<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
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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 No.)
incorporation or organization)
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 ($33.00 per share) at which the
stock was sold on March 14, 1997, was approximately $13,770,306. 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 14, 1997, 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, 1996.
Part III:
Portions of the definitive proxy statement for the Annual Meeting of the
Shareholders to be held on April 8, 1997.
<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,
-------------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial and industrial $ 82,001 $ 61,984 $ 48,829 $ 42,006 $ 37,039
Real estate - mortgage(1) 72,037 57,359 50,092 43,685 38,141
Personal 70,619 71,695 66,170 51,299 38,465
Overdrafts and credit line 5,245 5,090 4,365 4,929 3,514
-------- -------- -------- -------- --------
Total loans $229,902 $196,128 $169,456 $141,919 $117,159
======== ======== ======== ======== ========
Less:
Unearned discount $ 1,532 $ 4,996 $ 6,478 $ 4,943 $ 3,907
Allowance for loan losses 2,484 2,005 2,039 2,205 1,898
-------- -------- -------- -------- --------
Total loans, net $225,886 $189,127 $160,939 $134,771 $111,354
======== ======== ======== ======== ========
</TABLE>
(1) Includes real estate-construction loans.
2
<PAGE>
The above loans include agricultural loans totaling approximately $16.2
million, $15.6 million, $13.6 million, $7.9 million and $7.2 million at December
31, 1996, 1995, 1994, 1993 and 1992, respectively. See Note 5 of Notes to
Consolidated Financial Statements in BancTrust's Annual Report to Stockholders
for the year ended December 31, 1996 which is incorporated herein by reference.
Loan Maturities. The following table reflects at December 31, 1996 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>
0-3 Months 4-12 Months One-Five Years After Five Years Total
---------- ----------- -------------- ---------------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial and industrial $63,266 $ 6,338 $20,205 $ 3,393 $ 93,202
Real estate-mortgage (1) 23,926 11,861 23,422 9,248 68,457
Personal, overdrafts and credit lines 12,250 12,145 43,685 163 68,243
------- ------- ------- ------- --------
$99,442 $30,344 $87,312 $12,804 $229,902
======= ======= ======= ======= ========
Loans with fixed interest rates $23,515 $12,439 $55,590 $10,313 $101,857
Loans with variable interest rates 75,927 17,905 31,722 2,491 128,045
------- ------- ------- ------- --------
$99,442 $30,344 $87,312 $12,804 $229,902
======= ======= ======= ======= ========
</TABLE>
(1) Includes real estate-construction loans of $4.4 million, all of which
mature within one year.
Note 5 of Notes to Consolidated Financial Statements in BancTrust's Annual
Report to Stockholders for the year ended December 31, 1996 (Exhibit No. 13) is
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, 1996, commercial and industrial loans outstanding totaled $82.0
million, or 35.7% 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, 1996, BancTrust had $72.0 million, or 31.3% of its
total net loan portfolio, in real estate mortgage loans.
Personal Loans. At December 31, 1996, BancTrust's personal loan portfolio
--------------
totaled $75.9 million, or 33.0% of BancTrust's total net loan portfolio.
BancTrust's personal loan portfolio is comprised of automobile 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
3
<PAGE>
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, 1996,
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,
-------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis $1,679 $1,503 $1,348 $2,055 $2,851
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 294 301 275 295 338
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 77 96 72 131 164
The amount of interest income on nonaccrual and
restructured loans that was included in net income for
the period 22 36 21 34 27
</TABLE>
Management of BancTrust has identified certain loans aggregating approximately
$10.9 million at December 31, 1996 (including loans identified in the above
table) which it has determined require special attention due to potential
weaknesses. The largest five loans aggregated approximately $5.7 million and
ranged in size from $2.2 million to $487,000. No other loan exceeded
$1,453,000. 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.
4
<PAGE>
The following table sets forth BancTrust's potential problem loans at December
31, 1996 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 $ 5,658
Collateralized by Other (1) 3,085
Unsecured 371
-------
9,114
-------
Real Estate-Mortgage
Personal:
Collateralized by Real Estate 1,362
Collateralized by Other 122
252
-------
Unsecured 1,737
-------
Total $10,851
=======
</TABLE>
(1) Includes approximately $2.2 million of loans collateralized by accounts
receivable, inventory, furniture and fixtures and automobile dealer floor
plans.
Loan Loss Experience. Notes 1 and 5 of Notes to Consolidated Financial
--------------------
Statements contained in BancTrust's Annual Report to Stockholders for the year
ended December 31, 1996 (Exhibit No. 13) are 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,
---------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 2,004,891 $2,039,578 $2,204,807 $1,897,695 $1,264,191
Charge-offs:
Commercial and industrial 151,700 388,115 184,455 440,911 558,946
Real estate-mortgage (1) 29,256 20,300 34,256 10,413 57,855
Personal 1,701,439 1,198,805 906,959 932,071 977,806
Overdraft and credit line 56,826 14,226 22,302 27,045 37,277
----------- ---------- ---------- ---------- ----------
Total charge-offs 1,939,221 1,621,446 1,147,972 1,410,440 1,651,884
Recoveries:
Commercial and industrial 18,270 51,359 113,259 395,319 1,002,883
Real estate-mortgage 48,876 20,763 21,747 105,989 124,874
Personal 510,770 665,065 495,000 529,529 421,811
Overdraft and credit line 5,725 1,571 4,737 15,023 10,988
----------- ---------- ---------- ---------- ----------
Total recoveries 583,641 738,758 634,743 1,045,860 1,560,556
Net charge-offs (1,355,580) (882,688) (513,229) (364,580) (91,328)
Additions charged to operations 1,834,811 848,001 348,000 483,605 724,832
Addition due to acquisition -- -- -- 188,087 --
----------- ---------- ---------- ---------- ----------
Balance at end of year $ 2,484,122 $2,004,891 $2,039,578 $2,204,807 $1,897,695
=========== ========== ========== ========== ==========
Ratio of net charge-offs to average
loans outstanding, net of unearned
discounts, during the period 69% 46% 32% 28% .08%
=========== ========== ========== ========== ==========
</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,
---------------------------------------------
1996 1995 1994
--------------- ------------- -------------
% Amount % Amount % Amount
---- ------- ---- ------- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial 26% $ 645 38% $ 762 40% $ 816
Real estate mortgage (1) 12% 298 18% 361 15% 307
Personal 60% 1,490 42% 842 43% 877
Overdraft and credit line 2% 51 2% 40 2% 40
--- ------ --- ------ --- ------
Total Allowance 100% $2,484 100% $2,005 100% $2,040
=== ====== === ====== === ======
</TABLE>
<TABLE>
<CAPTION>
At December 31,
------------------------------
1993 1992
--------------- -------------
<S> <C> <C> <C> <C>
% Amount % Amount
--- ------- --- -------
Commercial and industrial 42% $ 926 47% $ 892
Real estate mortgage (1) 31% 684 28% 532
Personal 25% 551 23% 436
Overdraft and credit line 2% 44 2% 38
--- ------ --- ------
Total Allowance 100% $2,205 100% $1,898
=== ====== === ======
</TABLE>
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, 1996, 1995 and
1994.
<TABLE>
<CAPTION>
At December 31,
------------------------------
1996 1995 1994
Investment Securities --------- --------- --------
- --------------------- (In thousands)
<S> <C> <C> <C>
U.S. Treasury, U.S. Agencies and $ -- $ -- $23,949
corporations
Obligations of states and political -- -- 2,151
subdivisions
Corporate and other securities -- -- 1,087
-------- -------- -------
$ --(1) $ --(1) $27,187
======== ======== =======
</TABLE>
(1) There were no investment securities at December 31, 1995 and 1996.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------
Securities Available for Sale 1996 1995 1994
- ------------------------------- -------- -------------- -------------
(In thousands)
<S> <C> <C> <C>
U.S. Treasury, U.S. Agencies and $52,961 $56,888 $60,882
corporations
Obligations of states and political 2,050 2,875 1,680
subdivisions
Corporate and other securities 27,682 37,824 13,246
------- ------- -------
$82,693 $97,587 $75,808
======= ======= =======
</TABLE>
Corporate and other securities as of December 31, 1996, were comprised of the
following:
<TABLE>
<CAPTION>
Securities Available
For Sale
-----------------------
(In thousands)
<S> <C>
Corporate notes $ 4,911
Collateralized mortgage obligations 6,836
Mortgage backed securities 2,594
Mutual funds 1,570
Common stock 1,771
-------
$27,682
=======
</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.
For information regarding the amortized cost and approximate market value of
securities at December 31, 1996, 1995 and 1994, see Note 4 of Notes to
Consolidated Financial Statements contained in BancTrust's Annual Report to
Stockholders for the year ended December 31, 1996 (Exhibit No. 13) which is
incorporated herein by reference.
7
<PAGE>
Maturity Distributions of Securities. The following table sets forth the
------------------------------------
distributions of maturities of securities at amortized cost as of December 31,
1996.
<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
----------- ------------ ------------ ------------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury, U.S. agencies and corps $4,957 $2,517 $44,241 $1,200 $ -- $ --
Obligations of states and
political subdivisions 500 207 380 870 115 --
Corporate and other securities 1,105 620 5,334 411 17,009 3,559
------ ------ ------- ------ ------- ------
Total $6,562 $3,344 $49,955 $2,481 $17,124 $3,559
====== ====== ======= ====== ======= ======
Weighted average yield (%)(1) 5.05% 5.14% 6.15% 5.74% 5.96% 6.15%
====== ====== ======= ====== ======= ======
</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, 1996, by contractual
maturity, see Note 4 of Notes to Consolidated Financial Statements contained in
BancTrust's Annual Report to Stockholders for the year ended December 31, 1996
(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, 1996, securities available-
for-sale had a net unrealized loss of $219,000 (net of tax benefits of
$113,000).
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 extent, U.S. Government and other depository
institutions. BancTrust does not accept brokered deposits. As of December 31,
1996, BancTrust's total deposits were $288.4 million.
8
<PAGE>
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, 1996.
<TABLE>
<CAPTION>
Certificates Other Time
Maturity Period of Deposits Deposits
- --------------- ------------ ----------
(In thousands)
<S> <C> <C>
Three months or less $11,856 $ 8,854
Over three through six months 4,280 4,000
Over six through twelve months 1,915 --
Over twelve months 897 --
------- -------
Total $18,948 $12,854
======= =======
</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,
--------------------------------------------------------------
1996 1995 1994
------------------- ------------------- -------------------
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 $ 42,529 --% $ 42,206 --% $ 40,637 -- %
Interest bearing demand deposits 65,211 3.52% 64,419 3.82% 65,951 3.50%
Savings deposits 28,882 2.87% 30,351 3.00% 31,393 2.86%
Time deposits 134,354 5.53% 129,866 5.71% 112,984 4.29%
-------- -------- --------
Total deposits $270,976 3.89% $266,842 4.04% $250,965 3.83%
======== ======== ========
</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 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
9
<PAGE>
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, 1996, BancTrust employed 226 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.
RETURN ON EQUITY AND ASSETS
The following table shows the percentage return on equity and assets of
BancTrust for the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1996 1995 1994
------ ------ --------
<S> <C> <C> <C>
Return on assets:
Net income/average total assets 1.12% 1.03% .82%
Return on equity:
Net income/average equity 11.01% 10.51% 8.30%
Dividend payout ratio:
Dividends declared per share/net income
per share 25.72% 28.65% 18.18%*
Equity to assets ratio:
Average equity/average total assets 10.13% 9.77% 9.88%
</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.
10
<PAGE>
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,
1996, 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>
0-3 Months 4-12 Months Over One Year Total
----------- ------------ -------------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Interest-Earning Assets:
Loans $ 97,730 $45,489 $ 86,683 $229,902
Securities 12,462 4,745 65,486 82,693
Other assets 3,912 -- -- 3,912
-------- ------- -------- --------
Total $141,104 $50,234 $152,169 $316,507
======== ======= ======== ========
Interest-Bearing Liabilities:
Deposits $ 56,313 $29,417 $155,530 $241,260
Borrowings 11,925 -- 6,412 18,337
-------- ------- -------- --------
Total $ 68,238 $29,417 $161,942 $259,597
======== ======= ======== ========
Interest Sensitivity Gap $ 45,866 $20,817 $ (9,773) $ 56,910
======== ======= ======== ========
Cumulative Interest Sensitivity Gap $ 45,866 $66,683 $ 56,910 $ 56,910
======== ======= ======== ========
Ratio of Interest-Earning Assets to
Interest-Bearing Liabilities 167.2% 170.8% 94.0% 121.9%
======== ======= ======== ========
Ratio of Cumulative Gap to Total Assets 13.4% 19.4% 16.6% 16.6%
======== ======= ======== ========
</TABLE>
At December 31, 1996, BancTrust had a positive cumulative interest rate
sensitivity gap of $66.7 million at 12 months. As a result, at December 31,
1996, 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.
11
<PAGE>
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 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 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 1996, 1995, and 1994.
12
<PAGE>
Peoples Bank is subject to various regulatory capital requirements
administered by the federal banking agencies, including the FRB's capital
adequacy guidelines for state-chartered banks that are members of the Federal
Reserve System ("state member banks"). Failure to meet minimum capital
requirements can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. See "--Capital
Requirements."
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 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.
As a federally insured bank, Peoples Bank is subject to FDIC deposit insurance
assessments. The FDIC has established a risk-based deposit insurance assessment
system for insured depository institutions, under which insured institutions are
assigned assessment risk classifications based upon capital levels and
supervisory evaluations. Under these regulations, the FDIC set the 1996
insurance assessment rates for BIF-insured banks like Peoples Bank from $2,000
per year for well-capitalized banks in the highest supervisory subgroup to 0.27%
of insured deposits for undercapitalized banks in the lowest supervisory
subgroup. Peoples Bank was a "well-capitalized" bank as of December 31, 1996.
On September 30, 1996, President Clinton signed into law the Deposit Insurance
Funds Act of 1996 (the "1996 Act"), which, among other things, (i) recapitalized
the Savings Association Insurance Fund ("SAIF") by imposing a special one-time
assessment on SAIF-insured institutions, (ii) from January 1, 1997 through
December 31, 1999, requires BIF member banks to pay one-fifth of the assessment
rate imposed upon savings institutions to cover the annual payments on the bonds
issued by the Financing Corporation ("FICO") and (iii) from January 1, 2000
until the date the FICO bonds are retired, will require BIF members and SAIF
members to pay FICO assessments on a pro rata basis. In accordance with the
1996 Act's requirements, the FDIC has set the 1997 FICO assessment rate for BIF
member banks at .013% of insured deposits. The annual insurance assessment
rates payable by BIF member banks for the first half of 1997, however, remain
fixed at 0% to 0.27%, depending on an individual bank's risk classification.
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 FRB and the other federal
banking agencies have adopted guidelines prescribing safety and soundness
standards pursuant to FDICIA. The safety and soundness guidelines establish
general standards relating to internal controls and information systems,
internal audit systems, loan documentation, credit underwriting, interest rate
exposure, asset growth, and compensation, fees and benefits. In general the
guidelines require, among other things, the maintenance of appropriate systems
and practices to identify and manage the risks and exposures specified in the
guidelines. In addition, pursuant to FDICIA, the FRB and the other banking
agencies have proposed guidelines for asset quality and earnings standards.
Under the proposed standards, a bank would be required to maintain systems,
commensurate with its size and the nature and scope of its operations, to
identify problem assets and prevent deterioration in those assets as well as to
evaluate and monitor earnings and ensure that earnings are sufficient to
maintain adequate capital and reserves.
13
<PAGE>
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.
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.
Under FDICIA, the federal banking agencies were required to revise their risk-
based capital standards to ensure that such standards take adequate account of
interest rate risk, concentration of credit risk and the risks of nontraditional
activities. The FRB and the other banking agencies have amended the risk-based
capital standards to take account of a bank's concentration of credit risk, the
risk of nontraditional activities, and a bank's exposure to declines in the
economic value of its capital resulting from changes in interest rates. The
revised capital guidelines do not, however, codify a measurement framework for
assessing the level of a bank's interest rate exposure. On June 26, 1996, the
FRB and the other banking agencies adopted a joint policy statement requiring
that banks adopt comprehensive policies and procedures for managing interest
rate risk and setting forth general standards for such internal policies.
Unlike an earlier proposal by the federal banking agencies, the joint policy
statement does not contain a standardized measure of or explicit capital charge
for interest rate risk.
14
<PAGE>
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, 1996, Peoples Bank was categorized as "well-capitalized" by
the FDIC.
See Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 12 of Notes to Consolidated Financial Statements
contained in BancTrust's Annual Report to Stockholders for the year ended
December 31, 1996 (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.
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
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 was December 31, 2006.
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
15
<PAGE>
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.
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.
16
<PAGE>
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:
1. Monica Hasley vs. The Peoples Bank and Trust Company, et al., Circuit
------------------------------------------------------------
Court of Macon County, Alabama, Civil Action No. CV-96-252. This case was filed
November 13, 1996. This action involves two collateral protection insurance
certificates issued in connection with a loan by Peoples Bank to the plaintiff.
The plaintiff alleges that Peoples Bank improperly forced-placed insurance
coverage on the plaintiff's vehicle and seeks compensatory and punitive damages
in unspecified amounts based on several alleged theories of recovery, including
fraud and deceit. Peoples Bank denies the allegations of the complaint. A
motion to move the case from Macon County to Dallas County, Alabama, has been
granted. Discovery is proceeding. The case is being defended by Peoples Bank's
insurer.
2. 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 Peoples Bank who had borrowed
construction monies for that purpose. Peoples Bank customer sued the
contractor, alleging that he failed to complete the construction. The
contractor now brings this action contending that Peoples Bank owes funds for
the construction to him as a third party beneficiary. He further alleges
misrepresentation by Peoples Bank and seeks unspecified compensatory and
punitive damages. A jury trial is demanded. Peoples Bank denies the
allegations of the complaint. The owner and contractor are in separate
litigation over the same issues, and this case has been put on administrative
hold pending the outcome of that case.
See Note 9 of Notes to Consolidated Financial Statements contained in
BancTrust's Annual Report to Stockholders for the year ended December 31, 1996
(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, 55, 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., 46, 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., 50, is currently Senior Vice President --
Retail/Operations Division of Peoples Bank and Chief Financial Officer of
BancTrust. Mr. Bearden assumed these positions in 1991 and 1997, respectively.
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, 48, 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, 54, 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 positions since
November
17
<PAGE>
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, 63, 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, 54, 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, 47, 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 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, 1996 (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 12 of Notes to
Consolidated Financial Statements contained in BancTrust's Annual Report to
Stockholders for the year ended December 31, 1996 (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, 1996 (Exhibit No. 13) which is incorporated herein by reference.
18
<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, 1996 (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 LLP, independent public accountants, all as
set forth in BancTrust's Annual Report to Stockholders for the year ended
December 31, 1996 (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 14, 1997, 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 14, 1997, and the Item 405
disclosure therein under "Section 16(a) Beneficial Ownership Reporting" 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 14, 1997, 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 14, 1997, and the information
included therein under "Stock Ownership of Management" and "Principal Holders of
Common Stock" which is incorporated herein by reference.
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 14, 1997, and the information
included therein under "Election of Directors--Compensation Committee Interlocks
and Insider Participation" and "--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, 1996, are
incorporated herein by reference in Item 8 of this Report. The
19
<PAGE>
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, 1996 and 1995.
3. Consolidated Statements of Income for the Years Ended December 31,
1996, 1995 and 1994.
4. Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994.
5. Consolidated Statements of Cash Flows for the Years Ended December
31, 1996, 1995 and 1994.
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 Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995.
(ii) Bylaws - incorporated herein by reference to Exhibit 3(ii) to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1995.
Exhibit No. 10(i). 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, 1996, 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 LLP
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.
20
<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 31, 1997 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:
/s/ Richard P. Morthland March 31, 1997
- ------------------------
Richard P. Morthland
Director, President and Chief
Executive Officer
(Principal Executive Officer)
/s/ Andrew C. Bearden, Jr. March 31, 1997
- --------------------------
Andrew C. Bearden, Jr.
Chief Financial Officer
/s/ Virginia L. Sellers March 31, 1997
- -----------------------
Virginia L. Sellers
Treasurer
(Principal Accounting Officer)
/s/ Julius R. Brown March 31, 1997
- -------------------
Julius R. Brown
Director
/s/ Clyde B. Cox, Jr. March 31, 1997
- ---------------------
Clyde B. Cox, Jr.
Director
21
<PAGE>
/s/ Harry W. Gamble, Jr. March 31, 1997
- ------------------------
Harry W. Gamble, Jr.
Director
/s/ Ted M. Henry March 31, 1997
- ----------------
Ted M. Henry
Director
/s/ Elam P. Holley, Jr. March 31, 1997
- -----------------------
Elam P. Holley, Jr.
Director
/s/ Edie M. Jones March 31, 1997
- -----------------
Edie M. Jones
Director
/s/ A.D. Lovelady March 31, 1997
- -----------------
A.D. Lovelady
Director
/s/ Thomas E. Newton March 31, 1997
- --------------------
Thomas E. Newton
Director
/s/ David Y. Pearce March 31, 1997
- -------------------
David Y. Pearce
Director
/s/ C. Ernest Smith March 31, 1997
- -------------------
C. Ernest Smith
Director
/s/ Julius E. Talton March 31, 1997
- --------------------
Julius E. Talton
Director
22
<PAGE>
Exhibit 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion focuses on the financial condition and results of op-
erations 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.
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 1996 was
$197,187,000. This volume represents a 12.5% increase over the 1995 average of
$175,318,000. Because of improving local and national economic conditions, con-
tinued emphasis on loan generation, and year-end loan demand, loans net of un-
earned interest rose from the December 31, 1995, total of $191,131,000 to the
December 31, 1996, total of $228,370,000. At December 31, 1995, the loan to de-
posit ratio was 69.3%. As a result of the continued loan growth, the Company's
loan to deposit ratio at December 31, 1996, was 78.3%.
Commercial and industrial loans reflected the largest segmental growth in the
loan portfolio for 1996, increasing from $61,984,000 at December 31, 1995 to
$82,001,000 at December 31, 1996. This $20,017,000 growth was partially the re-
sult of several large short term loans totaling $12,000,000 extended to custom-
ers in late December; the remaining increase was disbursed over the normal cus-
tomer base. The Company continues to maintain concentrations of loans in the
health care industry and timber industry. Real estate loans grew by $14,678,000
to a total of $72,037,000 at December 31, 1996. New home financing brought
about by expanding economies in Dallas, Butler, and Autauga Counties accounted
for the balance of the growth. Personal loans decreased from $71,695,000 at De-
cember 31, 1995 to $70,619,000 at December 31, 1996. The decrease of $1,076,000
was primarily attributable to softened demand for automobile financing. Credit
lines increased by $409,000 from $4,501,000 at December 31, 1995 to $4,910,000
at December 31, 1996. Overdrafts on checking accounts decreased from a total of
$589,000 at December 31, 1995 to a total of $335,000 at December 31, 1996, rep-
resenting a decrease of $254,000.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses represents management's estimate of the uncol-
lectible 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 con-
ditions, historical loss experience, levels of non-accruing loans and delin-
quencies, the Company's personnel determine the appropriate level at which to
maintain the allowance for loan losses. Because the allowance is based on as-
sumptions and subjective judgement, it is not necessarily indicative of the ac-
tual charge-offs which may ultimately occur.
The Company's allowance for loan losses totaled $2,484,000 at December 31, 1996
as compared to $2,005,000 at December 31, 1995. The resulting ratios of allow-
ance to total loans net of unearned interest were 1.09% and 1.05% for 1996 and
1995, respectively. The amount of loans determined by management that require
special attention due to potential weaknesses grew from $6,700,000 at December
31, 1995 to $10,900,000 at December 31, 1996. Certain of the loans so identi-
fied have been further secured or restructured for amortization since year end.
Non-accruing loans, expressed as a percentage of total loans net of unearned
interest, decreased slightly to .73% at December 31, 1996 as compared to .79%
at December 31, 1995. At its current level, the allowance for loan losses ex-
ceeds 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, 1996, the Company's investment portfolio totaled $82,693,000 as
compared to $97,587,000 at December 31, 1995. The decline of $14,894,000 was
primarily the result of a strong loan demand allowing a shift in
1
<PAGE>
funds to the higher yielding loan portfolio. The decline in the investment
portfolio was slightly offset by an increase in market values of the remaining
investment portfolio.
During 1995, the entire portfolio was classified as "available-for-sale," re-
sulting in the entire portfolio being marked-to-market. At December 31, 1996,
the portfolio had a net unrealized loss of $219,000 (net of tax benefits of
$113,000) as compared to a net unrealized loss of $222,000 (net of tax benefits
of $115,000) at December 31, 1995. See Notes 1 and 4 of Notes to Consolidated
Financial Statements for additional discussion of 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 con-
sidered 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.
At December 31, 1996, the volume of short-term investments amounted to
$3,912,000 which was a decrease of $275,000 from the December 31, 1995 total of
$4,187,000.
DEPOSITS
The Company relies primarily on its deposits to provide liquidity with which to
fund loans and investments. Total deposits amounted to $288,385,000 at December
31, 1996, as compared to $272,782,000 at December 31, 1995, for an increase of
$15,603,000 or 5.7%. The growth was primarily attributable to a $16,712,000 in-
crease in demand deposits offset by declines in time deposits and savings ac-
counts of $993,000 and $116,000, respectively, for the year ended December 31,
1996.
LIQUIDITY
Liquidity refers to the Company's ability to meet its cash flow needs, to pro-
vide funds for operating expenses and to meet the borrowing needs and with-
drawal 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
12% of the total investment securities portfolio matures within one year. The
entire investment portfolio at December 31, 1996 was classified as available-
for-sale. These securities are readily marketable, high quality, securities
with a market value of $82,693,000. At December 31, 1996, liquid assets, con-
sisting primarily of cash on hand and short-term investments totaled
$22,015,000 compared to $18,602,000 at December 31, 1995.
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 fluc-
tuations in liquidity factors, purchase federal funds or borrow from the Fed-
eral Reserve Bank or Federal Home Loan Bank to meet its temporary cash needs.
At December 31, 1996, borrowed funds for short-term liquidity needs amounted to
$18,337,000 compared to $11,235,000 at year end 1995. The increase is due to
short-term liquidity demands for loan funding. 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 po-
sition 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 $34,185,000 at December 31, 1996 as com-
pared to $31,514,000 at December 31, 1995. Net income for 1996 was $3,583,000
with cash dividends declared in the amount of $915,000. The
2
<PAGE>
approval of regulatory authorities is required if the total of all the divi-
dends declared by the Company's subsidiary bank, The Peoples Bank and Trust
Company (the Bank), in any calendar year exceeds the Bank's net income as de-
fined 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 each of the three years ended December 31, 1996.
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 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). As disclosed in Note 12 of
Notes to Consolidated Financial Statements, the Company's and Bank's capital
ratios at December 31, 1996 were well above the minimum required by regulators.
There are no conditions or events known to management that have significantly
changed the capital ratios since December 31, 1996.
INCOME SUMMARY
The Company's net income for the year ended December 31, 1996 was $3,583,000
which is a 13.8% increase over the prior year's net income of $3,148,000. Net
income for 1994 was $2,355,000. Earnings per share of common stock were $2.10
for 1996, $1.78 for 1995, and $1.32 for 1994. (Earnings per share for 1994 have
been restated to reflect a two-for-one stock split effected in the form of a
stock dividend on March 15, 1995.)
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 illus-
trates 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, li-
abilities and stockholders' equity and the interest rate differentials for each
illustrated.
3
<PAGE>
ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE
for the years ended December 31, 1996, 1995 and 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 Compared to 1995 1995 Compared to 1994
------------------------------------------------------
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 $1,902 $2,214 $(312) $4,709 $3,016 $1,693
Taxable investment securities (293) (607) 314 (280) (941) 661
Nontaxable investment securities (15) 19 (34) (131) (78) (53)
Federal funds sold and securities purchased under
agreements to resell 31 66 (35) 223 90 133
------------------------------------------------------
Total Interest Income $1,625 $1,692 $ (67) $4,521 $2,087 $2,434
--------------------------------------------------------------------------------------------------------------
Interest expense on:
Interest bearing demand deposits $ (165) $ 30 $(195) $ 155 $ (52) $ 207
Savings deposits (82) (43) (39) 11 (26) 37
Time deposits 16 170 (154) 2,567 792 1,775
Federal funds purchased and securities sold under
agreements to repurchase 73 96 (23) 50 4 46
Other borrowed funds 304 278 26 116 64 52
--------------------------------------------------------------------------------------------------------------
Total Interest Expense $ 146 $ 531 $(385) $2,899 $ 782 $2,117
Net change in net interest income before
loan losses $1,479 $1,622
--------------------------------------------------------------------------------------------------------------
</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).
4
<PAGE>
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
for the years ended December 31, 1996, 1995, and 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------------------------------------------
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* $197,187 $20,031 10.16% $175,318 $18,129 10.34% $144,876 $13,420 9.26%
Taxable investment securities 84,751 5,111 6.03% 94,298 5,404 5.73% 108,623 5,684 5.23%
Nontaxable investment securities 2,515 76 3.02% 2,171 91 4.19% 3,873 222 5.73%
Federal funds sold and securities purchased
under agreements to resell 8,760 447 5.10% 5,201 416 8.00% 3,738 193 5.16%
-----------------------------------------------------------------------------
Total interest earning assets $293,213 $25,665 8.75% $276,988 $24,040 8.68% $261,110 $19,519 7.48%
Non-Interest Earning Assets:
Cash and due from banks 15,295 15,920 14,165
Bank premises and equipment (net) 6,831 5,749 5,179
Other Assets 6,992 7,928 6,578
-----------------------------------------------------------------------------
Total non-interest earning assets 28,118 $ 29,597 $ 25,922
-----------------------------------------------------------------------------
Total Assets $321,331 $306,585 $287,032
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest Bearing Liabilities:
Interest bearing demand deposits $ 65,211 $ 2,297 3.52% $ 64,419 $ 2,462 3.82% $ 65,951 $ 2,307 3.50%
Savings deposits 28,882 828 2.87% 30,351 910 3.00% 31,393 899 2.86%
Time deposits 134,354 7,425 5.53% 129,866 7,409 5.71% 112,984 4,842 4.29%
Federal funds purchased and securities sold
under agreements to repurchase 8,164 205 2.51% 3,939 132 3.35% 3,762 82 2.18%
Other borrowed funds 6,223 465 7.47% 2,460 161 6.54% 1,173 45 3.84%
-----------------------------------------------------------------------------
Total interest bearing liabilities $242,834 $11,220 4.62% $231,035 $11,074 4.79% $215,263 $ 8,175 3.80%
Non-interest bearing demand
deposits 42,529 41,634 40,637
Other liabilities 3,420 3,954 2,759
-----------------------------------------------------------------------------
Total non-interest bearing liabilities $ 45,949 $ 45,588 $ 43,396
-----------------------------------------------------------------------------
Total liabilities $288,783 $276,623 $258,659
Stockholders' equity 32,548 29,962 28,373
-----------------------------------------------------------------------------
Total liabilities and stockholders' equity $321,331 $306,585 $287,032
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income $14,445 $12,966 $11,344
Net yield on interest earning assets 4.93% 4.68% 4.34%
</TABLE>
* Average balances include non-accruing loans of approximately $1,679,000,
$1,503,000 and $1,348,000 in 1996, 1995 and 1994.
1996 VERSUS 1995
The Company's total interest income for the year 1996 amounted to $25,665,000
compared to a 1995 total of $24,040,000. The increase was primarily the result
of increased loan demand driving the average volume of loans from a 1995 aver-
age of $175,318,000 to a 1996 average of $197,187,000. This increased loan vol-
ume 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 in-
terest. Interest rates on the loan portfolio decreased from 10.34% in 1995 to
10.16% for 1996. Total average earning assets increased from $276,988,000 in
1995 to an average of $293,213,000 in 1996 for an increase of 5.86% in average
earning assets.
Interest income on the investment securities portfolio decreased 5.6% from
$5,495,000 in 1995 to $5,187,000 in 1996. The decrease in interest income is
primarily attributable to a 9.5% decline in average volume of the combined to-
tal of taxable and nontaxable investment securities offset by an increase in
the average yield on taxable investment securities from 5.73% in 1995 to 6.03%
in 1996.
Interest income from federal funds sold and securities purchased under agree-
ments to resell totaled $447,000 in 1996 as compared to $416,000 in 1995. The
increase was primarily attributable to an increase in the average balance of
5
<PAGE>
short-term investments from $5,201,000 in 1995 to $8,760,000 in 1996 offset by
a decrease in the average yield from 8.00% in 1995 to 5.10% in 1996.
Interest expense increased from $11,074,000 in 1995 to $11,220,000 in 1996. The
increase is primarily due to a 107.3% increase in the average balance of fed-
eral funds purchased and securities sold under agreements to repurchase, com-
bined with a 153% increase in the average balance of other borrowed funds dur-
ing 1996. Specific term and short term borrowing increased during 1996 primar-
ily to fund loan growth and to otherwise provide for liquidity. The average
balance of federal funds purchased and securities sold under agreements to re-
purchase increased $4,225,000 from the 1995 average balance of $3,939,000 to
the average balance in 1996 of $8,164,000. Likewise, the average balance of
other borrowed funds increased by $3,763,000 from the 1995 average balance of
$2,460,000 to the average balance in 1996 of $6,223,000. Average deposits grew
by 1.7% during 1996 from an average balance in 1995 of $224,636,000 to an aver-
age balance in 1996 of $228,447,000. The primary growth was recorded in time
and interest bearing demand deposits with decreases in savings deposits. As a
result of the declining interest rates during 1996 and the shift in the liabil-
ity mix, the Company's cost of funds declined to 4.62% in 1996 from 4.79% in
1995.
Net interest income for 1996 was $14,445,000 as compared to the 1995 total of
$12,966,000 for an increase of 11.4%.
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 in-
creased 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 vol-
ume 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 in-
terest. 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 securi-
ties offset by an increase in the average yield on taxable investment securi-
ties from 5.23% in 1994 to 5.73% in 1995.
Interest income from federal funds sold and securities purchased under agree-
ments 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 in-
crease 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 interest 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 de-
posits 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%.
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 1996 totaled $1,835,000 as compared to $848,000 in 1995. The
1995 provision was increased from the 1994 provision of $348,000 due to
management's assessment of the loan portfolio. Actual charge-offs, primarily in
the personal loan portfolio, following national trends and significant growth
in the loan portfolio account for the increase in the provision for loan losses
from 1995 to 1996. Management continuously monitors the allowance for loan
losses
6
<PAGE>
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-in-
terest income are deposit service charges, fee-based trust services, brokerage
income, credit life commissions, and income contributions from the Company's
insurance and finance (see below) subsidiaries.
1996 VERSUS 1995
For 1996, non-interest income totaled $3,725,000 as compared to $3,308,000 for
1995. The increase of $417,000 is primarily attributable to an increase in de-
posit service charges with the balance of the increase spread over the remain-
ing non-interest income items. For the year 1996, deposit service charges
amounted to $2,512,000 as compared to $2,193,000 for 1995. In May of 1996, the
Company opened a consumer finance company, Loan Express, Inc. (Loan Express),
which extends credit to consumers who may not otherwise meet the Company's
credit standards. Loan Express recorded losses during 1996 in the amount of
$68,000. The losses are the result of first year start-up expense and low vol-
umes. By December 31, 1996, Loan Express was reporting monthly profits and is
expected to recover the start-up losses during 1997 and make a positive contri-
bution to the Company's earnings.
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 de-
posit 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 approximately $57,000. This decline was partially off-set
through increased commissions earned by the insurance subsidiary on other life
insurance products.
NON-INTEREST EXPENSE
1996 VERSUS 1995
The total non-interest expense for 1996 was $11,108,000 as compared to a total
of $11,001,000 for 1995. Salaries and benefits, comprising the largest segment
of non-interest expense, increased slightly from $5,953,000 in 1995 to
$6,044,000 in 1996 primarily the result of normal salary increases. Certain
other expense categories such as automations and computer expense exceeded 1995
levels due to the impact and cost of maintaining the proper levels of technolo-
gy. Additionally, total Federal Deposit Insurance Corporation (FDIC) premiums,
paid for deposit insurance of $58,000 in 1996 decreased from the 1995 amount of
$305,000. The decrease in premiums was allowed in connection with congressional
legislation to recapitalize the Savings Association Insurance Fund (SAIF) that
was approved in 1996. The Company was assessed a one-time recapitalization fee
on its' SAIF deposits in the amount of $41,000 during 1996. The cost of occu-
pancy and fixed asset depreciation and maintenance increased $95,000 during
1996.
1995 VERSUS 1994
The total non-interest expense for 1995 was $11,001,000 as compared to a total
of $10,872,000 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 nega-
tively on the value of pension plan assets at January 1, 1995 the valuation
date for determination of annual pension cost. See Note 8 of Notes to Consoli-
dated 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
(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. Additional savings were achieved in other areas such as stationery and
supplies by closer attention to inventory levels and cost of supplies pur-
chased.
7
<PAGE>
PROVISION FOR INCOME TAX
1996 VERSUS 1995
Income before the charge for income tax was $5,226,000 for 1996 as compared to
$4,426,000 for 1995, an increase of 18.1%. The provision for income tax which
includes both federal and state taxes amounted to $1,643,000 for 1996. The ef-
fective tax rate for 1996 and 1995 was 31.4% and 28.9%, respectively. The Com-
pany participates in multiple issues of low income housing credits which re-
duced the effective tax rate by 5.2% and 3.7% for 1996 and 1995, respectively.
1995 VERSUS 1994
Income before the charge for income tax was $4,426,000 for 1995 as compared to
$3,316,000 for 1994, an increase of 33.5%. The provision for income tax which
includes both federal and state taxes amounted to $1,278,000 for 1995. The ef-
fective tax rate for 1995 and 1994 was 28.9% and 29.0%, respectively. The Com-
pany participates in multiple issues of low income housing credits which re-
duced the effective tax rate by 3.7% and 4.2% for 1995 and 1994, respectively.
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 com-
panies that have significant investments in fixed assets or inventories. Howev-
er, 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 appro-
priate 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 de-
pendent 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 in-
flation. 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 af-
fected by inflation. Whenever interest-earning assets reprice to market inter-
est 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, li-
quidity 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.
YEAR 2000 RISK ASSESSMENT AND ACTION PLAN
The depth of technology used by the Company increases the risk of and exposure
to century compliance issues. The Federal Reserve Bank has identified six key
risk categories of particular concern to financial institutions. Of these six,
century compliance issues impact three: Operational Risk, Legal Risk, and
Reputational Risk. The Company has adopted a plan of action to minimize the
risk of the year 2000 event. The plan entails the establishment of an oversight
committee to monitor vendor compliance certification and to identify those sys-
tems and equipment considered to be mission critical. The systems so identified
will be tested to assure compliance and thereby minimize associated risk.
NEW ACCOUNTING STANDARDS
In June 1996, the Financial Accounting Standards Board issued Statement of Fi-
nancial Accounting Standards No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishment of Liabilities (SFAS No. 125).
8
<PAGE>
SFAS No. 125 requires that liabilities and derivatives incurred or obtained by
transferors as part of a transfer of financial assets be initially measured at
fair value, if practicable. This statement also requires that servicing assets
and other retained interests in the transferred assets be measured by allocat-
ing the previous carrying amount between the assets sold, if any, and retained
interests, if any, based on their relative fair values at the date of transfer.
SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and is to be
applied prospectively. However, in December 1996, the Financial Accounting
Standards Board Issued Statement of Financial Accounting Standards No. 127, De-
ferral of the Effective Date of Certain Provisions of FASB Statement No. 125.
This statement defers for one year the effective date of certain provisions of
SFAS No. 125 relating to repurchase agreements, dollar-roll transactions, de-
ferred securities lending and similar transactions.
The effective date for all other transactions addressed by SFAS No. 125 is un-
changed. Management does not believe that the adoption of SFAS No. 125 will
have a material impact on the Company's financial statements.
The Company adopted Statement of Financial Accounting Standards No. 123, Ac-
counting for Stock-Based Compensation on January 1, 1996. See Note 17 of Notes
to Consolidated Financial Statements.
FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
(dollars in thousands, except for per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994 1993 * 1992
<S> <C> <C> <C> <C> <C>
--------------------------------------------
Net interest income $ 14,445 $ 12,966 $ 11,344 $ 10,323 $ 8,807
Provision for loan losses 1,835 848 348 484 725
Income before income tax 5,226 4,426 3,316 3,057 3,461
Provision for income tax 1,643 1,278 962 808 1,122
Net income 3,583 3,148 2,354 2,173 2,339
Net income per share** 2.10 1.78 1.32 1.33 1.42
Cash dividend declared and paid** 0.54 0.51 0.48 0.44 0.40
--------------------------------------------
Total assets, December 31 $343,301 $318,311 $301,228 $281,871 $218,335
- -------------------------------------------------------------------------------
</TABLE>
* Reflects acquisition of control of CeeBee Corporation.
SELECTED QUARTERLY FINANCIAL DATA 1996-1995
(dollars in thousands, except for per share amounts)
<TABLE>
<CAPTION>
1996 1995
-----------------------------------------------------------------------
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 $ 3,653 $ 3,549 $ 3,807 $ 3,436 $ 3,076 $ 3,523 $ 3,423 $ 2,944
Provision for loan losses 418 368 723 326 196 345 214 93
Income before income tax 1,403 1,202 1,208 1,413 1,097 1,328 1,153 848
Provision for income tax 434 320 383 506 234 505 344 195
Net Income 969 882 825 907 863 823 809 653
Net income per share** 0.56 0.52 0.48 0.54 0.47 0.48 0.46 0.37
Cash dividends declared
per share** 0.15 0.13 0.13 0.13 0.13 0.13 0.13 0.12
-----------------------------------------------------------------------
Total Assets $343,301 $314,655 $322,974 $320,656 $318,311 $313,131 $300,414 $298,852
- ------------------------------------------------------------------------------------------------------------
</TABLE>
** Restated to show effect of a 2-for-1 stock split in the form of a stock
dividend paid March 15, 1995.
9
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC.--CORPORATE INFORMATION
The Peoples BancTrust Company, Inc. is a bank holding company incorporated un-
der the laws of the State of Alabama. The Company is registered under the Bank
Holding Company Act of 1965 and is the holding company for its wholly owned
subsidiary, The Peoples Bank and Trust Company, Selma, Alabama. Peoples Bank
conducts a general commercial and full service retail banking business in Dal-
las, Butler and Autauga Counties and the surrounding areas of Alabama. In addi-
tion, Peoples Bank offers Trust and Financial Management services as well as a
wide variety of financial products through its brokerage Department and Insur-
ance Agency.
TRANSFER AGENT ANNUAL REPORT ON FORM 10-K
The Peoples Bank and Trust Company For copies of the Annual Report on
Trust Department Form 10-K as filed with the Securities and
P.O. Box 799 Exchange Commission, contact:
Selma, Alabama 36702-0799
Elam P. Holley, Jr., Secretary
INDEPENDENT ACCOUNTANTS The Peoples BancTrust Company, Inc.
Coopers & Lybrand, L.L.P. P.O. Box 799
1901 6th Avenue North Selma, Alabama 36702-0799
Birmingham, Alabama 35203-2690
STOCK DIVIDEND AND PRICE INFORMATION
The common stock of the Company is quoted on the NASDAQ SmallCap Market under
the symbol, "PBTC." Three brokerage firms, A.G. Edwards, Morgan Keegan & Compa-
ny, Inc. and Sterne Agee & Leach, Inc., make a market in the common stock of
the Company. Prior to being listed on NASDAQ, the stock price was quoted in the
National Daily Quotation Services "Pink Sheets"(TM).
The following is the reported bid information for the common stock for each
full quarterly period within the two most recent fiscal years, and the divi-
dends 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 re-
flect inter-dealer prices, without retail mark-up, mark-down or commission, and
may not reflect actual transactions.
<TABLE>
<CAPTION>
Bid Dividends Declared
1996 High Low (per common share)
---------------------------------------------------------------------
<S> <C> <C> <C>
Jan-Mar 23.00 18.50 .13
Apr-June 22.00 21.50 .13
July-Sept 22.50 21.50 .13
Oct-Dec 27.00 22.50 .15
<CAPTION>
Bid Dividends Declared
1995 High Low (per common share)
---------------------------------------------------------------------
<S> <C> <C> <C>
Jan-Mar 16.25 15.00 .12
Apr-June 16.00 15.50 .13
July-Sept 15.50 13.50 .13
Oct-Dec 18.25 15.00 .13
---------------------------------------------------------------------
</TABLE>
As of February 7, 1997, The Peoples BancTrust Company, Inc. had 798 stock-
holders of record and 1,693,694 shares of common stock outstanding.
10
<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, 1996 and 1995, 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,
1996. These financial statements are the responsibility of the Company's man-
agement. Our responsibility is to express an opinion on these financial state-
ments based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
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, 1996 and 1995, and
the consolidated results of their operations and their consolidated cash flows
for each of the three years in the period ended December 31, 1996, in confor-
mity with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
Birmingham, Alabama
February 7, 1997
11
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 18,102,785 $ 14,414,350
Federal funds sold and securities purchased under
agreements to resell 3,912,036 4,187,419
--------------------------
Cash and cash equivalents 22,014,821 18,601,769
Available-for-sale securities 82,692,696 97,587,091
Loans, net of unearned discount 228,369,879 191,131,465
Allowance for loan losses (2,484,122) (2,004,891)
--------------------------
Loans, net 225,885,757 189,126,574
Bank premises and equipment, net 5,962,551 5,961,720
Other real estate, net 167,587 113,123
Interest receivable 3,057,195 3,090,286
Intangible assets acquired, net of accumulated
amortization of $2,341,152 and $2,277,322 at
December 31, 1996 and 1995, respectively 718,050 781,880
Deferred income taxes 237,538 164,849
Other assets 2,564,926 2,883,728
--------------------------
$343,301,121 $318,311,020
- ------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - noninterest bearing $ 47,125,518 $ 43,756,919
Demand - interest bearing 78,642,118 65,298,460
Savings 27,524,463 27,640,447
Time 135,093,063 136,086,115
--------------------------
Total deposits 288,385,162 272,781,941
Federal funds purchased and securities sold under
agreements to repurchase 11,924,708 5,019,105
Other borrowed funds 6,412,729 6,215,638
Deferred income taxes 85,425 89,620
Interest payable 1,109,645 1,294,885
Dividends payable 12,596 18,420
Income taxes payable 151,932 255,515
Other liabilities 1,033,452 1,121,760
--------------------------
Total liabilities 309,115,649 286,796,884
--------------------------
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock, $.10 par value; 4,000,000 shares
authorized; 1,781,452 shares issued (Note 3) 178,146 178,146
Additional paid-in capital 7,059,591 7,059,591
Unrealized loss on investments (net of tax
benefits of $112,954 and $114,547, respectively) (219,265) (222,355)
Retained earnings 28,454,585 25,786,339
Treasury stock, 87,758 shares, at cost (1,287,585) (1,287,585)
--------------------------
Total stockholders' equity 34,185,472 31,514,136
--------------------------
$343,301,121 $318,311,020
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans and bankers
acceptances $20,030,577 $18,129,566 $13,420,370
Interest and dividends on investment
securities:
U.S. Treasury securities 796,492 1,055,099 1,189,861
Obligations of other U.S. Government
agencies and corporations 2,798,078 3,534,840 3,534,990
Obligations of state and political
subdivisions and industrial development
bonds:
Nontaxable 75,829 90,696 221,502
Taxable 42,745 49,268 102,807
Other securities and interest-bearing
deposits 1,474,380 764,885 856,442
Interest on federal funds sold and
securities purchased under agreements to
resell 446,668 416,270 192,711
-----------------------------------
Total interest income 25,664,769 24,040,624 19,518,683
-----------------------------------
Interest expense:
Interest on deposits 10,550,348 10,781,202 8,048,365
Interest on federal funds purchased,
securities sold under agreements to
repurchase, and other borrowed funds 669,961 293,220 126,301
-----------------------------------
Total interest expense 11,220,309 11,074,422 8,174,666
-----------------------------------
Net interest income 14,444,460 12,966,202 11,344,017
Provision for loan losses 1,834,811 848,001 348,000
-----------------------------------
Net interest income after provision for
loan losses 12,609,649 12,118,201 10,996,017
-----------------------------------
Noninterest income:
Trust department income 296,287 292,003 272,347
Service charges on deposit accounts 2,512,185 2,192,844 2,041,821
Net securities gains 51,454 41,755 125,019
Other 864,640 781,839 753,009
-----------------------------------
Total noninterest income 3,724,566 3,308,441 3,192,196
-----------------------------------
Noninterest expenses:
Salaries and wages 5,101,522 4,970,892 4,635,545
Pensions and other employee benefits 942,942 981,839 813,292
Occupancy and furniture and equipment
expenses 1,347,674 1,252,866 1,423,554
Other operating expenses 3,716,120 3,795,188 3,999,367
-----------------------------------
Total noninterest expenses 11,108,258 11,000,785 10,871,758
-----------------------------------
Income before provision for income
taxes 5,225,957 4,425,857 3,316,455
Provision for income taxes $ 1,643,116 $ 1,278,064 $ 961,853
-----------------------------------
Net income $ 3,582,841 $ 3,147,793 $ 2,354,602
-----------------------------------
Earnings per share (1):
Weighted average number of shares
outstanding (Note 3) 1,704,222 1,768,414 1,782,722
-----------------------------------
Net income per share (Note 3) $ 2.10 $ 1.78 $ 1.32
- -------------------------------------------------------------------------------
</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.
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1996, 1995, and 1994
<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, 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
Net income 3,582,841 3,582,841
Change in unrealized gains (losses) net of
income taxes of $1,593 3,090 3,090
Cash dividends declared ($.54 per share) (914,595) (914,595)
------------------------------------------------------------------------
Balance, December 31, 1996 $178,146 $(1,287,585) $7,059,591 $ (219,265) $28,454,585 $34,185,472
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 3,582,841 $ 3,147,793 $ 2,354,602
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Provision for loan losses 1,834,811 848,001 348,000
Depreciation, amortization, and ac-
cretion 1,063,816 1,135,106 1,260,083
Increase (decrease) in unearned
discount (3,464,345) (1,481,468) 1,530,051
Provision (benefit) for deferred
income taxes, net (76,884) (439,439) 71,965
Purchases of trading securities (36,913,782)
Proceeds from sales of trading se-
curities 36,914,378
Gain on sale of securities (51,454) (41,755) (125,019)
Net gain on sale of other assets (107) (99,964) (41,412)
Write down of other real estate 48,543 50,593 74,292
Decrease (increase) in assets:
Interest receivable 33,091 (489,332) (259,329)
Other assets 250,054 (57,662) (383,551)
Increase (decrease) in liabilities:
Interest payable (185,240) 474,827 196,666
Income taxes payable (103,583) 735,551 (774,782)
Other liabilities 157,098 (249,663) (5,594,747)
----------------------------------------
Net cash provided by (used in) op-
erating activities 3,088,641 3,532,588 (1,342,585)
----------------------------------------
Investing activities:
Proceeds from sales of investment
securities: held-to-maturity 241,717 1,203,060
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 20,550,491 6,280,558 22,716,645
Proceeds from maturities and calls
of investment securities: avail-
able-for-sale 31,641,910 20,373,454 9,232,505
Purchases of investment securities:
available-for-sale (37,418,957) (16,483,310) (16,400,285)
Net increase in loans (35,254,649) (27,581,276) (28,060,223)
Purchases of bank premises and
equipment (1,041,942) (1,870,992) (1,569,897)
Proceeds from sale of other real es-
tate and equipment 309,062 1,246,862 129,680
Investment in low income housing
projects (247,000) (553,000) (700,000)
----------------------------------------
Net cash used in investing activi-
ties (21,461,085) (20,011,224) (24,955,100)
----------------------------------------
Financing activities:
Net increase in deposits 15,603,221 9,617,981 21,661,633
Increase in short-term borrowings 7,102,694 3,941,740 4,189,364
Dividends paid (920,419) (854,510) (834,045)
Purchase of treasury stock (807,282)
Minority interest in consolidated
subsidiary (232,928)
----------------------------------------
Net cash provided by financing ac-
tivities 21,785,496 11,897,929 24,784,024
----------------------------------------
Increase (decrease) in cash and
cash equivalents 3,413,052 (4,580,707) (1,513,661)
Cash and cash equivalents, beginning
of year 18,601,769 23,182,476 24,696,137
----------------------------------------
Cash and cash equivalents, end of
year $ 22,014,821 $ 18,601,769 $ 23,182,476
----------------------------------------
Supplemental disclosures of cash flow
information:
Cash paid during the year for:
Interest $ 11,405,549 $ 10,599,605 $ 7,980,599
----------------------------------------
Income taxes $ 1,825,459 $ 1,145,007 $ 1,655,000
----------------------------------------
Noncash investing activity:
</TABLE>
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.
The accompanying notes are an integral part of these financial statements.
15
<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).
NATURE OF OPERATIONS -- The Company operates fourteen offices in rural and sub-
urban communities in south-central Alabama. The Company's primary source of
revenue is providing loans to customers, who are predominately small and mid-
dle-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 prin-
ciples 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. Under the statement, investments are classi-
fied 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 premi-
ums, 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 manage-
ment 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 avail-
able-for-sale are recorded at market value with unrealized gains and losses net
of any tax effect, added or deducted directly from stockholders' equity.
Securities carried in trading accounts are carried at market value with
unrealized gains and losses reflected in income.
At December 31, 1996 and 1995, the Company classified all securities as avail-
able for sale as part of an asset and liability strategy to maximize the flexi-
bility of its investment portfolio.
Realized and unrealized gains and losses are based on the specific identifica-
tion method.
LOANS -- Loans are stated at face value, net of unearned discount, and the al-
lowance 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 in-
terest 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 cur-
rent 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 mea-
sured for impairment based on the present value of expected future cash flows
discounted at the historical effective interest rate, while all collateral-de-
pendent loans are measured for impairment based on the fair value of the col-
lateral. The adoption of SFAS 114 and 118 resulted in no additional provision
for credit losses at January 1, 1995.
At December 31, 1996 and 1995, the recorded investment in loans for which im-
pairment has been recognized in accordance with SFAS 114 totaled $2,171,000 and
$2,729,000, respectively. These loans had a corresponding
16
<PAGE>
valuation allowance of $486,000 at December 31, 1996 and $634,000 at December
31, 1995. The impaired loans were measured for impairment using the fair value
of the collateral as approximately all of these loans were collateral depen-
dent. The average recorded investment in impaired loans during 1996 and 1995
was approximately $2,450,000 and $2,333,000, respectively. The Company recog-
nized approximately $294,000 and $315,000 of interest on impaired loans during
the period that they were impaired during 1996 and 1995, respectively.
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 accumula-
tion of related data. This data includes loan payment status, borrowers' finan-
cial data, and borrowers' operating factors such as cash flows, operating in-
come 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 deter-
mined 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 portfo-
lio, adverse situations that may affect the borrowers' ability to repay, esti-
mated 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 ON IMPAIRED AND NONACCRUAL LOANS -- Loans, including im-
paired 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 cur-
rent 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 repay-
ment performance (generally a minimum of six months) by the borrower, in accor-
dance 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 in-
terest 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 un-
til 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.
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.
17
<PAGE>
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 us-
ing the straight-line method over a period of twenty to twenty-five years.
INCOME TAXES -- Deferred tax assets and liabilities are reflected at currently
enacted income tax rates applicable to the period in which the deferred tax as-
sets or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
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, securi-
ties purchased under agreements to resell, and interest-bearing deposits in
banks.
RECLASSIFICATIONS -- Certain amounts were reclassified in the 1995 and 1994 fi-
nancial statements to conform with the 1996 presentation.
2. RESTRICTED CASH BALANCES
Aggregate reserves in the form of deposits with the Federal Reserve Bank of
$2,300,000 were maintained to satisfy federal regulatory requirements at Decem-
ber 31, 1996 and 1995.
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 share-
holders 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. INVESTMENT SECURITIES
The amortized cost and approximate market values of investment securities:
available-for-sale at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996
- ------------------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Type Cost Gains Losses Market Value
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $11,438,134 $ 50,503 $ (12,078) $11,476,559
Obligations of other U.S.
Government agencies and
corporations 41,477,832 120,694 (113,077) 41,485,449
Obligations of state and
political subdivisions 2,071,315 6,782 (28,430) 2,049,667
Collateralized mortgage
obligations 16,923,128 22,333 (109,763) 16,835,698
Mortgage-backed securities 2,586,286 25,985 (18,993) 2,593,278
Corporate and other
securities 8,528,220 (276,175) 8,252,045
----------------------------------------------
$83,024,915 $226,297 $(558,516) $82,692,696
- ------------------------------------------------------------------------------
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
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
- ------------------------------------------------------------------------------
</TABLE>
The amortized cost and approximate market value of investment securities:
available for sale at December 31, 1996, by contractual maturity, are shown be-
low. Expected maturities may differ from contractual maturities because borrow-
ers may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
Securities Available for Sale
- ---------------------------------------------------------------------------
Amortized Market
Cost Value
- ---------------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 9,786,207 $ 9,782,303
Due after one year through five years 46,985,308 46,992,601
Due after five years through ten years 2,070,074 2,042,655
Due after ten years 1,115,053 1,105,514
-----------------------------
59,956,642 59,923,073
Mortgage-backed securities 2,586,286 2,593,277
CMO's 16,923,128 16,835,697
Equity securities having no specified due
date 3,558,859 3,340,649
-----------------------------
Total $ 83,024,915 $ 82,692,696
- ---------------------------------------------------------------------------
</TABLE>
Included within Corporate and other securities are $1,236,640 in marketable
equity securities at December 31, 1996 and 1995. Also included within corporate
and other securities are $1,442,300 and $901,000 of Federal Home Loan Bank stock
and $240,550 and $236,410 of Federal Reserve Bank stock at December 31, 1996 and
1995, respectively.
Proceeds from sales of debt securities during 1996, 1995, and 1994 were
$20,962,585, $12,595,558, and $24,004,225, respectively. Gross gains of
$60,293, $47,368, and $196,900, and gross losses of $8,839, $5,613, and $72,477
were realized on those sales for 1996, 1995, and 1994, respectively.
Securities with a par value of $44,893,013 and $46,982,691 were pledged as col-
lateral for public funds deposits and repurchase agreements at December 31,
1996 and 1995, respectively.
19
<PAGE>
5. LOANS
The major categories of loans at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------
<S> <C> <C>
Commercial and industrial $ 82,001,008 $ 61,983,633
Real estate mortgage 72,036,870 57,358,808
Personal 70,618,744 71,695,143
Overdrafts and credit line 5,245,424 5,090,393
-------------------------
229,902,046 196,127,977
-------------------------
Less:
Unearned discount 1,532,167 4,996,512
Allowance for loan losses 2,484,122 2,004,891
-------------------------
$225,885,757 $189,126,574
- --------------------------------------------------------
</TABLE>
The Bank's lending is concentrated throughout Dallas, Autauga, and Butler coun-
ties 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 $16,148,000 and
$15,630,000 for 1996 and 1995, respectively. Management continually evaluates
the potential risk in this segment 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 exten-
sion of credit is based on management's credit evaluation of the customer. Col-
lateral 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, 1996.
Loans on which the accrual of interest has been discontinued or reduced
amounted to approximately $1,679,000 and $1,503,000 for 1996 and 1995, respec-
tively. If these loans had been current throughout their terms, interest income
would have increased approximately $77,000, $96,000, and $72,000 in 1996, 1995,
and 1994, respectively.
Changes in the allowance for possible loan losses were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 2,004,891 $ 2,039,578 $ 2,204,807
Provision charged to operations 1,834,811 848,001 348,000
Loans charged off (1,939,221) (1,621,446) (1,147,972)
Recoveries 583,641 738,758 634,743
-------------------------------------
Balance, end of year $ 2,484,122 $ 2,004,891 $ 2,039,578
- --------------------------------------------------------------------------
</TABLE>
20
<PAGE>
6. BANK PREMISES AND EQUIPMENT
Bank premises and equipment and accumulated depreciation at December 31, 1996
and 1995 are summarized as follows:
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------
<S> <C> <C>
Buildings $6,248,375 $6,061,228
Furniture and equipment 7,505,679 6,927,479
Land improvements 254,190 253,065
---------------------
14,008,244 13,241,772
Less accumulated depreciation 8,835,362 8,081,221
---------------------
5,172,882 5,160,551
Land 789,669 801,169
---------------------
$5,962,551 $5,961,720
- -------------------------------------------------------
</TABLE>
7. INCOME TAXES
The Company and the Bank file a consolidated income tax return. The consoli-
dated provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
Federal State Total
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
1996:
Current $1,574,601 $174,688 $1,749,289
Deferred (101,978) (4,195) (106,173)
---------------------------------------------------
$1,472,623 $170,493 $1,643,116
- ---------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------
</TABLE>
Temporary differences and carryforwards which give rise to a significant por-
tion of deferred tax assets and liabilities at December 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------
<S> <C> <C>
Allowance for possible loan losses $ 470,591 $ 320,731
Other real estate owned writedowns 101,417 82,737
Other liabilities and reserves 208,947 192,091
Intangible assets 54,373
Bank premises and equipment (455,198) (420,595)
Investment securities (64,235) (139,301)
Other (163,782) 39,566
--------------------
Deferred tax asset, net $ 152,113 $ 75,229
- ------------------------------------------------------------
</TABLE>
21
<PAGE>
The provision for income taxes is different from the amount computed by apply-
ing 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>
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax statutory rate 34.0% 34.0% 34.0%
Nontaxable income on obligations of state and political
subdivisions (.9) (.6) (1.3)
Amortization of intangible assets .4 .5 (.2)
State income taxes 2.1 1.8 1.5
Low income housing credit (5.2) (3.7) (4.2)
Minimum tax credit (2.9)
Other 1.0 (3.1) 2.1
----------------
Effective tax rate 31.4% 28.9% 29.0%
- -----------------------------------------------------------------------------
</TABLE>
8. BENEFIT PLANS
The Company has a noncontributory defined benefit pension plan (the Plan) cov-
ering 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 computa-
tions for financial reporting purposes are also based on the projected unit
credit method. Pension expense was $238,216, $238,403, and $126,655, for 1996,
1995, and 1994, respectively.
The following schedule sets forth the Plan's funded status and amounts recog-
nized in the Company's financial statements as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $(4,273,614) and $(3,871,661),
respectively $(4,320,277) $(3,915,159)
------------------------
Projected benefit obligation for service
rendered to date (5,050,265) (4,499,192)
Plan assets at fair value, primarily U.S.
Treasury securities and common stocks 5,014,254 4,589,264
------------------------
Projected benefit obligation less than (in
excess of) plan assets (36,011) 90,072
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions (234,824) (405,101)
Prior service cost not yet recognized in net
periodic pension cost 232,312 270,323
Unrecognized net asset at date of initial
application (15.6 year life) (232,375) (291,588)
------------------------
Pension liability included in the consolidated
balance sheets $ (270,898) $ (336,294)
- --------------------------------------------------------------------------------
</TABLE>
Net pension cost for 1996, 1995, and 1994 includes the following components:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Service costs of benefits earned during
the period $ 263,143 $ 232,876 $ 158,396
Interest cost on projected benefit obli-
gation 320,410 286,269 263,601
Actual return on plan assets (324,135) (259,540) 150,269
Net amortization and deferral (21,202) (21,202) (445,611)
-------------------------------
$ 238,216 $ 238,403 $ 126,655
- -----------------------------------------------------------------------------
</TABLE>
22
<PAGE>
The weighted-average discount rate used in determining the actuarial present
value of the projected benefit obligation was 7% for 1996, 1995, and 1994. The
rate of increase in future compensation levels used was 3.5% for 1996, 1995,
and 1994. The expected long-term rate of return was 7% for 1996, 1995, and
1994.
During 1987, the Company established an Employee Stock Ownership Plan (ESOP), a
tax-qualified, defined contribution plan which covers substantially all employ-
ees. Contributions are determined by the Board of Directors of the Company. As
of December 31, 1996 and 1995, the ESOP holds 27,575 and 25,034 shares of com-
mon stock in the Company, respectively.
9. COMMITMENTS AND CONTINGENCIES
The Bank leases certain buildings, equipment and land under noncancelable oper-
ating leases which require various minimum annual rentals.
The total minimum rental commitment at December 31, 1996 under the leases is as
follows:
<TABLE>
<S> <C>
1997 $ 72,205
1998 69,855
1999 57,765
2000 36,724
2001 9,600
Thereafter 48,000
--------
$294,149
--------
</TABLE>
The total rental expense amounted to approximately $93,000, $76,000, and
$109,000 in 1996, 1995, and 1994, 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, 1996 will have a materially
adverse effect on the Company's financial statements.
10. 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 $8,578,373 and $6,865,453 at December 31, 1996 and 1995,
respectively. A summary of the loan activity with these related parties during
1996 is shown below:
<TABLE>
<S> <C>
Balance, beginning of year $ 6,865,453
Additions 8,453,046
Payments (6,740,126)
-----------
Balance, end of year $ 8,578,373
-----------
</TABLE>
During 1996, 1995, and 1994, the Company paid legal fees of approximately
$105,000, $101,000, and $62,000, respectively, to a law firm in which a partner
of the firm serves on the board of directors of the Company.
11. SEGMENT INFORMATION
The Company operates in one business segment, banking. Accordingly, all
financial information is presented for that one industry segment.
12. REGULATORY MATTERS
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
23
<PAGE>
two calendar years. The Bank obtained regulatory approval as applicable for the
payment of dividends in 1996, 1995, and 1994.
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory--and possibly additional discretionary--actions
by regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the regu-
latory framework for prompt corrective action, the Company must meet specific
capital guidelines that involve quantitative measures of the Company's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Company's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy re-
quire the Company to maintain minimum amounts and ratios (set forth in the ta-
ble below) of total and Tier I (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier I capital (as defined) to average assets (as
defined). Management believes, as of December 31, 1996, that the Company meets
all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Company as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Company must maintain minimum total risk-based, Tier I risk-
based, and Tier I capital ratios as set forth in the table. There are no condi-
tions or events since that notification that management believes have changed
the institution's category.
The Company's and the Bank's actual capital amounts and ratios are also pre-
sented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
-------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Company
As of December 31, 1996
Total Capital (to Risk Weighted Assets) 35,952 14.88% 19,324 8.00% 24,155 10.00%
Tier 1 Capital (to Risk Weighted Assets) 33,468 13.86% 9,662 4.00% 14,493 6.00%
Tier 1 Capital Ratio (to Average Assets) 33,468 10.42% 12,853 4.00% 16,067 5.00%
As of December 31, 1995
Total Capital (to Risk Weighted Assets) 32,737 13.97% 18,747 8.00% 23,434 10.00%
Tier 1 Capital (to Risk Weighted Assets) 30,732 13.11% 9,374 4.00% 14,060 6.00%
Tier 1 Capital Ratio (to Average Assets) 30,732 10.02% 12,263 4.00% 15,329 5.00%
The Bank
As of December 31, 1996
Total Capital (to Risk Weighted Assets) 36,226 15.05% 19,263 8.00% 24,078 10.00%
Tier 1 Capital (to Risk Weighted Assets) 33,742 14.01% 9,631 4.00% 14,447 6.00%
Tier 1 Capital Ratio (to Average Assets) 33,742 10.51% 12,842 4.00% 16,052 5.00%
As of December 31, 1995
Total Capital (to Risk Weighted Assets) 33,074 14.12% 18,744 8.00% 23,431 10.00%
Tier 1 Capital (to Risk Weighted Assets) 31,069 13.26% 9,372 4.00% 14,058 6.00%
Tier 1 Capital Ratio (to Average Assets) 31,069 9.70% 12,813 4.00% 16,017 5.00%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
13. 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.
24
<PAGE>
14. 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 re-
flect 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 in-
struments. 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 re-
quire payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily rep-
resent future cash requirements. The Bank had approximately $23,810,000 and
$24,107,000 in commitments to extend credit at December 31, 1996 and 1995, re-
spectively. 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 cus-
tomer. Collateral held varies, but may include accounts receivable, inventory,
property, plant and equipment, residential real estate and income-producing
commercial properties.
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, includ-
ing 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 in-
clude accounts receivable, inventory, property, plant and equipment and resi-
dential real estate for those commitments for which collateral is deemed neces-
sary. The Bank had approximately $1,051,000 and $1,106,000 in irrevocable
standby letters of credit at December 31, 1996 and 1995, respectively.
15. 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 market-
able 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 bor-
rowers 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.
SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE AND OTHER BORROWED FUNDS --
The carrying amount is a reasonable estimate of fair value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT -- The value of
these unrecognized financial instruments is estimated based on the fee in-
come associated with the commitments. Such fee income is not
25
<PAGE>
material to the Company's financial statements at December 31, 1996 and 1995
and, therefore, the fair value of these commitments is not presented.
The estimated fair values of the Company's financial instruments at December
31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash
equivalents $ 22,014,821 $ 22,014,821 $ 18,601,769 $ 18,601,769
Investment securities:
available for sale 82,692,696 82,692,696 97,587,091 97,587,091
Loans, net 225,885,757 225,283,808 189,126,574 190,893,285
---------------------------------------------------
$330,593,274 $329,991,325 $305,315,434 $307,082,145
- -------------------------------------------------------------------------------
Financial liabilities:
Deposits $288,385,162 $289,751,381 $272,781,941 $274,517,255
Securities sold under
agreements to
repurchase 4,924,708 4,924,708 5,019,105 5,019,105
Other borrowed funds 13,412,729 13,412,729 6,215,638 6,215,638
---------------------------------------------------
$306,722,599 $308,088,818 $284,016,684 $285,751,998
- -------------------------------------------------------------------------------
</TABLE>
16. FINANCIAL ACCOUNTING DEVELOPMENTS
In June 1996, the Financial Accounting Standards Board issued Statement of Fi-
nancial Accounting Standards No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities (SFAS No. 125). SFAS No.
125 requires that liabilities and derivatives incurred or obtained by transfer-
ors as part of a transfer of financial assets be initially measured at fair
value, if practicable. This statement also requires that servicing assets and
other retained interests in the transferred assets be measured by allocating
the previous carrying amount between the assets sold, if any, and retained in-
terests, if any, based on their relative fair values at the date of transfer.
SFAS No. 125 is effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996 and is to be
applied prospectively. However, in December 1996, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 127, De-
ferral of the Effective Date of Certain Provisions of FASB Statement No. 125.
This statement defers for one year the effective date of certain provisions of
SFAS No. 125 relating to repurchase agreements, dollar-roll transactions, de-
ferred securities lending and similar transactions. The effective date for all
other transactions addressed by SFAS No. 125 is unchanged. Management does not
believe that the adoption of SFAS No. 125 will have a material impact on the
Company's financial statements.
17. STOCK OPTION PLAN
The Company has a stock option plan (the 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, 1996. Options granted under
the Plan become exercisable after six months of continued employment from the
date of grant.
On January 1, 1996 the Company adopted Statement of Financial Accounting Stan-
dards No. 123, Accounting for Stock-Based Compensation (SFAS 123). As permitted
by SFAS 123, the Company has chosen to apply APB Opinion No. 25, Accounting for
Stock Issued to Employees (APB 25) and related interpretations in accounting
for its Plan. Accordingly, no compensation cost has been recognized for options
granted under the Plan. Had compensation cost for the Company's plan been de-
termined based on the fair value at the grant dates for awards under the Plan
consistent with the method of SFAS 123, the impact on the Company's net income
and net income per share would not have been material.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average assump-
tions used for grants in both 1996 and 1995; dividend yield of 1.76%; expected
volatility of 31.2%; risk-free interest rate of 5.02%; and expected life of
8.76 years.
26
<PAGE>
A summary of the status of the Company's plan as of December 31, 1996, 1995,
and 1994, and changes during the years ending on those dates is presented be-
low:
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 23,350 $14.62 15,250 $14.22 9,750 $13.16
Granted 8,100 20.36 8,100 15.37 8,200 15.33
Expired (2,700) 13.76
------------------------------------------------
Outstanding at end of
year 31,450 16.10 23,350 14.62 15,250 14.22
------------------------------------------------
Options exercisable at
year-end 31,450 16.10 23,350 14.62 15,250 14.22
Weighted-average per
share fair value of
options granted during
the year (1) $ 6.45 $ 4.62 N/A
- -------------------------------------------------------------------------------
</TABLE>
(1) In accordance with SFAS No. 123, the fair value of options granted prior to
December 15, 1994, was not estimated.
The following table summarizes information about the Plan's stock options at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/96 Life Price at 12/31/96 Price
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$12.77 - $14.05 8,250 4.5 years $13.24 8,250 $13.24
$15.00 - $16.50 15,100 6.75 years 15.38 15,100 15.38
$19.87 - $21.86 8,100 7.81 years 20.36 8,100 20.36
---------------------------------------------------
31,450 31,450
- --------------------------------------------------------------------------
</TABLE>
27
<PAGE>
18. THE PEOPLES BANCTRUST COMPANY, INC. (PARENT COMPANY ONLY)
Presented below and on the following page are the financial statements of The
Peoples BancTrust Company, Inc.
BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash * $ 94,120 $ 92,036
Investment in subsidiary bank, The Peoples Bank and
Trust Company * 34,358,579 31,684,792
Other assets 266,879 224,650
------------------------
Total assets $34,719,578 $32,001,478
- ------------------------------------------------------------------------------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Dividends payable $ 12,596 $ 18,420
Other liabilities 521,510 468,922
------------------------
534,106 487,342
------------------------
Common stock, $.10 par value; 4,000,000 shares
authorized;
1,781,452 shares issued 178,146 178,146
Additional paid-in capital 7,059,591 7,059,591
Net unrealized loss on investments (net of tax
benefits of $112,954
and $114,547, respectively) (219,265) (222,355)
Retained earnings 28,454,585 25,786,339
Treasury stock, 87,758 shares, at cost (1,287,585) (1,287,585)
------------------------
34,185,472 31,514,136
------------------------
Total liabilities and stockholders' equity $34,719,578 $32,001,478
- ------------------------------------------------------------------------------
</TABLE>
* Eliminated in consolidation
28
<PAGE>
STATEMENTS OF INCOME AND RETAINED EARNINGS
for the years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash dividends received or receivable
from subsidiary * $ 1,716,000 $ 2,357,387 $ 1,527,730
Equity in subsidiary's undistributed
net income * 2,504,697 1,662,968 1,616,297
Other expense (637,856) (872,562) (789,425)
-------------------------------------
Net income 3,582,841 3,147,793 2,354,602
Retained earnings, beginning of period 25,786,339 23,500,041 21,982,482
Less: Cash dividends declared 914,595 861,495 837,043
-------------------------------------
Retained earnings, end of year $28,454,585 $25,786,339 $23,500,041
- ------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1996, 1995, and 1994
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 3,582,841 $ 3,147,793 $ 2,354,602
Adjustments to reconcile net income to
net cash provided by operating
activities:
Undistributed income of subsidiary * (2,504,697) (1,662,968) (1,616,297)
Decrease (increase) in other assets (208,229) 1,603 277,766
Increase (decrease) in other
liabilities 52,588 159,500 (136,803)
-------------------------------------
Net cash provided by operating
activities 922,503 1,645,928 879,268
-------------------------------------
Financing activities:
Treasury stock purchased (807,282)
Dividends paid (920,419) (854,510) (834,045)
-------------------------------------
Net cash used in financing
activities (920,419) (1,661,792) (834,045)
-------------------------------------
Increase (decrease) in cash and cash
equivalents 2,084 (15,864) 45,223
Cash and cash equivalents, beginning of
year 92,036 107,900 62,677
-------------------------------------
Cash and cash equivalents, end of year $ 94,120 $ 92,036 $ 107,900
- ---------------------------------------------------------------------------------
</TABLE>
* Eliminated in consolidation.
29
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Subsidiaries Percentage Owned (1) State of Incorporation
- ------------ ---------------------- ----------------------
<S> <C> <C>
The Peoples Bank and Trust Company 100% Alabama
The Peoples Agency, Inc. (2) 100% Alabama
Loan Express, Inc. (2) 100% Alabama
</TABLE>
- ---------------------
(1) At December 31, 1996.
(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 in the registration statement of
The Peoples BancTrust Company, Inc. on Form S-3 (File No. 33-60935) of our
report dated February 7, 1997, on our audits of the consolidated financial
statements as of December 31, 1996 and 1995, and for each of the three years in
the period ended December 31, 1996 in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand LLP
Birmingham, Alabama
March 27, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 0
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,912
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 82,693
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 228,370
<ALLOWANCE> (2,484)
<TOTAL-ASSETS> 343,301
<DEPOSITS> 288,385
<SHORT-TERM> 11,925
<LIABILITIES-OTHER> 2,393
<LONG-TERM> 6,413
0
0
<COMMON> 178
<OTHER-SE> 34,007
<TOTAL-LIABILITIES-AND-EQUITY> 343,301
<INTEREST-LOAN> 20,031
<INTEREST-INVEST> 5,187
<INTEREST-OTHER> 447
<INTEREST-TOTAL> 25,665
<INTEREST-DEPOSIT> 10,550
<INTEREST-EXPENSE> 11,220
<INTEREST-INCOME-NET> 14,445
<LOAN-LOSSES> 1,835
<SECURITIES-GAINS> 51
<EXPENSE-OTHER> 11,108
<INCOME-PRETAX> 5,226
<INCOME-PRE-EXTRAORDINARY> 5,226
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,583
<EPS-PRIMARY> 2.10
<EPS-DILUTED> 2.10
<YIELD-ACTUAL> 4.93
<LOANS-NON> 956
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 10,900
<ALLOWANCE-OPEN> 2,005
<CHARGE-OFFS> 1,939
<RECOVERIES> 584
<ALLOWANCE-CLOSE> 2,484
<ALLOWANCE-DOMESTIC> 2,484
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
