<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
---------------------
(MARK ONE)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: O-13653
THE PEOPLES BANCTRUST COMPANY, INC.
-----------------------------------
(Exact name of registrant as specified on its charter)
Alabama 63-0896239
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
310 Broad Street, Selma, Alabama 36701
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(334) 875-1000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter time 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
---
As of the close of business on August 3, 1998, 5,144,938 shares of
registrant's Common Stock, par value $.10 per share, were outstanding.
<PAGE>
PART I--FINANCIAL INFORMATION
Item 1. Financial Statements
THE PEOPLES BANCTRUST COMPANY, INC., SELMA, ALABAMA
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
In Thousands
June 30, 1998 December 31, 1997
-------------- -----------------
(Unaudited)
<S> <C> <C>
ASSETS:
Cash and due from banks $ 21,324 $ 13,984
Federal funds sold and securities purchased under
agreements to resell 26,841 6,677
-------------- --------------
Total cash and cash equivalents 48,165 20,661
Securities available-for-sale 102,573 69,737
Loans, net of unearned income 265,571 258,777
Allowance for loan losses (3,250) (2,750)
-------------- --------------
Net loans 262,321 256,027
Premises and equipment 8,639 6,589
Intangibles 10,254 666
Other real estate, net 402 243
Other assets 7,969 7,439
-------------- --------------
Total assets $ 440,323 $ 361,362
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Noninterest-bearing deposits $ 57,212 $ 49,897
Interest-bearing deposits 311,421 248,211
-------------- --------------
Total deposits 368,633 298,108
Federal funds purchased and securities sold under
agreement to repurchase 8,296 13,642
Other borrowed funds 18,143 8,297
Other liabilities 6,343 4,082
-------------- --------------
Total liabilities 401,415 324,129
Common stock 348 348
Additional paid-in capital 6,482 6,739
Treasury stock (689) (1,136)
Retained earnings 32,749 31,407
Accumulated other comprehensive income,
net of tax 18 (125)
-------------- --------------
Total stockholders' equity 38,908 37,233
-------------- --------------
Total liabilities and stockholders' equity $ 440,323 $ 361,362
============== ==============
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
1
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC., SELMA, ALABAMA
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
In Thousands, except share and per share data
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ --------------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and fees on loans $ 6,488 $ 5,401 $ 12,374 $ 10,613
Interest and dividends on investment securities 1,374 1,183 2,631 2,364
Other interest income 511 70 785 142
------------- ------------- -------------- --------------
Total interest income 8,373 6,654 15,790 13,119
Interest on deposits 3,569 2,722 6,638 5,384
Interest on borrowed funds 373 162 537 350
------------- ------------- -------------- --------------
Total interest expense 3,942 2,884 7,175 5,734
------------- ------------- -------------- --------------
Net interest income 4,431 3,770 8,615 7,385
Provision for loan losses 567 364 818 724
------------- ------------- -------------- --------------
Net interest income after provision for
loan losses 3,864 3,406 7,797 6,661
Net securities gains 16 16 30 28
Other income 1,293 1,025 2,374 1,972
Other expense 3,879 2,936 7,382 5,810
------------- ------------- -------------- --------------
Income before income taxes 1,294 1,511 2,819 2,851
Provision for income taxes 419 466 926 903
------------- ------------- -------------- --------------
Net income $ 875 $ 1,045 $ 1,893 $ 1,948
============= ============= ============== ==============
Basic weighted average number of
shares outstanding 3,429,421 3,421,525 3,424,039 3,421,525
Diluted weighted average number of shares
outstanding 3,449,877 3,475,700 3,448,865 3,474,724
Basic net income per share $ 0.26 $ 0.31 $ 0.55 $ 0.57
============= ============= ============== ==============
Diluted net income per share $ 0.25 $ 0.31 $ 0.55 $ 0.56
============= ============= ============== ==============
Dividends per share $ 0.08 $ 0.07 $ 0.16 $ 0.15
============= ============= ============== ==============
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
2
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC., SELMA, ALABAMA
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
In Thousands
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $ 875,00 $ 1,045,000 $ 1,893,000 $ 1,948,000
Other comprehensive income, net of tax:
Unrealized gains (losses) arising during period (57,108) 69,768 113,431 (349,534)
Less: reclassification adjustment for gains
included in net income 16,263 16,232 29,948 27,799
---------- ----------- ------------ -----------
Other comprehensive income/loss (40,845) 86,000 143,379 (321,735)
Comprehensive income $ 834,155 $ 1,131,000 $ 2,036,379 $ 1,626,285
========== =========== ============ ===========
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
THE PEOPLES BANCTRUST COMPANY, INC., SELMA, ALABAMA
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
In Thousands
(Unaudited)
Six Months Ended June 30,
------------------------------
1998 1997
----------- ------------
<S> <C> <C>
Net cash provided (used) by operating activities $ 4,075 $ 2,619
Cash flows from investing activities
Proceeds from sales of securities available for sale 15,521 10,226
Proceeds from maturities and calls of securities
available for sale 18,230 9,957
Purchase of securities available for sale (36,570) (10,515)
Net decrease/(increase) in loans 20,395 (3,440)
Purchases of bank premises and equipment (998) (869)
Proceeds from sale of bank premises and equipment 207 0
Investment in low income housing projects (676) (676)
Investment in other real estate and equipment (269) 0
Investment in Merchants & Planters (net) (10,317) 0
--------- ---------
Net cash provided by investing activities 5,523 4,663
Cash flows from financing activities
Net increase/(decrease) in deposits 14,374 (7,705)
Net increase/(decrease) in borrowed funds 3,894 (3,486)
Dividends paid (552) (507)
Stock options exercised 190 0
--------- ---------
Net cash provided/(used) by financing activities 17,906 (11,698)
Net increase/(decrease) in cash and cash equivalents 27,504 (4,416)
Cash and cash equivalents at beginning of period 20,661 22,015
--------- ---------
Cash and cash equivalents at June 30 $ 48,165 $ 17,699
Supplemental disclosure of clash information:
Cash paid during the period for:
Interest $ 6,698 $ 5,734
Taxes $ 750 $ 903
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
3
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC. AND SUBSIDIARY
Notes to the Unaudited Condensed Consolidated Financial Statements (Unaudited)
Accounting Policies:
The accompanying unaudited consolidated financial statements of The Peoples
BancTrust Company, Inc. (the "Company") and its subsidiary, The Peoples Bank and
Trust Company ("Peoples Bank"), have been prepared in accordance with generally
accepted accounting principles for interim information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. All interim amounts are subject to
year-end audit, and the results of operations for the interim periods herein are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
Commitments and Contingencies:
The Company and its subsidiaries are from time to time defendants in legal
actions arising from normal business activities. Management does not anticipate
that the ultimate liability arising from litigation outstanding at June 30,
1998, will have a materially adverse effect on the Company's financial
statements.
Comprehensive Income:
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, Reporting Comprehensive Income ("SFAS 130"). SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-purpose
financial statements. This Statement requires that all items that are required
to be recognized under accounting standards as components of comprehensive
income be reported in a financial statement that is displayed with the same
prominence as other financial statements. Comprehensive income includes all
changes in equity during a period, excluding investments by and distributions to
stockholders. As a result of implementing SFAS 130, the Company recorded other
comprehensive income (loss), net of income taxes, of $(40,845) and $143,379 for
the six months ended June 30, 1998 and 1997, respectively. These amounts had
previously been reported as a direct change in shareholders' equity and relate
to the change in unrealized gains (losses) on securities available for sale.
Segment Reporting:
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, Disclosures About Segments of a Business Enterprise and Related
Information ("SFAS 131"). SFAS 131, effective for fiscal years beginning after
December 15, 1997, establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. Early application is permitted, but is
not required, and comprehensive information for interim periods in the initial
year of application must be reported in statements for interim periods in the
second year of application.
The Company believes that the adoption of SFAS 131 will not have a
significant impact on its financial statements and disclosures as it operates in
only one reportable segment-commercial banking.
Pensions and Other Postretirement Benefits:
In February 1998, the FASB issued Statement of Financial Standards No. 132,
Employers' Disclosures About Pensions and Other Postretirement Benefits ("SFAS
132"). SFAS 132, effective for fiscal years beginning after December 15, 1997,
standardizes the disclosure requirements for pensions and other postretirement
benefits,
4
<PAGE>
eliminates certain disclosures, and requires additional information on changes
in the benefit obligations and fair values of plan assets. Restatement of
disclosures for previous periods is required.
Derivatives and Hedging Activities:
In June 1998, the FASB issued Statement of Financial Standards No. 133,
Accounting for Derivative Instruments and Hedging Activities ("SFAS 133"). SFAS
133, effective for all fiscal quarters of fiscal years beginning after June 15,
1999, establishes accounting and reporting for derivative instruments, including
certain derivative instruments embedded in other contracts, (collectively
referred to as derivatives) and for hedging activities. It requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. It
also establishes the condition under which a derivative should be designated as
hedging a specific type of exposure and requires the company to establish at the
inception of the hedge the method and measurement approach used to assess its
effectiveness.
The Company does not believe the adoption of SFAS 133 will have a
significant impact on its financial statements and disclosures as it does not
currently possess any derivative instruments.
Business Combination:
On March 6, 1998, the Company completed its acquisition of Merchants &
Planters Bancshares, Inc. (M&P). In the acquisition, shareholders of M&P
received $949.38 in cash for each outstanding share of M&P common stock (total
consideration of approximately $20,085,000). The combination was accounted for
as a purchase, with the purchase price allocated as follows:
Cash and cash equivalents $ 9,768
Securities available-for-sale 29,258
Loans, net 27,703
Premises and equipment 1,733
Intangibles 9,679
Other assets 632
Deposits (56,151)
Other borrowed funds (606)
Other liabilities (1,931)
----------
Cash paid $ 20,085
==========
5
<PAGE>
The results of operations of M&P subsequent to the acquisition date are
included in the Company's consolidated statements of income. The following pro
forma information reflects the Company's consolidated results of operations as
if the acquisition occurred at January 1, 1997:
In Thousands, except per share data
Six Months Ended June 30,
------------------------------------------
1998 1997
---- ----
Net interest income $ 8,835 $ 8,010
Net income $ 1,736 $ 1,924
Diluted earnings per share $ .50 $ .55
Earning Per Share:
The following table reflects the reconciliation of the numerator and
denominator of the basic EPS computation to the diluted EPS computation for the
quarter and six months ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998
----------------------------------------------------------
Basic Diluted
Q-T-D Y-T-D Q-T-D Y-T-D
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net income $ 875 $ 1,893 $ 875 $ 1,893
Average shares outstanding 3,429 3,424 3,429 3,424
Effect of dilutive securities options 21 25
------ --------
Diluted average shares outstanding 3,450 3,449
Earnings per share:
Net income $ 0.26 $ 0.55 $ 0.25 $ 0.55
<CAPTION>
1997
----------------------------------------------------------
Basic Diluted
Q-T-D Y-T-D Q-T-D Y-T-D
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net income $ 1,045 $ 1,948 $ 1,045 $ 1,948
Average shares outstanding 3,421 3,421 3,421 3,421
Effect of dilutive securities options 55 54
-------- --------
Diluted average shares outstanding 3,476 3,475
Earnings per share:
Net income $ 0.31 $ 0.57 $ 0.30 $ 0.56
</TABLE>
6
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
GENERAL
The following analysis focuses on the financial condition of The Peoples
BancTrust Company, Inc. (the "Company"), and should be read in conjunction with
the consolidated financial statements included in this report.
Management's discussion and analysis includes certain forward-looking
statements addressing, among other things, the Company's prospects for earnings,
asset growth and net interest margin. Forward-looking statements are accompanied
by, and identified with, such terms as "anticipates," "believes," "expects,"
"intends," and similar phrases. Management's expectations for the Company's
future necessarily involve a number of assumptions and estimates. Factors that
could cause actual results to differ from the expectations expressed herein
are: substantial changes in interest rates, and changes in the general economy;
changes in the Company's strategies for credit-risk management, interest-rate
risk management and investment activities. Accordingly, any forward-looking
statements included herein do not purport to be predictions of future events or
circumstances and may not be realized.
As discussed in the accompanying Notes to the Unaudited Condensed
Consolidated Financial Statements, the Company completed its acquisition of
Merchants & Planters Bancshares, Inc. ("M&P") on March 6, 1998 and has included
the operations and income of M&P in the income of the Company from the date of
purchase.
FINANCIAL CONDITION
Total consolidated assets of the Company and its subsidiary, The Peoples
Bank and Trust Company ("PB&T"), totaled $440,323,000 at June 30, 1998, an
increase of $78,961,000 from the December 31, 1997 total of $361,362,000. The
purchase of M&P assets on March 6, had a $81,900,000 positive effect on total
assets, whereas total assets net of M&P fell by $2,939,000. Earning assets at
June 30, 1998 were $394,985,000 as compared to $332,141,000 at December 31,
1997. The inclusion of M&P had a $64,723,000 increasing effect, whereas the
Company, excluding acquisition effect, experienced a decrease of $2,179,000 from
December 31, 1997 to June 30, 1998.
Investments
Total investment securities were $102,573,000 at June 30, 1998 as compared
to $69,737,000 on December 31, 1997. Excluding the M&P effect of $29,435,000,
the Company's securities portfolio increased $3,401,000.
At year end 1997, and June 30, 1998, the entire investment portfolio was
classified as "available for sale", resulting in the portfolio being
marked-to-market. At December 31, 1997, the portfolio had a net unrealized loss
of $125,000 as compared to a net unrealized gain of $18,000 at June 30, 1998.
Short Term Investments
Short term investments (primarily federal funds and securities purchased
under agreements to resell) totaled $26,841,000 at June 30, 1998 as compared to
$6,677,000 at December 31, 1997. This is an increase of $20,164,000, of which
$7,585,000 is attributable to M&P, with $12,579,000 attributable to the Company.
The sharp rise in the Company's short-term investments was the result of a large
influx of funds in the form of deposits during the first six months of 1998.
Management constantly monitors these funds, seeking alternative uses for them.
7
<PAGE>
Loans
Loans, net of unearned income, increased $6,794,000 from year-end 1997 to
$265,571,000 at second quarter end 1998. The addition of M&P's loan portfolio
had an increasing effect in the amount of $28,153,000, whereas the Company's
loan portfolio fell by $21,359,000. The reduction in the Company's loan
portfolio is due to lighter loan demand, and the repayment by customers of
several, large short term loans taken out at year-end 1997.
Allowance for Loan Losses
In making loans, the Company recognizes the fact that credit losses will
occur, and that the risk of loss will vary with, among other things, the type of
loan being made and the credit-worthiness of the borrower and the collateral of
the security for the loan. The allowance for loan losses is maintained at a
level believed to be adequate by management to absorb potential losses in the
Company's portfolio.
Management's determination of allowance adequacy is based, among other
things, on estimates of the historical loan loss experience, evaluations of
economic conditions in general and in various sectors of the Company's customer
base, and periodic reviews of loan portfolio quality by the Company's personnel,
and other relevant factors. Generally reserves will be provided for loans where
the ultimate collection is considered questionable by management after reviewing
the current status of loans which are contractually past due, structurally
deficient or economically depreciating, and considering the net realizable value
of the security of the loan or guarantees, if applicable. Management will
continue to monitor the Company's asset quality and will charge off loans
against the allowance for loan losses when appropriate or provide specific loss
reserves when necessary. Because the allowance is based on assumptions and
subjective judgement, it is not necessarily indicative of the actual charge-offs
which may ultimately occur.
The Company's allowance for loan losses totaled $3,250,000 at June 30, 1998
as compared to $2,750,000 at December 31, 1997. The resulting ratios of
allowance to total loans net of unearned interest were 1.22% and 1.06% as of
June 30, 1998 and December 31, 1997, respectively. Of the $3,250,000 allowance
for loan losses at June 30, 1998, $2,788,000 is attributable to the Company,
with $462,000 attributable to M&P. The amount of loans determined by management
to require special attention due to potential weaknesses as of June 30, 1998
was $8,325,000, a $761,000 decrease from the $9,086,000 reported at year end
1997. A total of $4,389,000 in business loans were classified at June 30, 1998,
with $2,295,000 in agricultural, 968,000 in real estate and $673,000 in
personal. Standing at 3.13% of the total loan portfolio, management believes the
level of classified loans to be acceptable. Management monitors fluctuations of
the loan portfolio in light of charge-offs and recoveries, as well as
anticipated economic conditions.
Deposits
At June 30, 1998, total deposits had increased $70,525,000 to $368,633,000
from their December 31, 1997 total. Of this increase, $56,151,000 was realized
in the acquisition of M&P, with the deposits of the Company having increased
$14,374,000. Analysis of the Company's increase, net of deposit acquired from
M&P, indicates that between December 31, 1997 and June 30, 1998 non-interest
bearing demand deposits increased by $1,038,000, savings accounts increased
$2,468,000, time deposits increased $4,934,000 a nd interest-bearing demand
deposits increased $5,934,000.
Liquidity
The Company has periodic needs for short-term borrowings. At June 30, 1998,
short-term borrowings in the form of federal funds purchased totaled $8,296,000,
as opposed to $13,642,000 at December 31, 1997. Other borrowed funds increased
$9,846,000 to $18,143,000 during the period, primarily to finance the M&P
acquisition. The effect of the acquisition of M&P's short-term borrowings was
minimal, representing an increase of $606,000.
8
<PAGE>
Stockholders' Equity
Total stockholders' equity at June 30, 1998 was $38,908,000 compared to
$37,233,000 at year end. The $1,675,000 increase is accounted for in
year-to-date earnings of $1,893,000 combined with a change in unrealized gain on
available for sale securities of $143,000 and a reduction of $498,000 for common
stock dividends. Stock options having a net increasing effect on stockholders'
equity of $190,000 were exercised in the first quarter 1998 as well.
Risk-based capital regulations require all bank holding companies and banks
to achieve and maintain a minimum total capital to risk-weighted assets ratio of
8.00%, at least half of which must be in the form of Tier 1 capital (consisting
of stockholders' equity less goodwill). The following table indicates the
Company's Tier 1 capital ratio and total capital ratio at June 30, 1998 were
10.02% and 11.08%, respectively. The Company maintained, at June 30, 1998, a
leverage ratio of Tier 1 capital to total as sets of 7.48% compared to the
minimum regulatory standard of 3.00% required of the strongest companies and
banks. In addition, the table indicates that the ratios of the Company's
subsidiary bank also well exceed the minimum requirements of the regulation.
Risk-Based Capital Ratios & Leverage Ratios
As of June 30, 1998
-------------------------------------------
Dollars in Thousands
RISK-BASED CAPITAL RATIOS
- -------------------------
The Company Bank
--------------------- --------------------
Tier 1 Capital $ 28,449 10.02% $ 30,164 11.25%
Tier 1 Capital - Minimum Required 11,360 4.00% 10,723 4.00%
--------- ------ --------- ------
Excess $ 17,089 6.02% $ 19,441 7.25%
Total Capital $ 31,464 11.08% $ 33,179 12.38%
Total Capital - Minimum Required 22,719 8.00% 21,446 8.00%
--------- ------ --------- ------
Excess $ 8,745 3.08% $ 11,733 4.38%
Net risk-weighted assets $ 283,988 $ 268,078
LEVERAGE RATIOS
- ---------------
Total Tier 1 Capital $ 28,449 7.48% $ 30,164 7.95%
Minimum Leverage Requirement 15,208 4.00% 11,382 3.00%
--------- ------ --------- ------
Excess $ 13,241 3.48% $ 18,782 4.95%
Average Total Assets,
Net of all intangibles $ 380,209 $ 379,409
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998, Compared to Three Months Ended June 30, 1997
The Company's profitability, like that of many financial institutions, is
dependent to a large extent upon its net interest income. Simply stated, net
interest income is the difference between interest income on interest-earning
assets, such as loans and investments, and interest expense on interest bearing
liabilities, such as deposits and borrowings.
Interest income for the second quarter of 1998 (the "1998 Quarter") was
$8,373,000 compared to $6,654,000 for the same quarter of 1997 (the "1997
Quarter"). The increase of $1,719,000 is due in large part to interest earned on
loans and investments purchased in the M&P acquisition.
9
<PAGE>
The average volume of the Company's securities portfolio increased to
$83,287,000 for the 1998 Quarter from $76,376,000 for the 1997 Quarter,
resulting in a rise in investment income of $191,000. Interest income on
investments totaled $1,374,000 for the 1998 Quarter as opposed to $1,183,000 for
the same period in 1997.
Interest income from business loans totaled $1,858,000 for the 1998
quarter, compared to $1,698,000 for the 1997 Quarter. The increase is mainly due
to volume growth from a $73,277,000 average balance to a $79,742,000 average
balance between the 1997 and 1998 quarters ended June 30. Of this $6,465,000
increase in average business loans, the inclusion of M&P accounts for
$4,669,000.
Personal loan interest income increased to $2,412,000 for the 1998 Quarter
from $1,805,000 for the same period in 1997. The average volume of personal
loans at June 30, 1997 was $69,358,000 whereas at June 30, 1998 it was
$78,538,000. The acquisition of M&P accounts for an $11,948,000 rise in average
personal loans. Average personal loans net of M&P fell by $2,768,000 between
June 30, 1997 and June 30, 1998.
Interest income earned on real estate loans totaled $2,015,000 for the 1998
Quarter as compared to $1,754,000 for the 1997 Quarter. The average volume of
real estate loans increased to $88,891,000 from $76,297,000 between the 1998 and
1997 Quarters. The addition of M&P had a minimal effect on real estate loans.
The average volume of interest-bearing deposits increased from $236,108,000
for the 1997 Quarter to $290,994,000 for the 1998 Quarter. Interest paid on
these deposits totaled $3,569,000 for the 1998 Quarter, as compared to
$2,772,000 for the 1997 Quarter. Interest-bearing deposits acquired with M&P
account for a $36,153,000 increase in the average balance of interest-bearing
deposits and a proportional increase in the interest paid on them.
Non-interest income for the 1998 Quarter totaled $1,293,000 as compared to
$1,205,000 for the same period in 1997. The M&P acquisition accounted for the
majority of the $88,000 increase in this category.
Non-interest expenses increased $943,000 to $3,879000 for the 1998 Quarter
from $2,936,000 for the 1997 Quarter. The M&P acquisition accounted for $783,000
of the increase in this category.
Income before taxes for the 1998 Quarter was $1,294,000, compared to
$1,511,000 for the same period in 1997. The income tax provision decreased
between the quarters by $47,000 to $419,000. The resulting 1998 Quarter net
income was $875,000, versus net income for the 1997 Quarter of $1,045,000.
Charges associated with the M&P acquisition, such as intangible asset
amortization and ancillary expenses associated with automations equipment
upgrades, contributed greatly to the $170,000 decrease in net income. Earnings
per share for the 1998 Quarter was $.26, compared to $.31 for the same quarter
of 1997.
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Interest income for the first half of 1998 totaled $15,790,000, up
$2,671,000 from its June 30, 1997 level of $13,119,000. Interest earned on loans
and investments purchased with M&P contributed greatly to the increase.
Interest income on the Company's investment securities portfolio for the
six months ended June 30, 1998 totaled $2,631,000, which translates to an
average annual yield of 6.47%. For the six months ended June 30, 1997, income
from investment securities totaled $2,364,000, indicating a 5.49% average annual
yield. Upon acquisition, a substantial portion of the M&P investment portfolio
was liquidated. That portion of the M&P investment portfolio remaining, was
combined with the Company's investments, and contributed to the increase in
investment income.
Interest income on the Company's loans totaled $12,374,000 for the six
month period ended June 30, 1998. For the same period 1997, interest income on
loans totaled $10,613,000. Average volume of loans for the first half of 1998
was $255,086,000 yielding a 9.70% return. For the same period 1997, the average
volume of loans was $221,390,000, earning a yield of 9.59%. That portion of the
increase in average loan volume attributable to the M&P acquisition is
$17,410,000.
10
<PAGE>
Interest expense on interest-bearing deposits for the six months ended June
30, 1998 totaled $6,638,000, indicating an average cost for deposits equal to
4.56%. For the same period 1997, interest expense on deposits totaled
$5,384,000, indicating an average cost equal to 4.58%. The average balances of
interest-bearing deposits for the six months ended June 30, 1998 and 1997 were
$290,994,000 and $235,216,000 respectively. The M&P acquisition accounts for
$36,153,000 of the $55,778,000 increase.
The resulting net interest income of the Company for six months ended June
30, 1998 totaled $8,615,000. This represents an increase of $1,230,000 over net
interest income for the same period 1997 of $7,385,000.
Provision for loan losses for the first half of 1998 totaled $818,000 as
compared to $724,000 for the same period in 1997. These are charges made against
net interest income, and applied to the allowance for loan losses.
See"--Financial Condition--Allowance for Loan Losses" above.
During the first half of 1998, non-interest income totaled $2,374,000 as
compared to $1,972,000 for the same period 1997. Non-interest income realized as
a result of the M&P acquisition accounted for a portion of the increase in this
category. The balance of the $402,000 increase is attributed to an expansion of
the Company's fee structure and marketing efforts, as well as attracting new
customer accounts.
As a consequence of the M&P acquisition, automations equipment upgrades and
building repairs and refurbishment, non-interest expense for the first half of
1998 was well above that for the same period 1997. At June 30, 1998 non-interest
expense for six months then ended totaled $7,382,000 as compared to $5,810,000
for the same period in 1997.
For the six months ended June 30, 1998, income before taxes totaled
$2,819,000 compared to $2,851,000 for the same period in 1997. The income tax
provision for six months ended June 30, 1998 totaled $926,000, whereas for the
same period in 1997 it totaled $903,000. The resulting net income at June 30,
1998 for the six months then ended totaled $1,893,000 compared to $1,948,000 for
the same period in 1997.
YEAR 2000 RISK ASSESSMENT AND ACTION PLAN
The Company is aware of the current concerns throughout the business
community of reliance upon computer software that does not properly recognize
the Year 2000 in date formats, often referred to as the "Year 2000 Problem." The
Year 2000 Problem is the result of software being written using two digits
rather than four digits to define the applicable year (i.e., "98" rather than
"1998"). A failure by a business to properly identify and correct a Year 2000
Problem in its operations could result in system failures or miscalculations. In
turn, this could result in disruptions of operations, including among other
things a temporary inability to process transactions, or otherwise engage in
routine business transactions on a day-to-day basis.
Operations of the Company depend upon the successful operation on a daily
basis of it computer software program. The Company relies upon software
purchased from third-party vendors rather than internally generated software. In
its analysis of the software, and based upon its ongoing discussions with these
vendors, a plan of action has been put in place by the Company to minimize its
risk exposure to the Year 2000 Problem.
As part of the plan, an oversight committee has been set up to monitor
vendor Year 2000 compliance, and identify systems and equipment crucial to the
Company's operations. These systems are being tested to assure they will be able
to handle the Year 200 event, thus minimizing risk to the Company.
The Company is committed to a plan for achieving Year 2000 compliance which
focuses not only on its own systems and equipment, but also on its customers.
Peoples Bank is educating and assisting customers in identifying their Year 2000
Problems. Peoples Bank has developed policies and procedures to help identify
potential risks to Peoples Bank and to gain a better understanding of how its
customers are managing their own risks associated with the Year 2000 Problem.
As of June 30, 1998, Year 2000 compliance costs have not been material. The
Company currently anticipates that its Year 2000 expenditures will total
approximately $350,000.
11
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS
See Notes to the Unaudited Condensed Consolidated Financial Statements.
ACQUISITION OF ELMORE COUNTY BANCSHARES, INC.
On December 11, 1997, the Company and Peoples Bank entered into an
Agreement and Plan of Merger and Reorganization (the "Merger Agreement") with
Elmore County Bancshares, Inc. ("Elmore County") and The Bank of Tallassee, an
Alabama commercial bank headquartered in Tallassee, Alabama which is a wholly
owned subsidiary of Elmore County. Subject to the terms, conditions and
procedures set forth therein, the Merger Agreement provided for the merger of
Elmore County with and into the Company (the "Merger"), pursuant to which each
outstanding share of Elmore County would be converted into 3.0893 shares of the
Company's common stock, with cash paid in lieu of fractional shares.
The Merger Agreement was considered and approved at separate special
meetings of the Company's and Elmore County's shareholders held on July 30,
1998. The Merger was consummated on July 31, 1998, and accounted for as a
pooling of interests. In connection with the Merger, 1,711,794 shares of the
Company's common stock were issued to Elmore County shareholders.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest sensitivity is one measure of the vulnerability of earnings to
changes in the general level of interest rates. Whenever interest-earning assets
reprice to market interest rates at a different pace than interest-bearing
liabilities, interest income performance will be affected favorably or
unfavorably during periods of changes in general interest rates. Management is
unable to predict future changes in market rates and their impact on the
Company's profitability. Management believes, however, that the Company's
current rate sensitivity position is well matched, indicating the assumption of
minimal interest rate risk. Management does not believe there to have been any
material shift in the relationship between the maturity characteristics of
interest-earning assets, and interest-bearing liabilities since December 31,
1997, and, consequently, no change in interest rate risk exposure.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Management currently is not aware of any material legal proceedings to
which the Company or Peoples Bank is a party, or to which any of their property
is subject, except as follows:
Raymond Lee Moseley, Billy Drayton v. The Peoples Bank and Trust Company,
-------------------------------------------------------------------------
et al., Circuit Court of Autauga County, Alabama, Civil Action No. CV-97-169-B.
- ------
This suit was served on Peoples Bank on August 4, 1997. The complaint alleges
that Peoples Bank and co-defendant Mountain Life Insurance Co. fraudulently and
otherwise unlawfully sold credit life insurance and accidental death insurance
to the plaintiffs, and seeks compensatory and punitive damages in unspecified
amounts. The causes of action specifically include breach of contract, fraud,
fraudulent suppression and concealment, money had and received, conversion,
conspiracy, and negligent and wanton hiring, training, and supervision. The
complaint also seeks class action status for all persons who purchased credit
life and accidental death insurance from the defendants under circumstances
similar to those alleged in the complaint. Peoples Bank's insurance carriers are
providing a defense under a reservation of rights. Peoples Bank denies the
allegations of the complaint. No depositions or other significant discovery has
taken place, except for the production of certain documents. Settlement
discussions are ongoing. The case is not set for trial.
12
<PAGE>
Sara F. Lolley and Rita Carter v. The Peoples BancTrust Company, Inc., The
--------------------------------------------------------------------------
Peoples Bank and Trust Company, et al., United States District Court for the
- --------------------------------------
Middle District of Alabama, Northern Division, Civil Action No. CV-97-W-1775-N.
This suit was served on Peoples Bank on January 9, 1998. The suit alleges
violations of Title VII of the Civil Rights Act of 1964 and 28 U.S.C. (S) 1985,
based on alleged sexual harassment by an officer of Peoples Bank. The complaint
asserts several causes of actions related to the alleged sexual harassment,
including hostile work environment, retaliation, and conspiracy to condone
impermissible conduct and impede litigation. Punitive and compensatory damages,
as well as other relief, are sought. The complaint joined Peoples Bank's
directors and certain officers as defendants. These individual defendants were
dismissed by an order of the Court on August 10, 1998. Plaintiffs admit in their
complaint that after they complained to Peoples Bank about the alleged
harassment, the harassment ended. The trial of this case is set for February 8,
1999.
William L. Ammons, d/b/a Ammons Construction Company v. Peoples Bank &
----------------------------------------------------------------------
Trust Co., 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. The Peoples Bank customer sued the
contractor, alleging that he failed to complete the construction. The contractor
contends 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.
While Peoples Bank denies liability in each case, the possibility of
exposure to liability exists. To date, the plaintiffs in such lawsuits have not
specified any alleged actual or compensatory damages. The level of potential
exposure for compensatory damages increases if a plaintiff establishes at trial
mental anguish or emotional distress from the actions complained of. Also,
substantial punitive damages have been awarded in the State of Alabama in cases
where relatively small amounts of actual damages have occurred, and jury
verdicts within the State of Alabama have been unpredictable in this regard.
Consequently, although the Company cannot estimate with certainty, at this time,
the eventual outcome or potential exposure in the above cases, the Company does
not currently anticipate that the ultimate liability arising from such
proceedings will have a materially adverse effect on the Company's financial
statements.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (SEC use only)
(b) Not applicable.
13
<PAGE>
ITEM. 4 Submission of Matters to a Vote of Security Holders
On April 14, 1998, the Company held its Annual Meeting of Shareholders at
which the following matters were considered and voted on:
Proposal I -- Election of Directors
NOMINEES FOR WITHHELD
- -------- --- --------
Julius R. Brown 3,167,723 2,927
Clyde B. Cox, Jr. 3,169,654 996
Harry W. Gamble, Jr. 3,169,654 996
Ted M. Henry 3,169,654 996
Elam P. Holley, Jr. 3,169,654 996
Edith Morthland Jones 3,169,654 996
A. D. Lovelady 3,169,654 996
Richard P. Morthland 3,169,654 996
Thomas E. Newton 3,169,654 996
David Y. Pearce 3,169,654 996
C. Ernest Smith 3,169,654 996
Julius E. Talton, Sr. 3,169,654 996
There were no abstentions or broker non-votes.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
The Peoples BancTrust Company, Inc.
Date: August 17, 1998 /s/ Richard P. Morthland
----------------------------------------
Richard P. Morthland
Chairman and Chief Executive Officer
Date: August 17, 1998 /s/ Andrew C. Bearden
----------------------------------------
Andrew C. Bearden
Executive Vice President and
Chief Financial Officer
Date: August 17, 1998 /s/ Virginia L. Sellers
-----------------------
Virginia L. Sellers
Vice President and Treasurer
(Principal Accounting Officer)
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
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