including
impaired loans, are generally classified as nonaccrual if they are past due
as to maturity or payment of principal or interest for a period of more than
90 days, unless such loans are well-collateralized and in the process of
collection. If a loan or a portion of a loan is classified as doubtful or is
partially charged off, the loan is generally classified as nonaccrual. Loans
that are on a current payment status or past due less than 90 days may also
be classified as nonaccrual if repayment in full of principal and/or interest
is in doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured of
repayment within an acceptable period of time, and there is a sustained
period of repayment performance (generally a minimum of six months) by the
borrower, in accordance with the contractual terms of interest and principal.
While a loan is classified as nonaccrual and the future collectibility of the
recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding, except in the case
of loans with scheduled amortizations where the payment is generally applied
to the oldest payment due. When the future collectibility of the recorded
loan balance is expected, interest income may be recognized on a cash basis.
In the case where a nonaccrual loan has been partially charged off,
recognition of interest on a cash basis is limited to that which would have
been recognized on the recorded loan balance at the contractual interest
rate. Receipts in excess of that amount are recorded as recoveries to the
allowance for loan losses until prior charge-offs have been fully recovered.
BANK PREMISES AND EQUIPMENT - Office equipment and buildings are stated at
cost less accumulated depreciation computed on the straight-line, declining-
balance and other accelerated methods over the estimated useful lives of the
assets. Gains or losses on disposition are recorded in other operating income
on the date of disposition, based upon the difference between the net
proceeds and the adjusted carrying value of the assets sold or retired.
Maintenance and repairs are charged to expense as incurred, while renewals
and betterments are capitalized.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
OTHER REAL ESTATE - Other real estate is stated at the lower of the appraised
value or outstanding loan balance at the time of foreclosure. Any subsequent
write-downs are charged against operating expenses. Operating expenses of
such properties, net of related income, and gains and losses on their
disposition are included in other expenses.
INTANGIBLE ASSETS ACQUIRED - Intangible assets acquired are stated at
original cost less accumulated amortization to date. Core deposits are
amortized using the straight-line method over a period of ten years; goodwill
is amortized using the straight-line method over a period of twenty to
twenty-five years.
INCOME TAXES - The Company and the Bank file a consolidated federal income
tax return. Deferred income taxes are recorded to reflect the tax
consequences on future years of differences between the tax basis of assets
and liabilities and their financial reporting amounts. Benefits associated
with investment tax credits are recognized in the period utilized for income
tax purposes.
During 1993, the Company adopted Statement of Financial Accounting Standards
No. 109, Accounting for Income Taxes, and recognized a decrease in income of
$31,000 from the cumulative effect of a change in accounting principle.
SFAS No. 109 requires the establishment of deferred tax liabilities and
assets, as measured by enacted tax rates, for all temporary differences
caused when the tax basis of an asset or liability differs from that reported
in the financial statements.
EARNINGS PER SHARE - Earnings per share are calculated by dividing net income
by the weighted average number of shares outstanding during the period. All
earnings per share data has been restated to reflect a two-for-one stock
split effected in the form of a stock dividend on March 15, 1995.
CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows, cash and
cash equivalents include cash and due from banks, federal funds sold,
securities purchased under agreement to resell, and interest-bearing deposits
in banks.
RECLASSIFICATIONS - Certain amounts were reclassified in the 1994 and 1993
financial statements to conform with the 1995 presentation.
2. RESTRICTED CASH BALANCES:
Aggregate reserves in the form of deposits with the Federal Reserve Bank of
$2,300,000 and $3,000,000 were maintained to satisfy federal regulatory
requirements at December 31, 1995 and 1994, respectively.
3. CAPITAL STOCK:
On January 28, 1995, the Board of Directors declared a two-for-one stock
split which was effected in the form of a 100 percent stock dividend to all
shareholders of record as of February 25, 1995, the ex-dividend date, with
the stock dividend distributed on March 15, 1995. A total of 890,726 shares
of common stock were issued in connection with the split. The stated par
value of each share was not changed from $.10. A total of $89,073 was
reclassified from the Company's additional paid-in capital to the Company's
common stock. All share and per share amounts in earnings per share
calculations have been restated to retroactively reflect the stock split.
4. ACQUISITIONS:
The Company acquired 65.8% and 30.56% of the stock of Cee Bee on June 30,
1993 and November 16, 1993, respectively, for net consideration of
approximately $2,562,000 consisting of $482,000 cash and $2,082,000 of the
Company's common stock (64,848 shares). The purchase price was allocated to
noncash assets acquired and liabilities assumed as follows:
<TABLE>
<S> <C>
Assets acquired:
Securities $32,809,000
Loans, net 11,799,000
Premises and equipment 1,535,000
Other assets 606,000
-----------
46,749,000
-----------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
<TABLE>
<S> <C>
Liabilities assumed:
Noninterest bearing deposits 5,966,000
Interest bearing deposits 28,192,000
Savings and time deposits 10,088,000
Other liabilities 178,000
Deferred tax liability 545,000
-----------
44,969,000
-----------
Net assets acquired 1,780,000
Net consideration 2,562,000
-----------
Excess purchase price over net assets acquired $ 782,000
- -----------------------------------------------------------------------------------------------------
</TABLE>
The acquisition has been accounted for as a purchase with costs allocated to
assets acquired and liabilities assumed based on estimated fair market values
for Cee Bee. Results of operations since the date of acquisition are
included in the consolidated financial statements.
Summarized below are the consolidated results of operations on an unaudited
pro forma basis as if the acquisitions had occurred as of the beginning of
the year presented. The pro forma information gives effect to certain pro
forma adjustments and is based on the Company's and Cee Bee's historical
consolidated results of operations for the period presented.
The pro forma financial information does not purport to be indicative of
results of operations that would have occurred had the transactions occurred
on the basis assumed above, nor are they indicative of the results of future
operations of the combined enterprises.
<TABLE>
<CAPTION>
Year Ended
December 31,
1993
(Unaudited)
------------
<S> <C>
Total interest income $18,470,000
Income before cumulative effect of change in accounting principle 2,247,000
Net income 2,216,000
Earnings per weighted average common share (1):
Income before cumulative effect of change in accounting principle $1.29
Cumulative effect of change in accounting principle (.02)
-----------
Net income $1.27
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Earnings per share data has been restated to reflect a two-for-one
stock split effected in the form of a stock dividend on March 15, 1995.
5. INVESTMENT SECURITIES:
The amortized cost and approximate market values of investment securities:
held-to-maturity at December 31, 1994, and investment securities:
available-for-sale at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
Investment securities: held-to-maturity 1994
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Type Cost Gains Losses Market Value
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 9,401,748 $ (175,628) $ 9,226,120
Obligations of other U.S. Government
agencies and corporations 14,547,199 (719,973) 13,827,226
Obligations of state and political subdivisions 2,150,891 $ 3,958 (184,666) 1,970,183
Corporate and other securities 1,086,640 37,905 (5,000) 1,119,545
--------------------------------------------------------
$27,186,478 $41,863 $(1,085,267) $26,143,074
----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
================================================================================
<TABLE>
<CAPTION>
Investment Securities: Available-For-Sale 1995
- ----------------------------------------------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Type Cost Gains Losses Market Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $18,893,283 $ 89,869 $ (47,985) $18,935,167
Obligations of other U.S. Government
agencies and corporations 38,051,865 39,751 (138,995) 37,952,621
Obligations of state and political subdivisions 2,864,487 20,025 (9,255) 2,875,257
Collateralized mortgage obligations 21,353,741 71,951 (161,335) 21,264,357
Mortgage-backed securities 3,335,218 31,172 (17,502) 3,348,888
Corporate and other securities 13,425,399 20,525 (235,123) 13,210,801
-------------------------------------------------------------
$97,923,993 $273,293 $ (610,195) $97,587,091
- ----------------------------------------------------------------------------------------------------------------------
INVESTMENT SECURITIES: AVAILABLE-FOR-SALE 1994
-------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Type Cost Gains Losses Market Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $12,935,758 $ (623,335) $12,312,423
Obligations of other U.S. Government agencies
and corporations 50,875,603 $6,951 (2,312,757) 48,569,797
Obligations of state and political
subdivisions 1,767,857 1,163 (88,690) 1,680,330
Corporate and other securities 13,928,265 (682,479) 13,245,786
-------------------------------------------------------------
$79,507,483 $8,114 $(3,707,261) $75,808,336
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and approximate market value of investment securities:
available for sale at December 31, 1995, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Available For Sale Available-For-Sale
Amortized Market
Cost Value
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $26,712,639 $26,628,642
Due after one year through five years 42,515,439 42,529,941
Due after five years through ten years 5,605,687 5,606,528
Due after ten years 20,489,904 20,404,857
----------------------------------------------------
Total debt securities 95,323,669 95,169,968
Equity securities having no specified due date 2,600,324 2,417,123
----------------------------------------------------
$97,923,993 $97,587,091
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Included within Corporate and other securities are $1,236,640 in marketable
equity securities at December 31, 1995 and 1994. Also included within
corporate and other securities are $901,000 and $734,400 of Federal Home
Loan Bank stock and $236,410 and $200,950 of Federal Reserve Bank stock at
December 31, 1995 and 1994, respectively.
Proceeds from sales of debt securities during 1995, 1994, and 1993 were
$12,595,558, $24,004,225, and $12,666,198, respectively. Gross gains of
$47,368, $196,900, and $210,166 and gross losses of $5,613, $72,477 and
$45,462 were realized on those sales for 1995, 1994, and 1993,
respectively.
Securities with a par value of $46,982,691 and $40,170,775 were pledged as
collateral for public funds deposits and repurchase agreements at December
31, 1995 and 1994, respectively.
- --------------------------------------------------------------------------------
<PAGE>
6. LOANS:
The major categories of loans at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------
<S> <C> <C>
Commercial and industrial $ 61,983,633 $48,829,092
Real estate mortgage 57,358,808 50,091,866
Personal 71,695,143 66,170,001
Overdrafts and credit line 5,090,393 4,365,468
----------------------------
196,127,977 169,456,427
----------------------------
Less:
Unearned discount 4,996,512 6,477,980
Allowance for loan losses 2,004,891 2,039,578
-----------------------------
$189,126,574 $160,938,869
-----------------------------
================================================================================
</TABLE>
The Bank's lending is concentrated throughout Dallas, Autauga, and Butler
counties in Alabama and repayment of these loans is, in part, dependent upon
the economic conditions in this region of the state. Management does not
believe the loan portfolio contains concentrations of credits either
geographically or by borrower, which would expose the Bank to unacceptable
amounts of risk. The above loans include agricultural loans totaling
approximately $15,630,000 and $13,574,000 for 1995 and 1994, respectively.
Management continually evaluates the potential risk in these segments of the
portfolio in determining the adequacy of the allowance for possible loan
losses.
The Bank evaluates each customer's credit worthiness on a case-by-case
basis. The amount of collateral obtained if deemed necessary by the Bank
upon extension of credit is based on management's credit evaluation of the
customer. Collateral held varies, but may include accounts receivable,
inventory, property, plant and equipment, residential real estate, and
income-producing commercial properties. No additional credit risk exposure
relating to outstanding loan balances exists beyond the amounts shown in the
consolidated balance sheets as of December 31, 1995.
Loans on which the accrual of interest has been discontinued or reduced
amounted to approximately $1,503,000 and $1,348,000 for 1995 and 1994,
respectively. If these loans had been current throughout their terms,
interest income would have increased approximately $96,000, $72,000, and
$131,000 in 1995, 1994, and 1993, respectively.
Changes in the allowance for possible loan losses were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 2,039,578 $ 2,204,807 $ 1,897,695
Provision charged to operations 848,001 348,000 483,605
Loans charged off (1,621,446) (1,147,972) (1,410,440)
Recoveries 738,758 634,743 1,045,860
Addition due to acquisition 188,087
---------------------------------------
Balance, end of year $ 2,004,891 $ 2,039,578 $ 2,204,807
=========================================================================================
</TABLE>
7. BANK PREMISES AND EQUIPMENT:
Bank premises and equipment and accumulated depreciation at December 31,
1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994
----------------------------
<S> <C> <C>
Buildings $ 6,061,228 $ 5,645,331
Furniture and equipment 6,927,479 6,376,826
Land improvements 253,065 236,985
----------------------------
13,241,772 12,259,142
Less accumulated depreciation 8,081,221 7,344,892
----------------------------
5,160,551 4,914,250
Land 801,169 804,169
----------------------------
$ 5,961,720 $ 5,718,419
===================================================================================
</TABLE>
<PAGE>
8. INCOME TAXES:
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1995:
Current $ 1,578,310 $ 139,193 $ 1,717,503
Deferred (401,773) (37,666) (439,439)
---------------------------------------------------
$ 1,176,537 $ 101,527 $ 1,278,064
===========================================================================================
1994:
Current $ 933,902 $ 37,277 $ 971,179
Deferred (26,020) 16,694 (9,326)
---------------------------------------------------
$ 907,882 $ 53,971 $ 961,853
===========================================================================================
1993:
Current $ 897,868 $ 244,326 $ 1,142,194
Deferred (294,920) (39,631) (334,551)
---------------------------------------------------
$ 602,948 $ 204,695 $ 807,643
===========================================================================================
</TABLE>
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities at December 31 are as
follows:
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------------
<S> <C> <C>
Allowance for possible loan losses $ 320,731 $ 245,418
Other real estate owned writedowns 82,737 64,442
Other liabilities and reserves 192,091 62,797
Bank premises and equipment (420,595) (406,813)
Investment securities (139,301) 662,518
Other 39,566 (35,476)
--------------------------
Deferred tax asset, net $ 75,229 $ 592,886
===========================================================================
</TABLE>
The provision for income taxes is different from the amount computed by
applying the federal income tax statutory rate to income before provision
for income taxes. The reasons for this difference, as a percentage of pre-
tax income, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax statutory rate 34% 34% 34%
Nontaxable income on obligations of state
and political subdivisions (.6) (1.3) (4.5)
Amortization of intangible assets .5 (.2) 2.1
State income taxes 1.8 1.5 (1.2)
Low income housing credit (3.7) (4.2)
Minimum tax credit (2.9)
Other (3.1) 2.1 (4.0)
-----------------------------
Effective tax rate 28.9% 29.0% 26.4%
================================================================================
</TABLE>
9. BENEFIT PLANS:
The Company has a noncontributory defined benefit pension plan (the Plan)
covering substantially all of its employees. The Company's policy is to
contribute annually an amount that can be deducted for federal income tax
purposes using the projected unit credit method of actuarial computation.
Actuarial computations for financial reporting purposes are also based on
the projected unit credit method. Pension expense was $238,403, $126,655,
and $117,190, for 1995, 1994, and 1993, respectively.
The following schedule sets forth the Plan's funded status and amounts
recognized in the Company's financial statements as of December 31, 1995 and
1994:
<PAGE>
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of
$(3,871,661)and $(3,362,187), respectively $(3,915,159) $(3,377,510)
==========================================================================================================================
Projected benefit obligation for service rendered to date $(4,499,192) $(4,093,031)
Plan assets at fair value, primarily U.S. Treasury
securities and common stocks 4,589,264 3,634,376
---------------------------------------
Projected benefit obligation less than (in excess of) plan assets 90,072 (458,655)
Unrecognized net gain from past experience different from
that assumed and effects of changes in assumptions (405,101) 67,166
Prior service cost not yet recognized in net periodic pension cost 270,323 278,687
Unrecognized net asset at date of initial application (15.6 year life) (291,588) (350,801)
---------------------------------------
Pension liability included in the consolidated balance sheets $ (336,294) $ (463,603)
==========================================================================================================================
</TABLE>
Net pension cost for 1995, 1994, and 1993 includes the following components:
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service costs of benefits earned during the period $232,876 $158,396 $149,893
Interest cost on projected benefit obligation 286,269 263,601 254,596
Actual return on plan assets (259,540) 150,269 (286,316)
Net amortization and deferral (21,202) (445,611) (263)
---------------------------------------
$238,403 $126,655 $117,910
=========================================================================================================================
</TABLE>
The weighted-average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7% for 1995, 1994, and 1993.
The rate of increase in future compensation levels used was 3.5% for 1995,
1994, and 1993. The expected long-term rate of return was 7% for 1995, 1994,
and 1993.
During 1987, the Company established an Employee Stock Ownership Plan
(ESOP), a tax-qualified, defined contribution plan which covers
substantially all employees. Contributions are determined by the Board of
Directors of the Company. As of December 31, 1995 and 1994, the ESOP holds
25,034 and 12,094 shares of common stock in the Company, respectively.
10. COMMITMENTS AND CONTINGENCIES:
The Bank leases certain buildings, equipment and land under noncancelable
operating leases which require various minimum annual rentals.
The total minimum rental commitment at December 31, 1995 under the leases is
as follows:
<TABLE>
<S> <C>
1996 $88,502
1997 62,605
1998 60,255
1999 48,165
Thereafter 27,124
-------
$286,651
================================================================================
</TABLE>
The total rental expense amounted to approximately $76,000, $109,000, and
$88,000 in 1995, 1994, and 1993, respectively.
The Company is from time to time a defendant in legal actions from normal
business activities. Management does not anticipate that the ultimate
liability arising from litigation outstanding at December 31, 1995 will have
a materially adverse effect on the Company's financial statements.
- --------------------------------------------------------------------------------
<PAGE>
11. RELATED PARTY TRANSACTIONS:
Certain directors and officers of the Company and its subsidiary bank,
including their immediate families and companies in which they are principal
owners, were loan customers of the Bank in the ordinary course of business.
Such loans had outstanding balances of $6,865,453 and $5,213,993 at December
31, 1995 and 1994, respectively. A summary of the loan activity with these
related parties during 1995 is shown below:
<TABLE>
<S> <C>
Balance, beginning of year $ 5,213,993
Additions 10,092,810
Payments 8,441,350
-----------
Balance, end of year $ 6,865,453
================================================================================
</TABLE>
During 1995, 1994, and 1993, the Company paid legal fees of approximately
$101,000, $62,000, and $108,000, respectively, to a law firm in which a
partner of the firm serves on the board of directors of the Company.
12. SEGMENT INFORMATION:
The Company operates in one business segment, banking. Accordingly, all
financial information is presented for that one industry segment.
13. REGULATORY MATTERS:
The Federal Reserve Board has specified guidelines for evaluating a bank's
capital adequacy. At least one half of the total risk-based capital ratio
must be obtained from the ratio of the Company's core (tier one) capital to
risk-adjusted assets. The Company's core capital consists of stockholders'
equity less goodwill. Risk weights assigned to the Company's assets are
based on credit risk as determined by the Federal Reserve Board. Banks must
maintain a minimum ratio of total capital to risk adjusted assets of 8.0%.
At December 31, 1995 and 1994, the Company's risk-based total capital ratio
is 13.97% and 15.33%, respectively.
The approval of regulatory authorities is required if the total of all the
dividends declared by the Bank in any calendar year exceeds the Bank's net
income as defined for that year combined with its retained net income for
the preceding two calendar years. The Bank obtained regulatory approval as
applicable for the payment of dividends in 1995, 1994, and 1993.
14. PREFERRED STOCK:
The Bank is authorized to issue 2,600 shares of preferred stock, par
value $1 per share, which have been designated as Non-cumulative Non-voting
Directors' Preferred Stock, Series A. During 1994, the Bank redeemed and
retired all 2,000 shares of the preferred stock outstanding at a price of
$1.00 per share.
15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
The Bank is 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. Those instruments involve, to varying degrees, elements
of credit and interest rate risk in excess of the amount recognized in the
consolidated statements of financial condition. The contract amount of those
instruments reflect the extent of involvement the Bank has in particular
classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
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.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank had
approximately $22,407,000 and $16,479,000 in commitments to extend credit at
December 31, 1995 and 1994, respectively. The Bank evaluates each customer's
credit worthiness on a case-by-case basis. The amount of collateral obtained
if deemed necessary by the Bank upon extension of credit is based on
management's credit evaluation of the customer. Collateral held varies, but
may include accounts receivable, inventory, property, plant and equipment,
residential real estate and income-producing commercial properties.
<PAGE>
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The collateral
varies but may include accounts receivable, inventory, property, plant and
equipment and residential real estate for those commitments for which
collateral is deemed necessary. The Bank had approximately $1,106,000 and
$1,235,000 in irrevocable standby letters of credit at December 31, 1995 and
1994, respectively.
16. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to
estimate that value:
CASH AND CASH EQUIVALENTS - For those short-term instruments, the carrying
amount is a reasonable estimate of fair value.
INVESTMENT SECURITIES: AVAILABLE FOR SALE - For debt securities and
marketable equity securities, fair values are based on quoted market prices
or dealer quotes.
LOANS - The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
DEPOSITS - The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar
remaining maturities.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT - The value of
these unrecognized financial instruments is estimated based on the fee
income associated with the commitments. Such fee income is not material to
the Company's financial statements at December 31, 1995 and 1994 and,
therefore, the fair value of these commitments is not presented.
The estimated fair values of the Company's financial instruments at December
31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------------------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 18,601,769 $ 18,601,769 $ 23,182,476 $ 23,182,476
Investment securities: held to maturity 27,186,478 26,143,074
Investment securities: available for sale 97,587,091 97,587,091 75,808,336 75,808,336
Loans 191,131,465 162,978,447
Less: allowance for loan losses (2,004,891) (2,039,578)
--------------------------------------------------------
Loans, net 189,126,574 190,893,285 160,938,869 160,398,226
--------------------------------------------------------
$305,315,434 $307,082,145 $287,116,159 $285,532,112
====================================================================================================================
Financial liabilities:
Deposits $272,781,941 $274,517,255 $263,621,622 $263,999,026
Securities sold under agreements to repurchase 5,019,105 5,019,105 6,855,135 6,855,135
Other borrowed funds 6,215,638 6,215,638 437,868 437,868
---------------------------------------------------------
$284,016,684 $285,751,998 $270,914,625 $271,292,029
==================================================================================================================
</TABLE>
<PAGE>
17. FINANCIAL ACCOUNTING DEVELOPMENTS:
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of (SFAS No.
121). SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by the entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. If the future undiscounted cash
flows expected to result from the use of the asset and its eventual
disposition are less than the carrying amount of the asset, an impairment
loss is recognized. This statement also requires that long-lived assets and
certain intangibles to be disposed of be reported at the lower of carrying
amount of fair value less cost to sell. SFAS No. 121 is effective for fiscal
years beginning after December 15, 1995. Management does not believe that
the adoption of SFAS No. 121 will have a material impact on the Company's
financial statements.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, (SFAS
No. 123) in October 1995. This statement defines a fair value based method
of accounting for an employee stock option or similar equity instrument.
However, SFAS No. 123 allows an entity to continue to measure compensation
costs for those plans using the intrinsic value based method of accounting
prescribed by APB Opinion No. 25, Accounting for Stock Issued to Employees.
Entities electing to remain with the accounting in Opinion No. 25 must make
proforma disclosures of net income and earnings per share as if the fair
value based method of accounting defined in SFAS No. 123 had been applied.
Under the fair value based method, compensation cost is measured at the
grant date based on the value of the award and is recognized over the
service period, which is usually the vesting period. Under the intrinsic
value based method, compensation cost is the excess, if any, of the quoted
market price of the stock at the grant date or other measurement date over
the amount an employee must pay to acquire the stock. Most fixed stock
option plans have no intrinsic value at grant date, and under Opinion 25, no
compensation cost is recognized for them.
SFAS No. 123 is effective for fiscal years beginning after December 15,
1995. The Company has elected to continue to measure compensation cost for
their stock option plan under the provisions in APB Opinion 25.
<PAGE>
18. STOCK OPTION PLAN:
The Company has a stock option plan under which 100,000 shares of common
stock have been reserved for issue to certain employees and officers through
incentive stock options as of December 31, 1995. Options granted under the
plan become exercisable after six months of continued employment from the
date of grant.
Transactions for 1995, 1994, and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Options outstanding, beginning of year 15,250 9,750
Options granted 8,100 8,200 9,750
Options expired (2,700)
----------------------------------
Options outstanding, December 31 23,350 15,250 9,750
----------------------------------
Options outstanding by option price:
$12.77 8,250 9,750 9,750
$15.00 15,100 7,000
----------------------------------
23,350 15,250 9,750
----------------------------------
Options exercisable, December 31 23,350 15,250 9,750
- ----------------------------------------------------------------------------------------
Options available for grant, December 31 76,650 84,750 90,250
- ----------------------------------------------------------------------------------------
</TABLE>
19. THE PEOPLES BANCTRUST COMPANY, INC. (PARENT COMPANY ONLY):
Presented on the following pages are the financial statements of The Peoples
BancTrust Company, Inc.
<PAGE>
- --------------------------------------------------------------------------------
THE PEOPLES BANCTRUST COMPANY, INC.
PARENT COMPANY ONLY
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, 1995 and 1994
1995 1994
- -------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash * $ 92,036 $ 107,900
Investment in subsidiary bank, The Peoples
Bank and Trust * 31,684,792 27,616,677
Other assets 224,650 226,252
----------------------------
Total assets $32,001,478 $27,950,829
=======================================================================================================
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Dividends payable $ 18,420 $ 11,435
Other liabilities 468,922 309,423
----------------------------
487,342 320,858
----------------------------
Common stock, $.10 par value; 4,000,000
shares authorized; 1,781,452 and 890,726
shares issued at December 31, 1995
and 1994, respectively 178,146 89,073
Additional paid-in capital 7,059,591 7,148,664
Net unrealized loss on investments (net of tax benefits
of $114,547 and $1,071,643, respectively) (222,355) (2,627,504)
Retained earnings 25,786,339 23,500,041
Treasury stock, 87,758 and 18,807 shares at cost, respectively (1,287,585) (480,303)
----------------------------
31,514,136 27,629,971
----------------------------
Total liabilities and stockholders' equity $ 32,001,478 $ 27,950,829
=======================================================================================================
</TABLE>
* Eliminated in consolidation
- -------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
THE PEOPLES BANCTRUST COMPANY, INC.
PARENT COMPANY ONLY
STATEMENTS OF INCOME AND RETAINED EARNINGS
for the years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash dividends received or receivable from subsidiary * $ 2,357,387 $ 1,527,730 $ 7,475,591
Equity in subsidiary's undistributed net income * 1,662,968 1,616,297 (4,659,936)
Other expense (872,562) (789,425) (642,459)
-----------------------------------------------------
Net income 3,147,793 2,354,602 2,173,196
Retained earnings, beginning of period 23,500,041 21,982,482 20,537,913
Less: Cash dividends declared 861,495 837,043 728,627
-----------------------------------------------------
Retained earnings, end of year $ 25,786,339 $ 23,500,041 $ 21,982,482
======================================================================================================================
</TABLE>
*Eliminated in consolidation
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
THE PEOPLES BANCTRUST COMPANY, INC.
PARENT COMPANY ONLY
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 3,147,793 $ 2,354,602 $ 2,173,196
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed earnings (loss) of subsidiary * (1,662,968) (1,616,297) 4,659,936
Decrease (increase) in other assets 1,603 277,766 (364,865)
Increase (decrease) in other liabilities 159,500 (136,803) 348,625
--------------------------------------------------
Net cash provided by operating activities 1,645,928 879,268 6,816,892
--------------------------------------------------
Investing activities:
Increase in investment in subsidiary (5,761,208)
--------------------------------------------------
Net cash used in investing activities (5,761,208)
--------------------------------------------------
Financing activities:
Treasury stock purchased (807,282) (480,303)
Dividends paid (854,510) (834,045) (739,034)
--------------------------------------------------
Net cash used in financing activities (1,661,792) (834,045) (1,219,337)
--------------------------------------------------
Increase (decrease) in cash and cash equivalents (15,864) 45,223 (163,653)
Cash and cash equivalents, beginning of year 107,900 62,677 226,330
--------------------------------------------------
Cash and cash equivalents, end of year $ 92,036 $ 107,900 $ 62,677
==========================================================================================================================
</TABLE>
* Eliminated in consolidation.
- --------------------------------------------------------------------------------
<PAGE>
SUPPLEMENTARY DATA
SELECTED QUARTERLY FINANCIAL DATA 1995-1994
(dollars in thousands, except for per share amounts)
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------------------------------------------------------------
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 3,076 $ 3,523 $ 3,423 $ 2,944 $ 3,011 $ 2,838 $ 2,849 $ 2,646
Provision for loan losses 196 345 214 93 89 88 87 84
Income before income tax 1,097 1,328 1,153 848 834 907 843 736
Provision for income tax 234 505 344 195 227 264 233 238
Net income 863 823 809 653 607 643 610 495
Net income per share** 0.47 0.48 0.46 0.37 0.31 0.37 0.35 0.29
Cash dividends declared
per share** 0.13 0.13 0.13 0.12 0.12 0.12 0.12 0.12
Total assets $318,311 $313,131 $300,414 $298,852 $301,228 $284,893 $300,414 $278,905
</TABLE>
** Restated to show effect of a 2-for-1 stock split in the form of a stock
dividend paid March 15, 1995.
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Percentage State
Subsidiaries Owned (1) of Incorporation
- ------------ ---------- ----------------
<S> <C> <C>
The Peoples Bank and Trust Company 100% Alabama
The Peoples Agency, Inc. (2) 100% Alabama
</TABLE>
__________________
(1) At December 31, 1995.
(2) Second-tier subsidiary, 100% owned by The Peoples Bank and Trust Company.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference of our report dated January 26,
1996, on our audits of the consolidated financial statements of The Peoples
BancTrust Company, Inc. as of December 31, 1995 and 1994, and for each of the
three years in the period ended December 31, 1995 in this Annual Report on Form
10-K and in the registration statement on Form S-3 (File No. 33-60935).
/s/ Coopers & Lybrand LLP
Birmingham, Alabama
March 29, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 14,414
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,187
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 97,587
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 24,613
<LOANS> 191,131
<ALLOWANCE> (2,005)
<TOTAL-ASSETS> 318,311
<DEPOSITS> 272,782
<SHORT-TERM> 5,019
<LIABILITIES-OTHER> 1,658
<LONG-TERM> 6,216
0
0
<COMMON> 178
<OTHER-SE> 31,336
<TOTAL-LIABILITIES-AND-EQUITY> 318,311
<INTEREST-LOAN> 18,130
<INTEREST-INVEST> 5,495
<INTEREST-OTHER> 416
<INTEREST-TOTAL> 24,041
<INTEREST-DEPOSIT> 10,781
<INTEREST-EXPENSE> 11,074
<INTEREST-INCOME-NET> 12,966
<LOAN-LOSSES> 848
<SECURITIES-GAINS> 42
<EXPENSE-OTHER> 11,001
<INCOME-PRETAX> 4,426
<INCOME-PRE-EXTRAORDINARY> 4,426
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,148
<EPS-PRIMARY> 1.78
<EPS-DILUTED> 1.78
<YIELD-ACTUAL> 4.68
<LOANS-NON> 1,503
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 67,000
<ALLOWANCE-OPEN> 2,040
<CHARGE-OFFS> (1,621)
<RECOVERIES> 739
<ALLOWANCE-CLOSE> 2,005
<ALLOWANCE-DOMESTIC> 2,005
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
