<PAGE>
Registration No. 333-____
As filed with the Securities and Exchange Commission on June 30, 1998
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
THE PEOPLES BANCTRUST COMPANY, INC.
(Exact name of registrant as specified in charter)
Alabama 6022 63-0896239
- ---------------------------- ------------------------- --------------------
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Identification
Organization) Code No.) Number)
310 Broad Street
Selma, Alabama 36701
(334) 875-1000
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Edward B. Crosland, Jr., Esquire
Daniel H. Burd, Esquire
Kutak Rock
1101 Connecticut Avenue, N.W., Suite 1000
Washington, D.C. 20036
(202) 828-2400
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Approximate date of commencement of proposed sale to the public:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
_________________
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<CAPTION>
CALCULATION OF REGISTRATION FEE
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Proposed
Title of Each Class of Proposed Maximum Maximum Amount of
Securities to be Amount to be Offering Price Per Aggregate Registration
Registered (1) Registered Unit Offering Price Fee (3)
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<S> <C> <C> <C> <C>
Common Stock, 1,711,905 (2) $15,125,000 $4,462
$.10 par value shares
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</TABLE>
(1) This Registration Statement relates to the securities of the Registrant
issuable to holders of Common Stock of Elmore County Bancshares, Inc.,
("Elmore County") in the proposed merger of Elmore County with and into the
Registrant (the "Merger").
(2) Not applicable.
(3) Pursuant to Rule 457(f)(2), the registration fee was computed on the basis
of the book value per share of the common stock, $0.05 par value per share,
of Elmore County as of the latest practicable date. Of such amount, $3,025
was previously paid by the Registrant with respect to preliminary proxy
materials for the Merger. Pursuant to Exchange Act Rule 0-11(a)(2), the
balance of $1,437 is paid with this filing.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
ELMORE COUNTY BANCSHARES, INC.
304 BARNETT BOULEVARD
TALLASSEE, ALABAMA 36078
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Elmore County Bancshares, Inc. ("Elmore County") to be held on
_________________, _______________, 1998 at ___ __.m., local time, at the main
office of The Bank of Tallassee, 304 Barnett Boulevard, Tallassee, Alabama.
Notice of the Special Meeting, a Joint Proxy Statement/Prospectus and a proxy
are enclosed.
The Special Meeting has been called for the purpose of considering and
voting upon an Agreement and Plan of Merger and Reorganization (the "Merger
Agreement").
Approval of the Merger Agreement will approve the merger of Elmore
County and The Peoples BancTrust Company, Inc. ("PBTC"), pursuant to which each
outstanding share of Elmore County common stock will be converted into
approximately 3.0893 shares of common stock of PBTC, with cash paid in lieu of
fractional share interests.
In the opinion of your Board of Directors the merger is in the best
interests of Elmore County and its shareholders. The resulting financial
institution should be in an enhanced competitive position with respect to other
financial institutions in our market area. Economies of scale in the operation
of the resulting institution are expected to be achieved through the merger by
the consolidation, integration or coordination of functional areas. The larger
size, enhanced competitive position, expanded market area and operating
efficiencies should increase our ability to expand further both through internal
growth and acquisitions. The Elmore County shareholders will have a significant
equity interest in the resulting financial institution and should benefit from
their investment in a larger, more competitive and efficient organization, and
possibly from a more liquid market for their common stock. T. Stephen Johnson &
Associates, Inc., Elmore County's financial advisor, has advised your Board of
Directors that in its opinion the financial terms of the Merger Agreement are
fair to Elmore County shareholders.
Your Board of Directors has unanimously approved the Merger Agreement,
believes that the Merger Agreement is in the best interest of Elmore County and
its shareholders and, accordingly, recommends that you vote "FOR" adoption of
the Merger Agreement. You are urged to read the accompanying Joint Proxy
Statement/Prospectus, which provides detailed information concerning the Merger
Agreement and related matters.
It is important that your shares be represented at the Special Meeting
of Shareholders. Whether or not you plan to attend the Special Meeting in
person, you are requested to complete, date and sign the enclosed proxy and
return it promptly in the envelope provided.
Thank you for your cooperation and continuing support.
Sincerely,
_________________________
Arnold B. Dopson
Chairman of the Board
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC.
310 BROAD STREET
SELMA, ALABAMA 36701
Dear Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of The Peoples BancTrust Company, Inc. ("PBTC"), to be held on
______________________, ____________________, 1998 at __ __.m., local time, at
the main office of The Peoples Bank and Trust Company, 310 Broad Street, Selma,
Alabama. Notice of the Special Meeting, a Joint Proxy Statement/Prospectus and
a proxy are enclosed.
The Special Meeting has been called for the purpose of considering and
voting upon an Agreement and Plan of Merger and Reorganization (the "Merger
Agreement").
Approval of the Merger Agreement will approve the merger of Elmore
County Bancshares, Inc. ("Elmore County") and PBTC, pursuant to which each
outstanding share of Elmore County common stock will be converted into
approximately 3.0893 shares of common stock of PBTC, with cash paid in lieu of
fractional share interest.
In the opinion of your Board of Directors the merger is in the best
interests of PBTC and its shareholders. The resulting financial institution
should be in an enhanced competitive position with respect to other financial
institutions in our market area. Economies of scale in the operation of the
resulting institution are expected to be achieved through the merger by the
consolidation, integration or coordination of functional areas. The larger
size, enhanced competitive position, expanded market area and operating
efficiencies should increase our ability to expand further both through internal
growth and acquisitions. Baxter Fentriss and Company, PBTC's financial advisor,
has advised your Board of Directors that in its opinion the financial terms of
the Merger Agreement are fair to PBTC shareholders.
Your Board of Directors has unanimously approved the Merger Agreement,
believes that the Merger Agreement is in the best interest of PBTC and its
shareholders and, accordingly, recommends that you vote "FOR" adoption of the
Merger Agreement. You are urged to read the accompanying Joint Proxy
Statement/Prospectus, which provides detailed information concerning the Merger
Agreement and related matters.
It is important that your shares be represented at the Special Meeting
of Shareholders. Whether or not you plan to attend the Special Meeting in
person, you are requested to complete, date and sign the enclosed proxy and
return it promptly in the envelope provided.
Thank you for your cooperation and continuing support.
Sincerely,
____________________________
Richard P. Morthland
Chairman of the Board and
Chief Executive Officer
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
304 BARNETT BOULEVARD
TALLASSEE, ALABAMA 36078
(334) 283-6581
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NOTICE OF SPECIAL MEETING OF THE SHAREHOLDERS
TO BE HELD ON , 1998
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NOTICE IS HEREBY GIVEN that a special meeting of the shareholders (the
"Special Meeting") of Elmore County Bancshares, Inc. ("Elmore County") is
scheduled to be held on __________, ________ __, 1998 at __:__ .m., local time,
at the main office of The Bank of Tallassee ("Tallassee Bank"), 304 Barnett
Boulevard, Tallassee, Alabama.
A PROXY CARD AND A JOINT PROXY STATEMENT/PROSPECTUS FOR THE SPECIAL MEETING
ARE ENCLOSED.
The Special Meeting is for the purpose of considering and acting upon:
1. The approval of the Agreement and Plan of Merger and Reorganization
dated as of December 11, 1997, by and among Elmore County, Tallassee Bank, The
Peoples BancTrust Company, Inc. ("PBTC"), and The Peoples Bank and Trust
Company, a copy of which is included in the accompanying Joint Proxy
Statement/Prospectus as Appendix I, and the transactions contemplated thereby,
including the merger of Elmore County with and into PBTC, pursuant to which each
outstanding share of Elmore County common stock will be converted into 3.0893
shares of common stock of PBTC (with cash paid in lieu of fractional interests).
2. Such other matters as may properly come before the Special Meeting or
any adjournments thereof, including proposals to adjourn the Special Meeting to
permit further solicitation of proxies by the Board of Directors in the event
that there are not sufficient votes to approve any proposal at the time of the
Special Meeting; provided, however, that no proxy that is voted against the
foregoing proposal will be voted in favor of adjournment to solicit further
proxies for such proposal.
Pursuant to the Bylaws, the Board of Directors has fixed the close of
business on _______ __, 1998 as the record date for the determination of
shareholders entitled to notice of and to vote at the Special Meeting. Only
holders of Common Stock of record at the close of business on that date will be
entitled to notice of and to vote at the Special Meeting or any adjournments
thereof.
YOU ARE REQUESTED TO FILL IN AND SIGN THE ENCLOSED FORM OF PROXY WHICH IS
SOLICITED BY THE BOARD OF DIRECTORS AND TO MAIL IT PROMPTLY IN THE ENCLOSED
ENVELOPE. THE PROXY WILL NOT BE USED IF YOU ATTEND AND CHOOSE TO VOTE IN PERSON
AT THE SPECIAL MEETING.
By Order of the Board of Directors
Arnold B. Dopson
Chairman of the Board
Tallassee, Alabama
________ __, 1998
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IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE SIGN, DATE, AND
COMPLETE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE THAT REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES.
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PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME
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<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC.
310 BROAD STREET
SELMA, ALABAMA 36701
(334) 875-1000
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NOTICE OF SPECIAL MEETING OF THE SHAREHOLDERS
TO BE HELD ON , 1998
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NOTICE IS HEREBY GIVEN that a special meeting of the shareholders (the
"Special Meeting") of The Peoples BancTrust Company, Inc. ("PBTC") will be held
on __________, ________ __, 1998 at __:__ .m., local time, at the main office
of The Peoples Bank and Trust Company ("Peoples Bank"), 310 Broad Street, Selma,
Alabama.
A PROXY CARD AND A JOINT PROXY STATEMENT/PROSPECTUS FOR THE SPECIAL MEETING
ARE ENCLOSED.
The Special Meeting is for the purpose of considering and acting upon:
1. The approval of the Agreement and Plan of Merger and Reorganization
dated as of December 11, 1997, by and among PBTC, Peoples Bank, Elmore County
Bancshares, Inc. ("Elmore County"), and The Bank of Tallassee, a copy of which
is included in the accompanying Joint Proxy Statement/Prospectus as Appendix I,
and the transactions contemplated thereby, including the merger of Elmore County
with and into PBTC, pursuant to which each outstanding share of Elmore County
common stock will be converted into 3.0893 shares of common stock of PBTC (with
cash paid in lieu of fractional interests).
2. Such other matters as may properly come before the Special Meeting or
any adjournments thereof, including proposals to adjourn the Special Meeting to
permit further solicitation of proxies by the Board of Directors in the event
that there are not sufficient votes to approve any proposal at the time of the
Special Meeting; provided, however, that no proxy that is voted against the
foregoing proposal will be voted in favor of adjournment to solicit further
proxies for such proposal.
Pursuant to the Bylaws, the Board of Directors has fixed the close of
business on _______ __, 1998 as the record date for the determination of
shareholders entitled to notice of and to vote at the Special Meeting. Only
holders of Common Stock of record at the close of business on that date will be
entitled to notice of and to vote at the Special Meeting or any adjournments
thereof.
YOU ARE REQUESTED TO FILL IN AND SIGN THE ENCLOSED FORM OF PROXY WHICH IS
SOLICITED BY THE BOARD OF DIRECTORS AND TO MAIL IT PROMPTLY IN THE ENCLOSED
ENVELOPE. THE PROXY WILL NOT BE USED IF YOU ATTEND AND CHOOSE TO VOTE IN PERSON
AT THE SPECIAL MEETING.
By Order of the Board of Directors
M. Scott Patterson
Secretary
Selma, Alabama
________ __, 1998
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IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO BE PRESENT IN PERSON AT THE ANNUAL MEETING, PLEASE SIGN, DATE, AND
COMPLETE THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE THAT REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES.
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<PAGE>
JOINT PROXY STATEMENT OF
ELMORE COUNTY BANCSHARES, INC.
AND
THE PEOPLES BANCTRUST COMPANY, INC.
FOR SPECIAL MEETINGS OF THEIR RESPECTIVE SHAREHOLDERS
__________________
PROSPECTUS
OF
THE PEOPLES BANCTRUST COMPANY, INC.
UP TO 1,711,905 SHARES OF COMMON STOCK
This Joint Proxy Statement/Prospectus relates to the proposed merger
(the "Merger") of Elmore County Bancshares, Inc., an Alabama corporation
("Elmore County"), with and into The Peoples BancTrust Company, Inc., an
Alabama corporation ("PBTC"), pursuant to the Agreement and Plan of Merger and
Reorganization, dated as of December 11, 1997 (the "Merger Agreement"), by and
between Elmore County and PBTC and their respective subsidiaries, The Bank of
Tallassee ("Tallassee Bank") and The Peoples Bank and Trust Company ("Peoples
Bank"). The Merger Agreement is included in Appendix I and incorporated herein
by reference.
This Joint Proxy Statement/Prospectus is being furnished to the
holders of shares of common stock, par value $.05 per share, of Elmore County
("Elmore County Common Stock") in connection with the solicitation of proxies by
the Board of Directors of Elmore County for use at a Special Meeting of
Shareholders of Elmore County (the "Elmore County Special Meeting") scheduled to
be held at the main office of Tallassee Bank, 304 Barnett Boulevard, Tallassee,
Alabama, at ___,_.m., local time, on ______, __________ ___, 1998 and at any
and all adjournments thereof.
This Joint Proxy Statement/Prospectus also is being furnished to the
holders of shares of common stock, par value $.10 per share, of PBTC ("PBTC
Common Stock") in connection with the solicitation of proxies by the Board of
Directors of PBTC for use at a Special Meeting of Shareholders of PBTC (the
"PBTC Special Meeting" and, together with the Elmore County Special Meeting, the
"Special Meetings") scheduled to be held at __:__ _.m., local time, on ______,
___________ ___, 1998 at the main office of Peoples Bank, 310 Broad Street,
Selma, Alabama, and at any and all adjournments or postponements thereof.
At the Special Meetings, the holders of Elmore County Common Stock and
PBTC Common Stock will consider and vote upon separate proposals to approve and
adopt the Merger Agreement and the transactions contemplated thereby.
Subject to the terms, conditions and procedures set forth in the
Merger Agreement, each share of Elmore County Common Stock issued and
outstanding immediately prior to the Merger will be converted into the right to
receive 3.0893 shares of PBTC Common Stock (the "Exchange Ratio"), with cash
paid in lieu of fractional share interests. Based on the last reported sale
price for PBTC Common Stock on the Nasdaq SmallCap Market on June 1, 1998
($29.50 per share), the value of 3.0893 shares of PBTC Common Stock as of that
date would have been approximately $91.13. The last sale of Elmore County
Common Stock known to Elmore County's management occurred in June 1997 at $25.00
per share. As of December 11, 1997, the last trading day preceding public
announcement of the proposed Merger, the last reported sale price for PBTC
Common Stock on the Nasdaq SmallCap Market was $24.125. PBTC's and Elmore
County's respective financial advisors have rendered opinions to the effect that
from a financial point of view, the Exchange Ratio was fair to the respective
shareholders of PBTC and Elmore County. The Merger is subject to certain
conditions, including the approval of the shareholder of PBTC and Elmore County
and the approval of the Board of Governors of the Federal Reserve Board (the
"FRB"). For additional information regarding the Merger Agreement and the terms
of the Merger, see "The Merger."
This Joint Proxy Statement/Prospectus also constitutes a prospectus of
PBTC, filed as part of the Registration Statement (defined below) with respect
to up to 1,711,905 shares of PBTC Common Stock to be issued upon consummation of
the Merger pursuant to the terms of the Merger Agreement.
This Joint Proxy Statement/Prospectus does not cover any resales of
the PBTC Common Stock offered hereby that will be received by the shareholders
deemed to be affiliates of PBTC or Elmore County upon consummation of the
Merger. No person is authorized to make use of this Joint Proxy
Statement/Prospectus in connection with such resales, although such securities
may be traded without the use of this Joint Proxy Statement/Prospectus by those
shareholders of PBTC not deemed to be affiliates of Elmore County or PBTC.
This Joint Proxy Statement/Prospectus, and the accompanying notices
and forms of proxy, are first being mailed to shareholders of Elmore County and
PBTC on or about ________________, 1998.
__________________
THE SHARES OF PBTC COMMON STOCK OFFERED HEREBY HAVE NOT BEEN APPROVED
OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL RESERVE
BOARD, ANY STATE SECURITIES COMMISSION OR ANY OTHER GOVERNMENTAL AGENCY, AND
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE FEDERAL RESERVE BOARD, ANY
STATE SECURITIES COMMISSION NOR ANY OTHER AGENCY HAS PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS JOINT PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF PBTC COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND, OR ANY OTHER
GOVERNMENTAL AGENCY.
__________________
THE DATE OF THIS JOINT PROXY STATEMENT/PROSPECTUS IS _____________
___, 1998
<PAGE>
AVAILABLE INFORMATION
PBTC is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information filed by PBTC can be obtained, upon payment of
prescribed fees, from the Public Reference Section of the SEC at Judiciary
Plaza, 450 Fifth Street, N.W., Washington D.C. 20549. Copies of such material
can be obtained at the public reference facilities of the SEC located at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at the SEC's Regional
Offices located at Northwestern Atrium Center, Suite 1400, 500 West Madison
Street, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York,
New York 10048. PBTC files its reports, proxy statements and other information
electronically with the SEC, and such material can be found at the Worldwide Web
site maintained by the SEC (http://www.sec.gov). The PBTC Common Stock is listed
on the Nasdaq SmallCap Market (trading symbol PBTC), and the material filed by
PBTC with the SEC also may be inspected at the offices of the Nasdaq Stock
Market, 1735 K Street, N.W., Washington, D.C. 20006.
PBTC has filed with the SEC a registration statement on Form S-4
(together with all amendments, schedules, and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the shares of PBTC Common Stock to be issued
pursuant to and as contemplated by the Merger Agreement. This Joint Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the SEC. The Registration Statement is
available for inspection and copying as set forth above. Statements contained in
this Joint Proxy Statement/Prospectus or in any document incorporated by
reference in this Joint Proxy Statement/Prospectus as to the contents of any
contract or other document are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each such statement being qualified in
all respects by such reference.
__________________
All information contained in this Joint Proxy Statement/Prospectus
with respect to PBTC and its subsidiaries has been supplied by PBTC, and all
information with respect to Elmore County and its subsidiaries has been supplied
by Elmore County.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
JOINT PROXY STATEMENT/PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS JOINT
PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS JOINT PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION, TO OR
FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER,
SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION.
__________________
2
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TABLE OF CONTENTS
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AVAILABLE INFORMATION................................................... 2
TABLE OF CONTENTS....................................................... 3
SUMMARY OF THE MERGER................................................... 7
General........................................................... 7
Parties to the Merger............................................. 7
Terms of the Merger; Exchange Ratio............................... 7
Vote Required..................................................... 7
Reasons for the Merger............................................ 8
Recommendations of the Boards of Directors........................ 8
Opinions of Financial Advisors.................................... 8
Required Regulatory Approvals..................................... 8
Conditions to Consummation; Termination........................... 8
Effective Time and Closing Date................................... 9
Interests of Certain Persons in the Merger........................ 9
Certain Federal Income Tax Consequences........................... 9
Resale of PBTC Common Stock....................................... 10
Dissenters' Rights............................................... 10
Expenses.......................................................... 10
Stock Option Agreement............................................ 10
Accounting Treatment.............................................. 10
Differences in the Rights of Shareholders......................... 10
Comparison of Certain Unaudited Per Share Data.................... 11
RISK FACTORS RELATING TO PBTC COMMON STOCK.............................. 13
Status of PBTC as a Bank Holding Company.......................... 13
Risks Associated with Acquisitions................................ 13
Impact of Interest Rate Changes................................... 13
Credit Risks...................................................... 14
Regulatory Risks.................................................. 14
Exposure to Local Economic Conditions............................. 14
Competition....................................................... 14
INFORMATION CONCERNING THE SPECIAL MEETINGS............................. 14
Elmore County Special Meeting..................................... 14
PBTC Special Meeting.............................................. 16
THE MERGER.............................................................. 18
General........................................................... 18
Background of and Reasons for the Merger.......................... 18
Recommendations of the Boards of Directors........................ 20
Merger Consideration.............................................. 20
Opinion of Financial Advisor to Elmore County..................... 21
Opinion of Financial Advisor to PBTC.............................. 22
Effective Time and Closing Date................................... 24
DissentersAE Rights of Appraisal.................................. 24
Conversion of Elmore County Common Stock; Procedures for
Exchange of Certificates.......................................... 25
Fractional Shares................................................. 26
Interests of Certain Persons in the Merger........................ 26
Effect on Employee Benefit Plans of Elmore County................. 27
Conditions to the Consummation of the Merger...................... 27
Required Regulatory Approvals..................................... 28
Waiver and Amendment.............................................. 29
Termination of the Merger Agreement............................... 29
Representations and Warranties.................................... 29
Covenants Pending Closing......................................... 29
Resale of PBTC Common Stock....................................... 31
Expenses.......................................................... 31
</TABLE>
3
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<TABLE>
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Anticipated Accounting Treatment................................. 31
Federal Income Tax Consequences.................................. 31
Nasdaq Listing................................................... 32
CERTAIN RELATED TRANSACTIONS........................................... 32
Stock Option Agreement........................................... 32
The Bank Merger.................................................. 34
MANAGEMENT AND OPERATIONS AFTER THE MERGER............................. 34
DESCRIPTION OF PBTC CAPITAL STOCK...................................... 34
General.......................................................... 34
Common Stock..................................................... 34
Preferred Stock.................................................. 35
Shares Available for Future Issuance............................. 35
DIFFERENCES IN RIGHTS OF SHAREHOLDERS.................................. 36
General.......................................................... 36
Issuance of Capital Stock........................................ 36
Amendment of Bylaws.............................................. 36
Removal of Directors............................................. 36
Number and Term of Directors..................................... 37
Nominations for Directors........................................ 37
Limitations on DirectorsAE Liability............................. 37
Indemnification.................................................. 37
COMPARATIVE MARKET PRICES AND DIVIDENDS................................ 38
PBTC ........................................................... 38
Elmore County.................................................... 39
PRO FORMA COMBINED FINANCIAL INFORMATION............................... 39
Condensed Pro Forma Statement of Condition (Unaudited)........... 39
Condensed Pro Forma Statements of Income (Unaudited)............. 42
SELECTED FINANCIAL AND OTHER DATA OF PBTC.............................. 47
Results of Operations............................................ 47
Selected Quarterly Information................................... 47
Financial Condition Data......................................... 47
Selected Ratios.................................................. 48
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF ELMORE COUNTY........ 49
Results of Operations............................................ 49
Selected Quarterly Information................................... 49
Financial Condition Data......................................... 49
Selected Ratios.................................................. 50
PRO FORMA SELECTED FINANCIAL DATA OF PBTC --
AND ELMORE COUNTY................................................... 51
Results of Operations............................................ 51
Financial Condition Data......................................... 51
MANAGEMENT'S DISCUSSION AND ANAYLSIS OF PBTC --
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995........................ 52
Introduction..................................................... 52
Balance Sheet Summary............................................ 52
Income Summary................................................... 54
Impact of Inflation and Changing Prices.......................... 59
Interest Rate Risk............................................... 59
Year 2000 Risk Assessment and Action Plan........................ 61
New Accounting Standards......................................... 61
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PBTC --
THREE MONTHS ENDED MARCH 31, 1998 AND 1997.......................... 62
General.......................................................... 62
Financial Condition.............................................. 62
Results of Operations............................................ 65
Impact of New Accounting Standards............................... 67
Interest Rate Risk............................................... 67
</TABLE>
4
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<TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF ELMORE COUNTY --
YEARS ENDED DECEMBER 31, 1997 AND 1996............................. 67
Introduction.................................................... 67
Summary of Financial Condition.................................. 67
Income Summary.................................................. 69
Price Changes and Inflationary Influences....................... 73
Interest Rate Risk.............................................. 73
Year 2000 Risk Assessment....................................... 74
New Accounting Standards........................................ 75
MANAGEMENT'S DISCUSSION AND ANALYSIS OF ELMORE COUNTY -
THREE MONTHS ENDED MARCH 31, 1998 AND 1997......................... 76
Introduction.................................................... 76
Summary of Financial Condition.................................. 76
Income Summary.................................................. 77
Interest Rate Risk.............................................. 78
BUSINESS OF PBTC...................................................... 78
General......................................................... 78
Acquisition of Merchants & Planters............................. 79
Lending Activities.............................................. 79
Investment Activities........................................... 83
Deposits........................................................ 84
Competition..................................................... 85
Employees....................................................... 86
Legal Proceedings............................................... 86
Properties...................................................... 87
MANAGEMENT OF PBTC.................................................... 87
Directors....................................................... 87
Directors Emeritus.............................................. 88
Executive Compensation.......................................... 88
Directors' Compensation......................................... 89
Option Grants in Fiscal Year 1997............................... 90
Aggregated Fiscal 1997 Option Exercises and Year End Option
Values.......................................................... 90
Pension Plan.................................................... 91
Compensation Committee Interlocks and Insider Participation..... 91
Certain Transactions............................................ 91
BUSINESS OF ELMORE COUNTY............................................. 91
General......................................................... 91
Lending Activities.............................................. 92
Investment Activities........................................... 94
Deposits........................................................ 95
REGULATION, SUPERVISION AND GOVERNMENTAL POLICY....................... 96
Bank Holding Company Regulation................................. 96
Bank Regulation................................................. 97
Capital Requirements............................................ 98
Effects of Governmental Policy.................................. 100
BENEFICIAL OWNERSHIP OF PBTC COMMON STOCK............................. 100
Stock Ownership of PBTC Management.............................. 100
Principal Holders of PBTC Common Stock.......................... 101
BENEFICIAL OWNERSHIP OF ELMORE COUNTY COMMON STOCK.................... 102
Stock Ownership of Elmore County Management..................... 102
Principal Holders of Elmore County Common Stock................. 103
DATE FOR SUBMISSION OF PBTC SHAREHOLDER PROPOSALS..................... 103
LEGAL MATTERS......................................................... 103
EXPERTS............................................................... 103
OTHER MATTERS......................................................... 104
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS............................. F-1
</TABLE>
APPENDICES
APPENDIX I -- AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
APPENDIX II -- DISSENTERS' RIGHTS
APPENDIX III -- OPINION OF FINANCIAL ADVISOR TO ELMORE COUNTY
APPENDIX IV -- OPINION OF FINANCIAL ADVISOR TO PBTC
6
<PAGE>
SUMMARY OF THE MERGER
This summary is qualified in its entirety by the more detailed information
appearing elsewhere herein and the Appendices hereto.
GENERAL
This Joint Proxy Statement/Prospectus relates to the Merger of Elmore
County with PBTC.
The Merger will be presented for approval at the Elmore County Special
Meeting to be held on ___________, __________, 1998 at _____ __.m., local time,
at the main office of Tallassee Bank, 304 Barnett Boulevard, Tallassee, Alabama.
The record date for the Elmore County Special Meeting is ________________, 1998.
The Merger will be presented for approval at the PBTC Special Meeting to
be held on ______, _______, 1998 at _____ __.m., local time, at the main office
of Peoples Bank, 310 Broad Street, Selma, Alabama. The record date for the PBTC
Special Meeting is _________________, 1998. See "Information Concerning the
Special Meetings."
PARTIES TO THE MERGER
Elmore County is the holding company for Tallassee Bank headquartered in
Tallassee, Alabama. Tallassee Bank conducts a general commercial and full-
service retail banking business through five branches in three communities,
Tallassee, East Tallassee and Eclectic. At March 31, 1998, Elmore County on a
consolidated basis had total assets of $92.5 million, total deposits of $76.5
million and total stockholders' equity of $15.1 million. The principal
executive offices of Elmore County are located at 304 Barnett Boulevard,
Tallassee, Alabama 36078, and its telephone number is (334) 283-6581.
PBTC is the bank holding company for Peoples Bank headquartered in Selma,
Alabama. Peoples Bank conducts a general commercial and full-service retail
banking business in Dallas, Autauga, Butler, Bibb and Elmore counties and
surrounding areas of Alabama. At March 31, 1998, PBTC on a consolidated basis
had total assets of $437.8 million, total deposits of $364.7 million and total
stockholders' equity of $38.3 million. The principal executive offices of PBTC
are located at 310 Broad Street, Selma, Alabama 36701, and its telephone number
is (334)875-1000.
TERMS OF THE MERGER; EXCHANGE RATIO
Subject to the terms, conditions and procedures set forth in the Merger
Agreement, each share of Elmore County Common Stock issued and outstanding
immediately prior to the Merger will be converted into the right to receive
3.0893 shares of PBTC Common Stock (the "Exchange Ratio"), with cash paid in
lieu of fractional share interests. Based on the last reported sale price for
PBTC Common Stock on the Nasdaq SmallCap Market on June 1,1, 1998 ($29.50 per
share), the value of 3.0893 shares of PBTC Common Stock as of that date would
have been approximately $91.13. The Exchange Ratio was negotiated between
representatives of Elmore County and PBTC.
Based upon the outstanding shares of Elmore County Common Stock and PBTC
Common Stock at March 31, 1998, shareholders of Elmore County will own
approximately 33.0% of the outstanding voting power of PBTC upon consummation of
the Merger. See "The Merger - Merger Consideration."
VOTE REQUIRED
Approval and adoption of the Merger Agreement requires the affirmative
vote of the holders of two-thirds of each of the outstanding shares of Elmore
County Common Stock and PBTC Common Stock. Elmore county's directors, executive
officers and certain persons affiliated with them own in the aggregate
approximately 32.2% of the outstanding Elmore County Common Stock and intend to
vote for the Merger. As of the record date for the PBTC Special Meeting, PBTC's
directors, executive officers and certain persons affiliated with them own in
the aggregate approximately ____% of the outstanding PBTC Common Stock
(excluding shares underlying stock
7
<PAGE>
options) and intend to vote for the Merger." See "Information Concerning the
Special Meetings," "Beneficial ownership of PBTC Common Stock" and "Beneficial
ownership of Elmore County Common Stock."
REASONS FOR THE MERGER
The Elmore County Board and the PBTC Board have each determined that the
Merger is fair to, and in the best interests of, their respective companies and
shareholders. The resulting financial institution should be in an enhanced
competitive position. Economies of scale in the operation of the resulting
institution are expected to be achieved through the Merger. The larger size,
enhanced competitive positive, expanded market area and operating efficiencies
should increase the resulting institution" ability to expand further both
through internal growth and acquisitions. Elmore County shareholders will have a
significant equity interest in the resulting financial institution and should
benefit from their investment in a larger, more competitive and efficient
organization, and possibly from a more liquid market for the PBTC Common Stock
acquired in the Merger. See "The Merger--Background of and Reasons for the
Merger."
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
The Elmore County Board and the PBTC Board have each approved the Merger
Agreement by unanimous vote and recommend that the Merger Agreement be approved
by their respective shareholders.
OPINIONS OF FINANCIAL ADVISORS
T. Stephen Johnson & Associates, Inc. ("Johnson & Associates"), the
financial advisor to Elmore County in connection with the Merger, and Baxter
Fentriss and Company ("Baxter Fentriss"), the financial advisor to PBTC in
connection with the Merger, have each delivered a written opinion (attached
hereto as Appendices III and IV) to the effect that the Exchange Ratio is fair,
from a financial point of view, to Elmore County shareholders and to PBTC
shareholders, respectively. See "The Merger--Opinion of Financial Advisor to
Elmore County" and "--Opinion of Financial Advisor to PBTC."
Required Regulatory Approvals
The Merger is subject to the receipt of prior approval by the FRB, which
has been received. See "The Merger--Required Regulatory Approvals."
CONDITIONS TO CONSUMMATION; TERMINATION
Consummation of the Merger is subject, among other things, to: (i)
approval of the Merger Agreement by the requisite vote of the shareholders of
both Elmore County and PBTC; (ii) receipt of regulatory approvals referred to
above; (iii) the absence of any regulatory or supervisory cease and desist
order, written directive, memorandum of understanding or written commitment
applying to Elmore County or Tallassee Bank; (iv) the absence of any order,
decree or injunction of a court or agency that enjoins or prohibits consummation
of the Merger; and (v) the receipt by Elmore County and PBTC of an opinion to
the effect that the Merger will be treated as a "reorganization" within the
meaning of Section 368(a) of the Internal Revenue Code.
The obligation of Elmore County and PBTC to consummate the Merger is
subject, among other things, to: (i) the accuracy of the representations and
warranties of the other parties to the Merger Agreement; (ii) the performance
and compliance by the other parties of all material obligations and with all
material covenants; (iii) satisfaction of certain conditions set forth in the
Merger Agreement; (iv) the absence of any material adverse change in the
financial condition or results of operations of the other parties; (v) the
receipt of the opinion of their financial advisors to the effect that the terms
of the Merger Agreement are fair to their shareholders from a financial point of
view; and (vi) the receipt of certain legal opinions from counsel to the other
parties.
Elmore County's obligation also is subject to the approval for listing on
the Nasdaq SmallCap Market of the PBTC Common Stock to be issued in the Merger.
PBTC's obligation also is subject, among other things, to (i) the termination
of certain employment agreements by Elmore County; (ii) the receipt of all third
party consents required by material contracts or leases of Elmore County; (iii)
the receipt by PBTC from each "affiliate" of Elmore County of a written
agreement to observe certain restrictions on the sale of PBTC Common Stock
received in the
8
<PAGE>
Merger; (iv) the receipt of an opinion from PBTC's independent accountants to
the effect that the Merger will qualify for accounting treatment as a pooling of
interests; (v) the perfection of dissenters' rights of appraisal by holders of
less than 10% of the outstanding Elmore County Common Stock; and (vi) the
receipt by PBTC of a satisfactory environmental report regarding all real
property owned by Elmore County and Tallassee Bank.
See "The Merger--Conditions to Consummation of the Merger."
The Merger Agreement may be terminated by mutual consent of the parties
thereto. The Merger Agreement may also be terminated if the Merger does not
occur on or before September 11, 1998. See "The Merger--Termination of the
Merger Agreement."
EFFECTIVE TIME AND CLOSING DATE
The Merger shall become effective after receipt of all requisite
regulatory approvals, the approval of the Merger Agreement at the Elmore County
Special Meeting and the PBTC Special Meeting, and the satisfaction or waiver of
all other conditions to the Merger (the "Effective Time"). The closing of the
Merger shall occur on the first business day following satisfaction or waiver of
all such conditions, or on such later date within 30 days thereafter as the
parties may mutually agree. See "The Merger--EFfective Time and Closing
Date."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Elmore County's management and the Elmore County Board
may be deemed to have an interest in the Merger in addition to their interests
as shareholders of Elmore County generally.
Upon consummation of the Merger, (i) Arnold B. Dopson, Chairman of the
Elmore County Board and the Board of Directors of Tallassee Bank, and Dr. D.P.
Wilbanks, a director of Elmore County and Tallassee Bank, will be elected to the
PBTC Board; (ii) Mr. Dopson and David W. Baggett, Jr., President of Elmore
County and Tallassee Bank, are expected to enter into a separate Employment
Agreement and Covenant Not to Compete (the "Employment Agreement") which
provides for employment by Tallassee Bank and/or Peoples Bank at an annual
salary of $115,000 and $76,000, respectively; (iii) Mr. Dopson's current Salary
Continuation Agreement with Tallassee Bank, which provides for continued payment
of his salary for a period of 36 months after retirement, will be assumed by
PBTC; and (iv) in consideration of Mr. Baggett's entry into the Employment
Agreement and the cancellation of his Salary Continuation Agreement, Mr. Baggett
will be paid $75,000.
Subsequent to the Merger, Tallassee Bank will be merged with and into
Peoples Bank (the "Bank Merger"). Upon consummation of the Bank Merger, Messrs.
Dopson and Baggett will become executive officers of the Tallassee Division of
Peoples Bank and the directors of Tallassee Bank will become regional advisory
directors of Peoples Bank.
See "The Merger--Interests of Certain Persons in the Merger" and
"Management and operations After the Merger."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Kutak Rock, special counsel for PBTC, have advised PBTC and Elmore County
that, in their opinion, no gain or loss will be recognized for federal income
tax purposes by Elmore County shareholders who receive PBTC Common Stock solely
in exchange for their shares of Elmore County Common Stock. Consummation of the
Merger is conditioned, among other things, upon receipt by PBTC and Elmore
County of an opinion of Kutak Rock that (i) the Merger constitutes a
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Internal Revenue Code") and (ii) no gain or loss will be
recognized by PBTC or Elmore County by reason of the Merger. See "The Merger--
Certain Federal Income Tax Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH ELMORE COUNTY SHAREHOLDER AND OTHER FACTORS,
EACH ELMORE COUNTY SHAREHOLDER IS URGED TO CONSULT SUCH HOLDER'S OWN TAX
ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE
MERGER (INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER
9
<PAGE>
TAX LAWS).
RESALE OF PBTC COMMON STOCK
The PBTC Common Stock will be freely transferable by the holders of such
shares under applicable federal securities laws, except for those shares held by
those holders who may be deemed to be "affiliates" (generally including
directors, certain executive officers and 10% or more shareholders) of Elmore
County or PBTC. See "The Merger--Resale of PBTC Common Stock."
DISSENTERS' RIGHTS
Alabama law provides for rights of appraisal for the value of the shares
of a shareholder of record of either Elmore County or PBTC who fully complies
with specified procedures. If shareholders holding greater than 10% of the
outstanding shares of Elmore County Common Stock or PBTC Common Stock exercise
dissenters' rights, a pooling of interests would be precluded for the Merger.
See "The Merger--Dissenters' Rights of Appraisal," "--Conditions to the
Consummation of the Merger," and " Anticipated Accounting Treatment." See also
Appendix II hereto.
EXPENSES
Each party to the Merger Agreement shall be responsible for its own costs
and expenses, with the following exceptions: (i) legal fees and expenses in
connection with SEC filings shall be paid equally by PBTC and Elmore County,
subject to a cap of $15,000 on Elmore County's share of such costs, and (ii) if
either party breaches its obligations or willfully fails to satisfy a condition
to consummation of the Merger, such party will be liable to the other for all of
its out-of-pocket expenses. See "The Merger--Expenses."
STOCK OPION AGREEMENT
As an inducement and condition to PBTC's entering into the Merger
Agreement, Elmore County entered into a Stock Option Agreement with PBTC, which
granted PBTC an option to purchase up to 110,273 shares of Elmore County Common
Stock (the "Option"), or approximately 19.9% of the issued and outstanding
Elmore County Common Stock, at an exercise price of $26.45 per share. The Option
may only be exercised upon the occurrence of certain specified events, none of
which, to Elmore County's and PBTC's knowledge, has occurred as of the date
hereof. The Stock Option Agreement is intended to increase the likelihood that
the Merger will be consummated in accordance with the terms of the Merger
Agreement and may be expected to discourage offers by third parties to acquire
Elmore County. See "Certain Related Transactions--Stock Option Agreement."
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a "pooling of
interests" under generally accepted accounting principles. Consummation of the
Merger is conditioned upon receipt of an opinion from PBTC's independent
accountants to the effect that the Merger qualifies for accounting treatment as
a pooling of interests. PBTC has determined that it will not consummate the
Merger unless it receives a letter from PBTC's independent accountants, Coopers
& Lybrand, L.L.P., to the effect that such independent accountants concur with
the conclusion of PBTC's and Elmore County's management that no conditions
exist with respect to each company which would preclude accounting for the
Merger as a pooling of interests. See "The Merger--Anticipated Accounting
Treatment."
DIFFERENCES IN THE RIGHTS OF SHAREHOLDERS
The rights of shareholders of Elmore County are currently determined by
reference to Alabama law and Elmore County's Articles of Incorporation and
Bylaws. Upon consummation of the Merger, Elmore County shareholders will become
shareholders of PBTC, and their rights as PBTC shareholders will be determined
by Alabama law and PBTC's Articles of Incorporation and Bylaws. Certain
differences between such Articles of Incorporation and Bylaws may affect the
rights and interests of Elmore County shareholders. See "Differences in Rights
of Shareholders."
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<PAGE>
COMPARISON OF CERTAIN UNAUDITED PER SHARE DATA
The following unaudited information reflects, where applicable, certain
comparative per share data related to book value, cash dividends paid and
income: (i) on a historical basis for PBTC and Elmore County; (ii) on a pro
forma combined basis per share of PBTC Common Stock; and (iii) on an equivalent
pro forma basis per share of Elmore Common Stock. Such pro forma information has
been prepared assuming consummation of the Merger on a pooling of interests
accounting basis as of the beginning of each of the periods presented. See "The
Merger--Anticipated Accounting Treatment."
Pro forma financial information is intended to show how the Merger might
have affected historical financial statements if the Merger had been consummated
at an earlier time. The pro forma financial information does not purport to be
indicative of the results that actually would have been realized had the Merger
taken place at the beginning of the applicable periods indicated, nor is it
indicative of the combined financial position or results of operations for any
future periods.
The information shown below should be read in conjunction with the
historical financial statements of PBTC and Elmore County, including the
respective notes thereto. See also "Pro Forma Combined Financial Information."
BOOK VALUE PER SHARE
<TABLE>
<CAPTION>
March 31, 1998 December 31, 1997
---------------- -------------------
<S> <C> <C>
Historical per share of
PBTC Common Stock............................ $11.17 $10.94
Elmore County Common Stock................... $27.30 $26.66
Pro forma combined per share of
PBTC Common Stock (1)...................... $10.40 $10.12
Equivalent pro forma per share of Elmore
County Common Stock (2).................... $32.13 $31.26
</TABLE>
_________________________
(1) The pro forma combined book value per share of PBTC Common Stock amounts
represent the sum of the pro forma combined stockholders' equity amounts,
divided by pro forma combined period-end number of shares of PBTC Common
Stock outstanding.
(2) The equivalent pro forma book value per share of Elmore County Common Stock
amounts represent the pro forma combined book value per share of PBTC
Common Stock amounts multiplied by the Exchange Ratio.
CASH DIVIDENDS PAID PER SHARE
<TABLE>
<CAPTION>
Year Ended
December 31,
Three Months Ended ----------------------
March 31, 1998 1997 1996 1995
---------------- ---- ---- ----
<S> <C> <C> <C> <C>
Historical per share of
PBTC Common Stock................ $ .08 $.31 $.27 $.26
Elmore County Common Stock..... $ .13 $.50 $.50 $.25
Equivalent pro forma per share of Elmore
County Common Stock (3) ........ $ .25 $.96 $.83 $.80
</TABLE>
____________________________
(3) The equivalent pro forma cash dividends paid per share of Elmore County
Common Stock amounts represent the historical per share of PBTC Common
Stock amounts multiplied by the Exchange Ratio, rounded to the nearest
cent. See "Comparative Market Prices and Dividends."
11
<PAGE>
NET INCOME APPLICABLE TO COMMON SHAREHOLDERS
<TABLE>
<CAPTION>
Three Months Year Ended
Ended March 31, December 31,
----------------- ----------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
Historical per share of ---- ---- ---- ---- ----
PBTC Common Stock......................... $ .30 $ .27 $ 1.17 $ 1.05 $ .89
Elmore County Common Stock................ $ .76 $ .66 $ 2.87 $ 2.45 $ 1.99
Pro forma combined per share of PBTC
Common Stock (4)........................ $ .25 $ .25 $ .98 $ .96 $ .81
Equivalent pro forma per share of Elmore
County Common Stock (5)................. $ .77 $ .77 $ 3.03 $ 2.97 $ 2.50
</TABLE>
________________________
(4) The pro forma combined income per share of PBTC Common Stock amounts
represent pro forma combined net income applicable to holders of PBTC
Common Stock, divided by pro forma combined average number of shares of
PBTC Common Stock outstanding.
(5) The equivalent pro forma income per share of Elmore County Common Stock
amounts represent pro forma combined income per share of PBTC Common Stock
amounts multiplied by the Exchange Ratio.
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<PAGE>
RISK FACTORS RELATING TO PBTC COMMON STOCK
Shareholders should carefully consider, together with the other
information contained in this Joint Proxy Statement/Prospectus, the following
risk factors in evaluating the PBTC Common Stock. Certain statements in this
Joint Proxy Statement/Prospectus, including without limitation, this section,
"Management's Discussion and Analysis of PBTC--Years Ended December 31, 1997,
1996 and 1995" and "--Three Months Ended March 31, 1998 and 1997" and
"Business of PBTC" constitute "forward-looking statements" within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause actual results, performance or achievements of PBTC
to differ materially from any future results, performance or achievements
expressed or implied by such forward-looking statements.
Such factors include, among other things, the following: the factors set
forth in this section; general and local economic conditions; risks associated
with acquisitions, legislative and regulatory initiatives; monetary and fiscal
polices of the federal government; deposit flows; the cost of funds; general
market rates of interest; interest rates on competing investments; demand for
loan products; demand for financial services; changes in accounting policies or
guidelines; and changes in the quality or composition of PBTC's loan and
investment portfolios. PBTC does not undertake and specifically disclaims any
obligation to update any forward-looking statements to reflect the occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.
STATUS OF PBTC AS A BANK HOLDING COMPANY
PBTC is a legal entity separate and distinct from Peoples Bank and Peoples
Bank's subsidiaries, although the principal source of PBTC's funds is
dividends from Peoples Bank. The right of PBTC to participate in the assets of
any subsidiary upon the latter's liquidation, reorganization or otherwise will
be subject to the claims of the subsidiaries' creditors, which will take
priority except to the extent that PBTC may itself be a creditor with a
recognized claim.
Regulations limit the amount of dividends that may be paid by Peoples Bank
to PBTC without prior approval. It is currently expected that PBTC's recent
acquisition of Merchants & Planters Bancshares, Inc. ("Merchants & Planters")
will result in a requirement of prior regulatory approval of dividends by
Peoples Bank in the two years subsequent to such acquisition. Peoples Bank is
also subject to legal restrictions which limit the transfer of funds to PBTC,
whether in the form of loans, extensions of credit, investments, asset purchases
or otherwise. See "Regulation, Supervision and Governmental Policy" and Note 12
of Notes to Consolidated Financial Statements of PBTC.
RISKS ASSOCIATED WITH ACQUISITIONS
On March 6, 1998, PBTC acquired Merchants & Planters. As the banking
industry continues to consolidate, PBTC expects to pursue other acquisitions in
the future. The future profitability of PBTC will depend upon management's
ability to improve the profitability of acquired institutions and to realize
expected operational synergies. Acquisitions involve numerous risks, including
difficulties in the assimilation of the operations of the acquired company, a
diversion of management's attention from their business concerns, risks of
entering new geographic markets, the potential loss of key employees of the
acquired company and the assumption of undisclosed liabilities. Future
acquisitions may result in dilutive issuances of equity securities, the
incurrence of additional debt and the amortization of expenses related to
goodwill and intangible assets, any of which could have a material adverse
effect on PBTC. In addition, as consolidation of the banking industry continues,
the competition for suitable acquisition candidates can be expected to increase.
PBTC competes with other banking companies for acquisition opportunities and
many of these competitors have greater financial resources and acquisition
experience than PBTC.
IMPACT OF INTEREST RATE CHANGES
PBTC's results of operations are principally dependent on net interest
income, calculated as the difference between interest earned on loans and
investments and the interest expense paid on deposits and other borrowings. Like
other banks and financial institutions, PBTC's interest income and interest
expense are affected by general economic conditions and by the policies of
regulatory authorities, including the monetary policies of the FRB. While
management has taken measures intended to manage the risks of operating in a
changing interest rate environment, there can be no assurance that such measures
will be effective in avoiding undue interest rate risk.
13
<PAGE>
CREDIT RISKS
PBTC is exposed to the risk that borrowers will be unable to repay loans
according to their terms and that collateral securing such loans (if any) may
not be sufficient in value to assure repayment. Credit losses could have a
material adverse effect on PBTC's operating results.
A primary risk facing PBTC, and financial institutions in general, is the
risk of losing principal and interest due to a borrower's failure to perform
according to the terms of such borrower's loan agreement. As of March 31, 1998,
PBTC's total loan portfolio was approximately $259.9 million, or 59.4% of its
total assets. The three largest components of the loan portfolio are real estate
loans, commercial and industrial loans, and personal loans. See "Business of
Peoples - Lending Activities." PBTC's credit risk with respect to its personal
and commercial loans relates principally to the general creditworthiness of
individuals and businesses within its market area. PBTC's credit risk with
respect to its real estate mortgage and construction loan portfolio relates
principally to the general creditworthiness of individuals and the value of real
estate serving as security for the repayment of the loans.
REGULATORY RISKS
The banking industry is heavily regulated. These regulations are primarily
intended to protect depositors and the FDIC, not shareholders or other
creditors. Regulations affecting financial institutions are undergoing
continuous change, and the ultimate effect of such changes cannot be predicted.
Regulations and the laws affecting PBTC and Peoples Bank may be modified at any
time, and new legislation affecting financial institutions may be proposed and
enacted. There is no assurance that such modifications or new laws will not
materially and adversely affect the business, condition or operations of PBTC
and Peoples Bank.
EXPOSURE TO LOCAL ECONOMIC CONDITIONS
The success of PBTC and Peoples Bank is dependent to a certain extent upon
the general economic conditions of the geographic markets they serve. Unlike
larger banks which are more geographically diversified, Peoples Bank provides
financial banking services to customers in Dallas, Autauga, Butler, Bibb and
Elmore counties and surrounding areas of Alabama. No assurance can be given
concerning the economic conditions which will exist in such markets.
COMPETITION
PBTC and Peoples Bank face substantial competition for deposit, credit and
trust relationships, as well as other sources of funding in the communities they
serve. Competing providers include other commercial banks, thrifts and trust
companies, insurance companies, mortgage banking operations, credit unions,
finance companies, money market funds and other financial and nonfinancial
companies which may offer products functionally equivalent to those offered by
PBTC and Peoples Bank. Competing providers may have greater financial resources
than PBTC and offer services within and outside PBTC's market area. See
"Business of Peoples - Competition."
INFORMATION CONCERNING THE SPECIAL MEETINGS
ELMORE COUNTY SPECIAL MEETING
PLACE, TIME AND DATE. The Elmore County Special Meeting is scheduled to
be held on __________________, 1998 at __:__ .m., local time, at the main
office of The Bank of Tallassee, 304 Barnett Boulevard, Tallassee, Alabama.
This Joint Proxy Statement/Prospectus is being sent to holders of record, and
certain beneficial holders, of Elmore County Common Stock as of the Elmore
County Record Date and is accompanied by a form of proxy that the Board of
Directors of Elmore County (the "Elmore County Board") requests that
shareholders execute and return to Elmore County for use at the Elmore County
Special Meeting and at any and all adjournments or postponements thereof.
14
<PAGE>
MATTERS TO BE CONSIDERED. At the Elmore County Special Meeting, the
holders of Elmore County Common Stock as of the Elmore County Record Date will
consider and vote upon the approval and adoption of the Merger Agreement and the
transactions contemplated thereby, including the Merger. See "The Merger."
Elmore County shareholders also may consider and vote upon such other matters as
may properly be brought before the Elmore County Special Meeting, including
proposals to adjourn the Elmore County Special Meeting in the event there are
not sufficient votes to approve any proposal at the time of the Elmore County
Special Meeting; provided, however, that no proxy which is voted against any
such proposal will be voted in favor of adjournment to solicit further proxies
for such proposal. As of the date hereof, the Elmore County Board knows of no
business that will be presented for consideration at the Elmore County Special
Meeting other than the matters described in this Joint Proxy Statement/
Prospectus.
ELMORE COUNTY RECORD DATE; Vote Required. The Elmore County Board has
fixed the close of business on _______________, 1998 as the Elmore County Record
Date for determining holders of Elmore County Common Stock who are entitled to
notice of and to vote at the Elmore County Special Meeting. only holders of
record of Elmore County Common Stock at the close of business on the Elmore
County Record Date will be entitled to notice of and to vote at the Elmore
County Special Meeting. As of the Elmore County Record Date, there were
outstanding and entitled to vote at the Elmore County Special Meeting _______
shares of Elmore County Common Stock.
Each holder of record of shares of Elmore County Common Stock on the
Elmore County Record Date will be entitled to cast one vote per share on the
proposals to be considered at the Elmore County Special Meeting. Such vote may
be exercised in person or by properly executed proxy. The presence, in person or
by properly executed proxy, of the holders of a majority of the outstanding
shares of Elmore County Common Stock entitled to vote at the Elmore County
Special Meeting is necessary to constitute a quorum. Abstentions and broker non-
votes (i.e., proxies from brokers or nominees indicating that such persons have
not received instructions from the beneficial owners or other persons as to
certain proposals on which such beneficial owners or persons are entitled to
vote their shares but with respect to which the brokers or nominees have no
discretionary power to vote without such instructions) will be treated as shares
present at the Elmore County Special Meeting for purposes of determining the
presence of a quorum.
With a quorum, or in the absence of a quorum, the affirmative vote of a
majority of the shares represented at the Elmore County Special Meeting may
authorize the adjournment of the meeting.
The affirmative vote of the holders of two-thirds of the outstanding
shares of Elmore County Common Stock is required for approval and adoption of
the Merger Agreement. Therefore, abstentions and broker non-votes will have the
same effect as votes against approval of the Merger Agreement. Approval of the
Merger Agreement by the shareholders of Elmore County is a condition to, and
required for, consummation of the Merger. See "The Merger--Conditions to the
Merger."
As of the Elmore County Record Date, the directors and executive officers
of Elmore County and their affiliates beneficially owned in the aggregate
178,390 shares, or approximately 32.2% of the then-outstanding shares, of Elmore
County Common Stock entitled to vote at the Elmore County Special Meeting. See
"Beneficial Ownership of Elmore County Common Stock - Stock Ownership of Elmore
County Management." The directors and executive officers of Elmore County have
indicated that they intend to vote their shares for adoption of the Merger
Agreement. As of the Elmore County Record Date, the directors and executive
officers of PBTC and their affiliates did not beneficially own any shares of
Elmore County Common Stock.
PROXIES. Shares of Elmore County Common Stock represented by properly
executed proxies received prior to or at the Elmore County Special Meeting will,
unless such proxies have been revoked, be voted at the Elmore County Special
Meeting and any adjournments or postponements thereof, in accordance with the
instructions indicated in the proxies. EXECUTED BUT UNMARKED PRoXIES WILL BE
VoTED FoR THE APPRoVAL oF THE MERGER AGREEMENT.
Any proxy given pursuant to this solicitation or otherwise may be revoked
by the person giving it at any time before it is voted either by delivering to
the Secretary of Elmore County at 304 Barnett Boulevard, Tallassee, Alabama
36078 on or before the taking of the vote at the Elmore County Special Meeting,
a written notice of revocation bearing a later date than the date of the proxy
or a later dated proxy relating to the same shares or by attending the Elmore
County Special Meeting and voting in person. Attendance at the Elmore County
Special Meeting will not in itself constitute the revocation of a proxy.
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If any other matters are properly presented at the Elmore County Special
Meeting for consideration, the persons named in the accompanying proxy will vote
on such matters as determined by the Elmore County Board. As of the date hereof,
the Elmore County Board knows of no such other matters.
In addition to the solicitation of proxies by mail, Elmore County, through
its directors, officers and regular employees, who will not be specifically
compensated for such services, may solicit proxies personally or by telephone,
telegram or other forms of communication. Elmore County will also request
brokerage houses, nominees, fiduciaries and other custodians holding shares that
are beneficially owned by others to forward soliciting materials to beneficial
owners and will reimburse such holders for their reasonable expenses incurred in
sending proxy material to beneficial owners. Elmore County will bear its own
expenses in connection with the solicitation of proxies for the Elmore County
Special Meeting. See "The Merger--Expenses."
DISSENTERS' RIGHTS oF APPRAISAL. The holders of Elmore County Common
Stock have the right to dissent from the Merger and to receive payment of the
appraised fair value of their shares upon full compliance with Article 13 of the
Alabama Business Corporation Act (the "ABCA"). See "The Merger - Dissenters'
Rights of Appraisal." A copy of Article 13 of the ABCA is attached hereto as
Appendix II. If holders of more than 10% of the outstanding shares of Elmore
County Common Stock properly demand dissenters' rights, PBTC has the right to
decline to consummate the Merger. See "The Merger--Conditions to the Merger."
HOLDERS OF ELMORE COUNTY COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND
SIGN THE ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO ELMORE COUNTY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
HOLDERS OF ELMORE COUNTY COMMON STOCK SHOULD NOT FORWARD STOCK
CERTIFICATES WITH THEIR PROXY CARDS. IF THE MERGER IS CONSUMMATED, A LETTER OF
TRANSMITTAL WILL BE MAILED TO EACH PERSON WHO WAS A HOLDER OF SHARES OF ELMORE
COUNTY COMMON STOCK IMMEDIATELY BEFORE CONSUMMATION OF THE MERGER. ELMORE
COUNTY SHAREHOLDERS SHOULD SEND CERTIFICATES REPRESENTING ELMORE COUNTY COMMON
STOCK TO THE EXCHANGE AGENT ONLY AFTER THEY RECEIVE, AND IN ACCORDANCE WITH THE
INSTRUCTIONS CONTAINED IN, SUCH LETTER OF TRANSMITTAL.
PBTC SPECIAL MEETING
Place, Time and Date. The PBTC Special Meeting is scheduled to be held on
_____________________, 1998 at __:__ .m., local time, at the main office of
Peoples Bank, 310 Broad Street, Selma, Alabama. This Joint Proxy
Statement/Prospectus is being sent to holders of record, and certain beneficial
holders, of PBTC Common Stock as of the PBTC Record Date and is accompanied by a
form of proxy that the Board of Directors of PBTC (the "PBTC Board") requests
that shareholders execute and return to PBTC for use at the PBTC Special Meeting
and at any and all adjournments or postponements thereof.
MATTERS TO BE CONSIDERED. At the PBTC Special Meeting, the holders of
PBTC Common Stock as of the PBTC Record Date will consider and vote upon the
approval and adoption of the Merger Agreement and the transactions contemplated
thereby, including the Merger. See "The Merger." PBTC shareholders also may
consider and vote upon such other matters as may properly be brought before the
PBTC Special Meeting, including proposals to adjourn the PBTC Special Meeting in
the event there are not sufficient votes to approve any proposal at the time of
the PBTC Special Meeting; provided, however, that no proxy which is voted
against any such proposal will be voted in favor of adjournment to solicit
further proxies for such proposal. As of the date hereof, the PBTC Board knows
of no business that will be presented for consideration at the PBTC Special
Meeting other than the matters described in this Joint Proxy
Statement/Prospectus.
PBTC RECORD DATE; VOTE REQUIRED. The PBTC Board has fixed the close of
business on __________________, 1998 as the PBTC Record Date for determining
holders of PBTC Common Stock who are entitled to notice of and to vote at the
PBTC Special Meeting. Only holders of record of PBTC Common Stock at the close
of business on the PBTC Record Date will be entitled to notice of and to vote at
the PBTC Special Meeting. As of the PBTC Record Date, there were outstanding and
entitled to vote at the PBTC Special Meeting ___ shares of PBTC Common Stock.
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Each holder of record of shares of PBTC Common Stock on the PBTC Record
Date will be entitled to cast one vote per share on the proposals to be
considered at the PBTC Special Meeting. Such vote may be exercised in person or
by properly executed proxy. The presence, in person or by properly executed
proxy, of the holders of a majority of the outstanding shares of PBTC Common
Stock entitled to vote at the PBTC Special Meeting is necessary to constitute a
quorum. Abstentions and broker non-votes (i.e., proxies from brokers or nominees
indicating that such persons have not received instructions from the beneficial
owners or other persons as to certain proposals on which such beneficial owners
or persons are entitled to vote their shares but with respect to which the
brokers or nominees have no discretionary power to vote without such
instructions) will be treated as shares present at the PBTC Special Meeting for
purposes of determining the presence of a quorum.
With a quorum, or in the absence of a quorum, the affirmative vote of a
majority of the shares represented at the PBTC Special Meeting may authorize the
adjournment of the meeting.
The affirmative vote of the holders of two-thirds of the outstanding
shares of PBTC Common Stock is required for approval and adoption of the Merger
Agreement. Therefore, abstentions and broker non-votes will have the same
effect as votes against approval of the Merger Agreement. Approval of the
Merger Agreement by the shareholders of PBTC is a condition to, and required
for, consummation of the Merger. See "The Merger Conditions to the Merger."
As of the PBTC Record Date, the directors and executive officers of PBTC
and their affiliates beneficially owned in the aggregate _____ shares (excluding
shares underlying stock options), or approximately ____% of the then-outstanding
shares, of PBTC Common Stock entitled to vote at the PBTC Special Meeting. The
directors and executive officers of PBTC have indicated that they intend to vote
their shares for adoption of the Merger Agreement. As of the PBTC Record Date,
the directors and executive officers of Elmore County and their affiliates did
not beneficially own any shares of PBTC Common Stock.
Proxies. Shares of PBTC Common Stock represented by properly executed
proxies received prior to or at the PBTC Special Meeting will, unless such
proxies have been revoked, be voted at the PBTC Special Meeting and any
adjournments or postponements thereof, in accordance with the instructions
indicated in the proxies. EXECUTED BUT UNMARKED PROXIES WILL BE VOTED FOR THE
APPROVAL OF THE MERGER AGREEMENT.
Any proxy given pursuant to this solicitation or otherwise may be revoked
by the person giving it at any time before it is voted either by delivering to
the Secretary of PBTC at 310 Broad Street, Selma, Alabama 36701 on or before
the taking of the vote at the PBTC Special Meeting, a written notice of
revocation bearing a later date than the date of the proxy or a later dated
proxy relating to the same shares or by attending the PBTC Special Meeting and
voting in person. Attendance at the PBTC Special Meeting will not in itself
constitute the revocation of a proxy.
If any other matters are properly presented at the PBTC Special Meeting
for consideration, the persons named in the accompanying proxy will vote on such
matters as determined by the PBTC Board. As of the date hereof, the PBTC Board
knows of no such other matters.
In addition to the solicitation of proxies by mail, PBTC, through its
directors, officers and regular employees, who will not be specifically
compensated for such services, may solicit proxies personally or by telephone,
telegram or other forms of communication. PBTC will also request brokerage
houses, nominees, fiduciaries and other custodians holding shares that are
beneficially owned by others to forward soliciting materials to beneficial
owners and will reimburse such holders for their reasonable expenses incurred in
sending proxy material to beneficial owners. PBTC will bear its own expenses in
connection with the solicitation of proxies for the PBTC Special Meeting. See
"The Merger--Expenses."
Dissenters' Rights of Appraisal. The holders of PBTC Common Stock have the
right to dissent from the Merger and to receive payment of the appraised fair
value of their shares upon full compliance with Article 13 of the ABCA. See "The
- --Merger Dissenters' Rights of Appraisal." A copy of Article 13 of the ABCA is
attached hereto as Appendix II.
HOLDERS OF PBTC COMMON STOCK ARE REQUESTED TO COMPLETE, DATE AND SIGN THE
ACCOMPANYING PROXY AND RETURN IT PROMPTLY TO PBTC IN THE ENCLOSED POSTAGE-PAID
ENVELOPE.
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THE MERGER
The information in this Joint Proxy Statement/Prospectus concerning the
terms of the Merger is qualified in its entirety by reference to the full text
of the Merger Agreement, which is attached hereto in Appendix I and incorporated
by reference herein. All shareholders are urged to read the Merger Agreement in
its entirety.
GENERAL
Pursuant to the Merger Agreement, Elmore County will be merged with and
into PBTC, with PBTC being the surviving entity (the "Merger"). As soon as
possible following the satisfaction or waiver of the conditions to consummation
of the Merger described below, PBTC and Elmore County will file Articles of
Merger with the Secretary of State of Alabama. The Merger will become effective
at the time, and on the date, specified in such Articles of Merger. The time and
date at which the Merger becomes effective is referred to herein as the
"Effective Time." See also "-- Effective Time and Closing Date."
Upon consummation of the Merger, each outstanding share of Elmore County
Common Stock will be automatically converted (subject to the provisions with
respect to fractional shares described under "-- Fractional Shares" below)
into approximately 3.0893 shares of PBTC Common Stock, subject to possible
adjustment as described under "-- Merger Consideration" below. At such time,
each Elmore County shareholder shall be entitled to exchange Elmore County
Common Stock certificates for PBTC Common Stock certificates and thereupon shall
cease to be a shareholder of Elmore County, and the separate existence and
corporate organization of Elmore County shall cease.
Based upon the outstanding shares of Elmore County Common Stock and PBTC
Common Stock as of March 31, 1998, the current shareholders of Elmore County
will own shares of PBTC Common Stock representing approximately 33.0% of the
outstanding voting power of PBTC following consummation of the Merger.
BACKGROUND OF AND REASONS FOR THE MERGER
BACKGROUND OF THE MERGER. In August 1997, Baxter Fentriss, an investment
banking firm based in Richmond, Virginia that previously had provided merger and
acquisition advice to PBTC, contacted PBTC's management to reintroduce Baxter
Fentriss' services and to discuss the current merger and acquisition market in
Alabama and the Southeast, merger pricing levels, potential acquisition
opportunities and acquisition parameters.
PBTC engaged Baxter Fentriss in September 1997 to advise PBTC regarding
potential acquisition opportunities in Alabama. At that time, Baxter Fentriss
representatives met with the PBTC Board and management of PBTC to discuss merger
and acquisition guidelines, key merger issues and certain preconditions for a
successful acquisition strategy. Baxter Fentriss also discussed with PBTC
possible acquisition targets, including Elmore County and Merchants & Planters,
potential acquisition structures for such transactions, the impact to PBTC and
the PBTC shareholders under various scenarios, the current valuation levels in
Alabama and the Southeast for banking institutions similar to Elmore County and
Merchants & Planters, and the ability of PBTC to pursue both potential
acquisitions under various structures and valuation ranges.
In early November 1997, Baxter Fentriss approached the senior management
of Elmore County regarding a possible affiliation with PBTC. After Elmore
County indicated its willingness to entertain a merger proposal under the
general conditions acceptable to PBTC, Baxter Fentriss met with Elmore County
senior management to discuss proposed acquisition parameters, the operations of
PBTC and Elmore County, PBTC's trading history and the ongoing roles for Elmore
County employees and management in the combined organization. Baxter Fentriss
also conveyed to Elmore County the valuation range proposed by PBTC for Elmore
County and the pro forma impact to the shareholders of PBTC and Elmore County.
In addition, Baxter Fentriss and Elmore County's management discussed various
potential opportunities for cost savings and revenue enhancement that would
solidify valuation levels.
Elmore County's management supplied Baxter Fentriss and PBTC with a list
of potential cost savings and revenue enhancement opportunities, as well as
Elmore County's 1998 budget. Baxter Fentriss then discussed with PBTC the
additional information provided by Elmore County, the current merger environment
and PBTC's recent
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stock price, volume and trading pattern and advised PBTC, in light of all
available information, regarding a firm offer for Elmore County.
Baxter Fentriss verbally submitted PBTC's proposal to acquire Elmore
County in a tax-free exchange to be accounted for as a pooling of interests.
Thereafter, Baxter Fentriss, PBTC and Elmore County negotiated financial and
non-financial terms acceptable to both sides. In addition, Elmore County
engaged Johnson & Associates, an investment banking and consulting firm based in
Roswell, Georgia, to analyze PBTC's proposal and to suggest an appropriate
exchange ratio for the Merger. Elmore County used this analysis as a resource in
negotiating the final Exchange Ratio.
At separate meetings held on December 11, 1997, the Boards of Directors of
PBTC and Elmore County reviewed with their respective senior management
officials and financial advisors the terms of the Merger Agreement, the Stock
Option Agreement and the transactions contemplated thereby, as well as the
background of the transaction, the potential financial and strategic benefits of
the Merger and financial and valuation analyses of the Merger. At the meeting
of the PBTC Board, Baxter Fentriss rendered its opinion to the Board that, as of
December 10, 1997, the consideration to be paid by PBTC in the Merger was fair
to PBTC from a financial point of view. At such meeting, the PBTC Board
unanimously adopted and approved the Merger Agreement, the Stock Option
Agreement and the transactions contemplated thereby. At the meeting of the
Elmore County Board, Johnson & Associates advised the Elmore County Board that
the Exchange Ratio was fair, from a financial point of view, to the Elmore
County shareholders. At such meeting, the Elmore County Board unanimously
adopted and approved the Merger Agreement, the Stock Option Agreement and the
transactions contemplated thereby.
REASONS FOR THE MERGER. The Elmore County Board and the PBTC Board have
each approved the Merger Agreement and determined that the Merger is fair to,
and in the best interests of, their respective companies and shareholders. In
reaching their determinations, the Elmore County Board and the PBTC Board
consulted with their respective financial advisors with respect to the financial
aspects and fairness of the Merger.
The Elmore County Board of Directors also considered a number of
additional factors in approving the Merger Agreement, including the following:
(i) The difficulty of achieving appropriate levels of profitability
and growth necessary for continued independence in view of the increasing
competition and regulatory burdens affecting smaller financial
institutions.
(ii) The financial advice rendered by Elmore County's financial
advisor that the Exchange Ratio is fair, from a financial point of view, to
the Elmore County shareholders. See "-- Opinion of Elmore County's
Financial Advisor."
(iii) The expectation that the Merger will constitute a nontaxable
transaction for Elmore County's shareholders (other than those
shareholders, if any, who exercise dissenters' rights of appraisal under
Alabama law). See "-- Federal Income Tax Consequences of the Merger."
(iv) The larger asset size of PBTC, which enables Peoples Bank to
support the staff and technology necessary to offer products and services
currently not offered by Tallassee Bank. The Elmore County Board believes
that, as a result of PBTC's size and its customer service orientation,
Elmore County's customers and local communities will benefit from the
Merger.
(v) The employment prospects for the employees of Tallassee Bank at
Peoples Bank.
The PBTC Board also considered a number of factors in approving the Merger
Agreement including, but not limited to, the following:
(i) The effectiveness of the Merger in furthering PBTC's business
strategy of enhancing shareholder value by virtue of the improved
competitive position of the combined company and the greater financial and
capital resources available to the combined entity to compete more
effectively against larger and nonregulated competitors.
(ii) The opportunities for cost savings and synergies that are
expected to result from the Merger,
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including savings to be achieved by consolidating certain back office
operations of Elmore County and eliminating certain duplicative functions
of PBTC and Elmore County.
(iii) The complementary nature of Tallassee Bank's branch network in
Elmore and Tallapoosa Counties with Peoples Bank's existing operations, and
the attractiveness of Tallassee Bank's market area for expansion by Peoples
Bank.
(iv) The enhanced opportunities for growth made possible by the
Merger, including PBTC's sale to Tallassee Bank's customer base of
additional depository and non-depository products that Tallassee Bank
currently does not provide to its customers.
(v) The PBTC Board's familiarity with and review of PBTC's
business, operations, earnings, asset quality, financial condition,
regulatory compliance and asset-liability management on an historical and
pro forma basis.
(vi) The due diligence review by PBTC's management of Elmore County
and Tallassee Bank, including Elmore County's business, operations,
earnings, asset quality, financial condition, regulatory compliance and
asset-liability management on an historical and pro forma basis.
(vii) The current and prospective economic and competitive
environment facing financial institutions generally, and PBTC in
particular.
(viii) The expectation that the Merger would be treated as a tax-free
reorganization for federal income tax purposes and accounted for as a
pooling of interests.
(ix) The opinion of PBTC's financial advisor, Baxter Fentriss, that
the Exchange Ratio pursuant to the terms of the Merger are fair to the PBTC
shareholders from a financial point of view. See "-- Opinion of PBTC's
Investment Advisor."
In reaching their respective determinations to approve and recommend the
Merger, the Elmore County Board and the PBTC Board did not assign any specific
or relative weights to the foregoing factors, and individual directors may have
given differing weights to different factors.
RECOMMENDATIONS OF THE BOARDS OF DIRECTORS
ELMORE COUNTY. The Elmore County Board has unanimously adopted the Merger
Agreement and approved the transactions contemplated thereby and has determined
that the Merger is fair to, and in the best interests of Elmore County and its
shareholders. THE ELMORE COUNTY BOARD THEREFORE RECOMMENDS A VOTE FOR APPROVAL
OF THE MERGER AGREEMENT.
For a discussion of the factors considered by the Elmore County Board in
reaching its decision to approve the Merger Agreement, see "-- Background of
and Reasons for the Merger."
PBTC. The PBTC Board has unanimously adopted and approved the Merger
Agreement and the transactions contemplated thereby and has determined that the
Merger and the issuance of shares of PBTC Common Stock pursuant to the Merger
are in the best interests of PBTC and its shareholders. THE PBTC BOARD
THEREFORE RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER AGREEMENT.
For a discussion of the factors considered by the PBTC Board in its
decision to approve the Merger Agreement, see "-- Background of and Reasons
for the Merger."
MERGER CONSIDERATION
Subject to the terms, conditions and procedures set forth in the Merger
Agreement, at the Effective Time each share of Elmore County Common Stock issued
and outstanding immediately before the Merger shall be converted into such
number of shares of PBTC Common Stock that is equal to the quotient of (A) the
product of 2.35 times the net book value per share of Elmore County Common Stock
as of September 30, 1997, divided by (B) $20.00. On the basis
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of Elmore County's net book value per share at September 30, 1997, the ratio for
the exchange of Elmore County Common Stock for PBTC Common Stock (the "Exchange
Ratio") will be 3.0893. The Exchange Ratio is subject, however, to possible
adjustment in the event that Elmore County's aggregate out-of-pocket fees and
expenses associated with the Merger exceed $25,000. In such an event, the net
book value of Elmore County for the purpose of calculating its net book value
per share as of September 30, 1997 will be reduced by the difference between
such out-of-pocket fees and expenses and $25,000. As of the date hereof, it is
anticipated that the Exchange Ratio will not be adjusted as a result of Elmore
County's fees and expenses.
Assuming that the Exchange Ratio is not adjusted, the Elmore County
shareholders will receive 3.0893 shares of PBTC Common Stock for each share of
Elmore County Common Stock (the "Merger Consideration"). Based on the last
reported sale price for PBTC Common Stock on the Nasdaq SmallCap Market as of
June 1, 1998 ($29.50 per share), the value of 3.0893 shares of PBTC Common Stock
as of that date would have been approximately $91.13. The last known sale of
Elmore County Common Stock (which occurred in June 1997) was $25.00 per share.
The market value of the PBTC Common Stock to be received in the Merger, however,
is subject to fluctuation, which could result in an increase or decrease in the
value of the Merger Consideration to be received by the Elmore County
shareholders. An increase in the market value of PBTC Common Stock would
increase the market value of the Merger Consideration to be paid in the Merger,
while a decrease in the market value of PBTC Common Stock would have the
opposite effect. The market value of the Merger Consideration at the time of the
Merger will depend upon various factors, including the market value of share of
a share of PBTC Common Stock at such time and any effect of the Merger itself.
OPINION OF FINANCIAL ADVISOR TO ELMORE COUNTY
Johnson & Associates was retained by Elmore County to render an opinion as
to the fairness from a financial point of view of the consideration to be
received by the Elmore County shareholders in connection with the Merger.
Johnson & Associates is an investment banking and consulting firm based in
Roswell, Georgia, that specializes in the valuation of closely-held corporations
and provides fairness opinions as part of its practice. Because of its prior
experience in the appraisal of Southeastern financial institutions involved in
mergers, Johnson & Associates has developed an expertise in fairness opinions
related to the securities of Southeastern financial institutions. Johnson &
Associates is not affiliated with Elmore County or PBTC.
The Elmore County Board first retained Johnson & Associates in the Fall of
1997 to analyze the proposed Merger and suggest an exchange ratio for the
Merger. The analysis provided by Johnson & Associates was used as a resource by
the Elmore County Board in negotiating the Exchange Ratio.
In accordance with the Merger Agreement, Johnson & Associates has
delivered its fairness opinion to the Board of Directors of Elmore County. A
copy of Johnson & Associates' updated fairness opinion is attached as Appendix
III to this Joint Proxy Statement/Prospectus.
In performing its analysis, Johnson & Associates relied upon and assumed
without independent verification the accuracy and completeness of all
information provided to it. Johnson & Associates did not perform any independent
appraisal or evaluation of the assets of Elmore County or of PBTC or any of
their respective subsidiaries. As such, Johnson & Associates did not express an
opinion as to the fair market value of Elmore County. The fairness opinion of
Johnson & Associates is based on market, economic and other relevant
considerations as they existed and could be evaluated as of March 31, 1998.
In arriving at its opinion, Johnson & Associates reviewed and analyzed
audited and unaudited financial information regarding Elmore County and PBTC
through March 31, 1998, and reviewed its analysis regarding the preliminary
exchange ratio prepared as of September 30, 1997. Johnson & Associates reviewed
the Merger as of March 29, 1998, for the purpose of determining purchase
premiums that could be used in comparing the Merger with other announced
transactions. In performing this analysis, Johnson & Associates reviewed the
purchase premiums paid in 63 transactions that were announced between July 1,
1997 and March 29, 1998 involving selling institutions headquartered in the
Southeastern United States with total assets between $50 million and $150
million. Of these transactions, 18 involved the sale of institutions that were
determined to be comparable to Elmore County. They included commercial bank
institutions with total equity greater than 10% of total asset. The purchase
premium in the Merger exceeds the range of price to book value purchase premiums
paid in the comparable transactions and ranked well above average in the price
to earnings ratio. On average, the 18 comparable transactions reported an
announced deal price of 2.5763 times book value and 23.47 times earnings.
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In the Merger, the Elmore County shareholders will receive 3.0893 shares
of PBTC Common Stock for each share of Elmore County Common Stock outstanding.
On June 1, 1998, the closing price for a share of PBTC Common Stock on the
Nasdaq SmallCap Market was $29.50. Using this price per share, the value of the
transaction per share of Elmore County Common Stock would be $91.13, which
represents a multiple of 3.338 times the March 31, 1998 book value of $27.30 per
share and a multiple of 30.6835 times Elmore County's earnings per share for the
12 months ended March 31, 1998. These multiples are substantially in excess of
the average multiples of book value and earnings per share, respectively, of the
comparable group of Southeastern banks analyzed by Johnson & Associates. Based
on the results of its analysis, Johnson & Associates concluded that the Exchange
Ratio is fair to the Elmore County shareholders from a financial point of view.
Johnson & Associates has received a fee of $10,000, plus reimbursement of
out-of-pocket expenses, for all services performed on behalf of Elmore County in
connection with the Merger, including the rendering of the fairness opinion.
OPINION OF FINANCIAL ADVISOR TO PBTC
Baxter Fentriss has acted as financial advisor to PBTC in connection with
the Merger. Baxter Fentriss previously assisted PBTC in identifying prospective
merger opportunities. On December 11, 1997, Baxter Fentriss delivered to PBTC
its opinion dated December 10, 1997, that on the basis of matters referred to
herein, the Exchange Ratio is fair, from a financial point of view, to the
holders of PBTC's Common Stock. In rendering its opinion Baxter Fentriss
consulted with the management of PBTC and Elmore County, reviewed the Merger
Agreement and certain publicly-available information on the parties and reviewed
certain additional materials made available by the respective managements.
In addition, Baxter Fentriss discussed with the managements of PBTC and
Elmore County their respective businesses and outlooks. Baxter Fentriss was
involved in the negotiations between PBTC and Elmore County. No limitations
were imposed by the PBTC Board upon Baxter Fentriss with respect to the
investigation made or procedures followed by it in rendering its opinion. The
full text of Baxter Fentriss' updated written opinion is attached as Appendix
IV to this Joint Proxy Statement/Prospectus and should be read in its entirety
with respect to the procedures followed, assumptions made, matters considered
and qualifications and limitations on the review undertaken by Baxter Fentriss
in connection therewith.
Baxter Fentriss' opinion is directed to the PBTC Board only, and
addresses only the fairness, from a financial point of view, of the Exchange
Ratio. It does not address PBTC's underlying business decision to effect the
proposed merger, nor does it constitute a recommendation to any PBTC shareholder
as to how such shareholder should vote with respect to the Merger at the Meeting
or as to any other matter.
Baxter Fentriss' opinion was one of numerous factors taken into
consideration by the PBTC Board in making its determination to approve the
Merger, and the receipt of Baxter Fentriss' opinion is a condition precedent to
PBTC's obligation to consummate the Merger. The opinion of Baxter Fentriss
does not address the relative merits of the Merger as compared to any
alternative business strategies that might exist for PBTC or the effect of any
other business combination in which PBTC might engage.
Baxter Fentriss, as part of its investment banking business, is
continually engaged in the valuation of financial institutions and their
securities in connection with mergers and acquisitions and valuations for
estate, corporate and other purposes. Baxter Fentriss is a nationally
recognized advisor to firms in the financial services industry on mergers and
acquisitions. PBTC selected Baxter Fentriss as its financial advisor because
Baxter Fentriss is an investment banking firm focusing on transactions involving
community banks and thrifts and because of the firm's extensive experience and
expertise in transactions similar to the Merger. Baxter Fentriss is not
affiliated with PBTC or Elmore County.
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In connection with rendering its opinion to the PBTC Board, Baxter
Fentriss performed a variety of financial analyses. In conducting its analyses
and arriving at its fairness opinion as described herein, Baxter Fentriss
considered such financial and other factors as it deemed appropriate under the
circumstances including, among others, the following: (i) the historical and
current financial condition and results of operations of PBTC and Elmore County
including interest income, interest expense, interest sensitivity, noninterest
income, noninterest expense, earnings, book value, returns on assets and equity,
and possible tax consequences resulting from the transaction, (ii) the business
prospects of PBTC and Elmore County; (iii) the economies of the respective
market areas of PBTC and Elmore County, and (iv) the nature and terms of certain
other merger transactions that it believed to be relevant. Baxter Fentriss also
considered its assessment of general economic, market, financial and regulatory
conditions and trends, as well as its knowledge of the financial institutions
industry, its experience in connection with similar transactions, its knowledge
of securities valuations generally, and its knowledge of merger transactions in
Alabama, the Southeast and throughout the United States.
In connection with rendering its opinion, Baxter Fentriss reviewed (i) the
Agreement; (ii) drafts of this Joint Proxy Statement/Prospectus; (iii) the
Annual Reports to shareholders of PBTC for the three years ended December 31,
1995, 1996 and 1997, as well as certain current interim reports to shareholders
and regulatory agencies; (iv) the Annual Reports to shareholders of Elmore
County for the three fiscal years ended September 30, 1995, 1996 and 1997, as
well as certain current interim reports to shareholders and regulatory agencies;
(v) pro forma combined unaudited condensed balance sheets and statements of
income as of December 31, 1997; and (vi) certain additional financial and
operating information with respect to the business, operations and prospects of
Elmore County and PBTC as it deemed appropriate. Baxter Fentriss also (a) held
discussions with members of the senior management of PBTC and Elmore County
regarding the historical and current business operation, financial condition and
future prospects of their respective companies; (b) reviewed the historical
market prices and trading activity for the common stock of PBTC and Elmore
County, as applicable, and compared them with those of certain publicly traded
companies that it deemed to be relevant; (c) compared the results of operations
of PBTC and Elmore County with those of certain banking companies that it deemed
to be relevant; (d) analyzed the pro forma financial impact of the Merger on
PBTC; and (e) conducted such other studies, analyses, inquiries and examinations
as Baxter Fentriss deemed appropriate.
The preparation of a fairness opinion involves various determinations as
to the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to partial analysis or summary
description. Moreover, the evaluation of fairness, from a financial point of
view, of the Exchange Ratio provided to the holders of Elmore County Common
Stock is to some extent a subjective one based on the experience and judgment of
Baxter Fentriss and not merely the result of mathematical analysis of financial
data. Accordingly, notwithstanding the separate factors as summarized below,
Baxter Fentriss believes that its analyses must be considered as a whole and
that selecting portions of its analyses and of the factors considered by it,
without considering all analyses and factors, could create an incomplete view of
the evaluation process underlying its opinion. The ranges of valuations
resulting from any particular analysis described below should not be taken to be
Baxter Fentriss' view of the actual value of PBTC or Elmore County.
In performing its analyses, Baxter Fentriss made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of PBTC and Elmore County. The
analyses performed by Baxter Fentriss are not necessarily indicative of actual
values or future results, which many be significantly more or less favorable
than suggested by such analyses. Additionally, analyses relating to the values
of businesses do not purport to be appraisals or to reflect the prices at which
businesses may actually be sold. In rendering its opinion, Baxter Fentriss
assumed that, in the course of obtaining the necessary regulatory approvals for
the Merger, no conditions will be imposed that will have a material adverse
effect on the contemplated benefits of the Merger, on a pro forma basis, to
PBTC.
The following is a summary of selected analyses performed by Baxter
Fentriss in connection with its opinion.
1. Comparative Analysis. Baxter Fentriss analyzed and compared the price
to earnings multiple, price to book multiple and premium to deposits ratio of
the offer with 68 other comparable merger transactions in the Southeast as of
their respective announcement dates. The average pricing multiples for the
comparables were price to earnings of 23.38 times, price to book of 2.76 times
and premium to deposits of 22.25%. Incorporating PBTC's closing market price per
share as of the trading day prior to the execution of the Agreement, the
respective multiples for the Merger are 26.49 times, 2.79 times and 34.30%. The
comparative multiples include bank sales during the last two years.
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2. Pro Forma Analysis. Baxter Fentriss evaluated the earnings, book
value and market value of the PBTC Common Stock and considered the pro forma
earnings, book value and potential long range impact on the market value of PBTC
Common Stock. Based on this analysis, Baxter Fentriss concluded the transaction
should have a positive long-term impact on PBTC.
3. Discounted Cash Flow Analysis. Baxter Fentriss determined a
hypothetical return on investment using management's earnings projections at
the time of negotiations. The analysis indicated a potential return on
investment of 11.63% to 12.27%.
4. Selected Peer Group Analysis. Baxter Fentriss analyzed and compared
the financial performance and market performance of PBTC and Elmore County based
on various financial measures including performance, operating efficiency,
capital adequacy, and asset quality and various measures of market performance,
including price to book multiples, price to earnings multiples, dividend yields,
and other trading information of comparable companies.
Baxter Fentriss relied, without any independent verification, upon the
accuracy and completeness of all financial and other information reviewed.
Baxter Fentriss assumed that all estimates, including those as to possible
economies of sale, were reasonable, prepared by management, and reflect their
best current judgments. Baxter Fentriss did not make an independent appraisal
of the assets or liabilities of either PBTC or Elmore County, and was not
furnished such an appraisal.
No company or transaction used as a comparison in the above analysis is
identical to PBTC, Elmore County or the Merger. Accordingly, an analysis of the
results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value of
the companies used for comparison in the above analysis.
Baxter Fentriss will be paid (i) a merger fee, equal to approximately
0.125% of Elmore County's total assets with 20% due at the execution of the
definitive agreement and subsequent due diligence review and 80% due at the
closing of the transaction and (ii) reasonable out-of-pocket expenses for its
services. PBTC has agreed to indemnify Baxter Fentriss against certain
liabilities, including certain liabilities under federal securities laws. Baxter
Fentriss has received from PBTC approximately $85,000, plus reimbursement of
certain out-of-pocket expenses, for its services in connection with identifying
prospective merger opportunities and the acquisition of Merchants & Planters,
which was consummated on March 6, 1998. Baxter Fentriss has also received
approximately $23,000, plus reimbursement of certain out-of-pocket expenses, for
its services in connection with the Merger.
EFFECTIVE TIME AND CLOSING DATE
The Merger shall become effective at the time and on the date specified in
the Articles of Merger to be filed by PBTC and Elmore County with the Secretary
of State of Alabama (the "Effective Time"). Such filing will occur only after
the receipt of all requisite regulatory approvals, the approval of the Merger
Agreement by the requisite vote of PBTC's and Elmore County's respective
shareholders and the satisfaction or waiver of all other conditions to the
Merger. The closing of the Merger shall occur on the first business day
following satisfaction or waiver of all conditions to the Merger, or on such
later date within 30 days thereafter as the parties may mutually agree (the
"Closing Date").
DISSENTERS' RIGHTS OF APPRAISAL
Article 13 of the ABCA, a copy of which is attached hereto as Appendix II,
provides for rights of appraisal for the value of the shares of a shareholder of
record of either Elmore County or PBTC who fully complies with specified
procedures, as briefly summarized below.
In order to exercise dissenters' rights of appraisal under Article 13, a
shareholder of record of Elmore County or PBTC must (i) deliver notice in
writing to the respective corporation before the vote is taken that he or she
intends to seek a cash payment if the Merger is consummated and (ii) not vote in
favor of the Merger. Such notice must be submitted separate from any proxy or
vote against the Merger. Within ten (10) days after the Merger, PBTC, as the
corporation surviving the Merger, will send to each shareholder who has given
such notice to PBTC or Elmore County a notice (the "Dissenter's Notice")
stating, among other things, a date not less than 30 days nor more than 60 days
after the date of the Dissenter's Notice by which the shareholder must submit a
written payment demand. Within 20 days after making such payment demand, the
shareholder shall submit the certificates representing
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his or her shares of PBTC Common Stock or Elmore County Common Stock to PBTC for
notation thereon that such demand has been made.
As soon as the proposed corporate action is taken, or upon the receipt of
a payment demand by the shareholders, PBTC will offer to pay each dissenter the
amount that PBTC estimates to be the fair value of the shares, plus accrued
interest, and each dissenter may agree to accept such offer of payment. Upon
receiving payment, such dissenter will cease to have any interest in the shares.
If a dissenting shareholder is dissatisfied with PBTC's offer of payment, the
shareholder may notify PBTC in writing within 30 days after PBTC's offer of his
or her own estimate of the fair value plus interest and demand payment of such
amount, or the dissenter may simply reject PBTC's offer and demand payment of
the fair value.
A record shareholder of PBTC or Elmore County may assert dissenters'
rights as to fewer than all shares registered in such holder's name, but only
if the record holder dissents with respect to all shares beneficially owned by
any one beneficial shareholder and provides written notice to the respective
issuing corporation of the name and address of each person on whose behalf the
dissenting rights are asserted. A "beneficial shareholder" is defined by
Article 13 of the ABCA as the "person who is a beneficial owner of shares held
in a voting trust or by a nominee as the record shareholder." The rights of a
partial dissenter are determined as if the shares as to which such holder
dissents and other shares held by the holder are registered in different names
of shareholders. Thus, if a beneficial shareholder owns shares of PBTC Common
Stock or Elmore County Common Stock through a bank, broker, or other nominee,
such beneficial shareholder may assert dissenters' rights, but only if the bank,
broker or nominee dissents with respect to all shares beneficially owned by such
shareholder through the bank, broker or nominee and provides the respective
issuing corporation with the name and address of each such person wishing to
assert dissenters' rights. The beneficial shareholder must submit to PBTC or
Elmore County, as the case may be, the consent of the record shareholder, i.e.,
the bank, broker or nominee holding for the dissenting beneficial shareholder,
not later than the time the dissenting beneficial shareholder asserts
dissenters' rights.
If PBTC fails to make an offer to a dissenting shareholder within 60 days
after the date set for demanding payment, the shareholder may notify PBTC of his
or her own fair value and demand payment. If the dissenting shareholder and
PBTC cannot agree upon the fair value, plus interest, to be paid for shares that
are the subject of the demand, then PBTC shall convene a proceeding in the
Circuit Court of Dallas County within 60 days of the payment demand to have the
fair value of the shares plus accrued interest determined. If PBTC does not
commence the proceeding within 60 days and the shareholder's account still
remains unsettled, PBTC must pay each dissenter the amount of money demanded. In
any court proceeding, the court shall assess costs against PBTC, except that the
court may assess costs against all or some of the dissenting shareholders if the
court finds the dissenters acted arbitrarily, vexatiously, or not in good faith
in demanding payment.
A shareholder who dissents and obtains payment under these procedures may
not challenge the Merger unless the Merger is unlawful or fraudulent with
respect to the shareholder, PBTC or Elmore County.
It is a condition to the consummation of the Merger, that the holders of
less than 10% of the Elmore County Common Stock exercise dissenters' rights.
See "-- Conditions to the Consummation of the Merger."
SHAREHOLDERS SHOULD READ APPENDIX II CAREFULLY. THE FAILURE OF A
SHAREHOLDER TO COMPLY WITH ANY REQUIREMENTS OF THE PROVISIONS RELATING TO
DISSENTERS' RIGHTS OF APPRAISAL WILL RESULT IN A FORFEITURE BY SUCH SHAREHOLDER
OF APPRAISAL RIGHTS.
CONVERSION OF ELMORE COUNTY COMMON STOCK; PROCEDURES FOR EXCHANGE OF
CERTIFICATES
The conversion of shares of Elmore County Common Stock (other than shares
as to which dissenters' rights are properly exercised ("Dissenting Shares"))
into shares of PBTC Common Stock will occur automatically at the Effective Time.
Within five business days after the Effective Time, Peoples Bank or
another bank or trust company designated by PBTC and reasonably acceptable to
Elmore County, in its capacity as exchange agent (the "Exchange Agent"), will
send a letter of transmittal to each Elmore County shareholder. The letter of
transmittal will contain instructions with respect to the surrender of
certificates representing Elmore County Common Stock to be exchanged for PBTC
Common Stock.
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ELMORE COUNTY SHAREHOLDERS SHOULD NOT FORWARD ELMORE COUNTY STOCK
CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED A LETTER OF
TRANSMITTAL. ELMORE COUNTY SHAREHOLDERS SHOULD NOT RETURN THEIR STOCK
CERTIFICATES WITH THE ENCLOSED PROXY.
Until certificates representing Elmore County Common Stock are surrendered
for exchange after consummation of the Merger, holders thereof will not be
shareholders of PBTC entitled to notice of or to vote on matters submitted to
the shareholders of PBTC, and each outstanding certificate representing Elmore
County Common Stock shall represent after consummation of the Merger only the
right to receive, upon surrender of such certificate, the Merger Consideration.
Until the certificates representing Elmore County Common Stock are surrendered
for exchange after consummation of the Merger, holders of such certificates will
not be paid dividends on the shares of PBTC Common Stock into which such shares
have been converted, but any such unpaid dividends will be paid, without
interest, when such certificates are properly surrendered.
All shares of PBTC Common Stock issued upon conversion of shares of Elmore
County Common Stock shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of Elmore County Common Stock, subject,
however, to Elmore County's obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time that may have been
declared or made by Elmore County on Elmore County Common Stock in accordance
with the Merger Agreement on or prior to the Effective Time and that remains
unpaid at the Effective Time.
FRACTIONAL SHARES
No fractional shares of PBTC Common Stock will be issued to any Elmore
County shareholder upon consummation of the Merger. For each fractional share
that would otherwise be issued, PBTC will pay by check an amount equal to the
product obtained by multiplying (a) the fractional share interest to which such
holder would otherwise be entitled by (b) the shareholder's equity per share of
outstanding PBTC Common Stock as of September 30, 1997 ($10.77). All fractional
shares held by a single Elmore County shareholder will be aggregated.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Set forth below is a description of the interests of directors and
executive officers of Elmore County in the Merger in addition to their interests
as shareholders of Elmore County generally. The Elmore County Board was aware
of these interests and considered them in approving the Merger Agreement and the
transactions contemplated thereby.
DIRECTORS AND EXECUTIVE OFFICERS. Pursuant to the Merger Agreement,
Arnold B. Dopson, Chairman of the Elmore County Board and the Board of Directors
of Tallassee Bank, and Dr. D.P. Wilbanks, a director of Elmore County and
Tallassee Bank, will be elected to the PBTC Board. For further information
regarding the directors and executive officers of PBTC and People Bank following
the Effective Time, see "Management and Operations After the Merger" and
"Management of PBTC."
SALARY CONTINUATION AGREEMENTS. Tallassee Bank has entered into separate
agreements with Arnold B. Dopson, David W. Baggett, Jr., President of Elmore
County and Tallassee Bank, and two other officers of Tallassee Bank, that
provide for continuation of the respective officer's salary upon resignation
from or termination by Tallassee Bank (the "Salary Continuation Agreement").
PBTC has agreed that it will honor each Salary Continuation Agreement at and
after the Effective Time unless the officer covered thereby enters into a new
agreement with PBTC and Tallassee Bank canceling his or her Salary Continuation
Agreement.
Mr. Dopson's Salary Continuation Agreement provides that if he retires
from active daily employment, Tallassee Bank will pay to Mr. Dopson an annual
sum equal to his annual base salary for the preceding calendar year for a period
of 36 months. If Mr. Dopson were to die before full payment, Tallassee Bank
will continue to pay his beneficiary for the remaining period. Mr. Dopson's
current annual base salary is $76,000. Mr. Dopson is expected to enter into an
Employment Agreement and Covenant Not to Compete with PBTC and Tallassee Bank
(described below) that does not cancel his Salary Continuation Agreement. Mr.
Dopson's Employment Agreement will, however, change the base salary under his
Salary Continuation Agreement to his base salary as of the date of the Merger
Agreement.
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Mr. Baggett is expected to enter into an Employment Agreement and Covenant
Not to Compete with PBTC and Tallassee Bank which cancels his Salary
Continuation Agreement.
EMPLOYMENT AGREEMENTS. Under the terms of the Merger Agreement, PBTC will
enter into a separate Employment Agreement and Covenant Not to Compete with both
Arnold B. Dopson and David W. Baggett, Jr. (the "Employment Agreements").
Copies of the Employment Agreements with Messrs. Dopson and Baggett are
attached as Exhibits A and B, respectively, to the Merger Agreement, attached as
Appendix I hereto. The following summary description of the Employment
Agreements is qualified in its entirety by reference to the full text of such
agreements.
The Employment Agreement with Mr. Baggett provides for his employment by
Tallassee Bank and/or PBTC for a term of two years from the Effective Time at a
minimum salary of $76,000. Such agreement entitles Mr. Baggett to participate in
the same manner as officers of Peoples Bank in incentive compensation and
bonuses as well as the PBTC's employee benefit programs. In consideration of
Mr. Baggett's entry into the Employment Agreement and his agreement to the
cancellation of his Salary Continuation Agreement, the Employment Agreement
provides that PBTC and Tallassee Bank will pay $75,000 to Mr. Baggett upon the
effectiveness of such agreement.
The Employment Agreement with Mr. Dopson provides for his employment by
Tallassee Bank and/or Peoples Bank for the period from the Effective Time to
September 16, 2000 at an annual salary of $115,000. The Employment Agreement
also provides that such salary shall constitute his entire compensation and that
he shall not be entitled to receive incentive bonuses or director's fees while
such salary is being paid. Such agreement does, however, entitle Mr. Dopson to
participate in the same manner as employees of PBTC in PBTC's employee benefit
programs.
Under the Employment Agreements, Messrs. Baggett and Dopson agree that,
during their employment under such agreements and for a period of two years
thereafter, they will not be associated in any way with a financial institution
doing business within Elmore or Tallapoosa Counties, Alabama or within a 35-mile
radius of the current offices of Tallassee Bank or Peoples Bank and that they
will not solicit the customers of Tallassee Bank or PBTC or any of their
subsidiaries in such geographic area.
EFFECT ON EMPLOYEE BENEFIT PLANS OF ELMORE COUNTY
The Merger Agreement provides that appropriate steps will be taken to
terminate the employee benefit plans of Elmore County and Tallassee Bank as of
the Effective Time or as promptly as possible thereafter.
The employees of Elmore County or Tallassee Bank who continue as employees
of Tallassee Bank or who become employees of Peoples Bank following the
Effective Time shall be immediately entitled to participate in all employee
benefit plans of PBTC or Peoples Bank on the same terms and to the same extent
as employees of PBTC. Such continuing employees will receive credit for their
past service to Elmore County and / or Tallassee Bank for purposes of
determining accrued vacation, sick leave and short-term disability and for
purposes of eligibility, participation and vesting in PBTC's benefit plans
qualifying under Section 401 of the Internal Revenue Code, but will not be given
credit for past service for the purpose of determining benefit accrual with
respect to any such qualifying plan of PBTC.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The obligations of PBTC and Elmore County to consummate the Merger are
subject to various conditions, including the following: (i) the approval of the
Merger Agreement by the requisite vote of the shareholders of both Elmore County
and PBTC; (ii) the receipt of all approvals from any state or federal
governmental authority the approval of which is necessary for the consummation
of the Merger, without the imposition of any condition that in the reasonable
judgment of PBTC would have a material adverse effect on the condition, business
operations, assets or prospects of, or would materially impair the value of,
PBTC, Peoples Bank, Elmore County or Tallassee Bank; (iii)the absence at the
Closing Date of any regulatory or supervisory cease and desist order, written
directive, memorandum of understanding or written commitment applying to Elmore
County or Tallassee Bank; (iv) the Registration Statement shall be effective
under the Securities Act and shall not be subject to any pending or threatened
proceedings by the SEC
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to suspend the effectiveness thereof; (v) the receipt of all state securities or
"Blue Sky" authorizations or confirmations as to the applicability of
exemptions, and the absence of any pending or threatened proceedings by state
securities authorities to suspend any state permit or authorization; (vi) the
absence of any order, decree or injunction of a court or agency of competent
jurisdiction that enjoins or prohibits consummation of the Merger; and (vii) the
receipt by PBTC and Elmore County from Kutak Rock of an opinion to the effect
that the Merger will be treated as a "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code.
The obligation of Elmore County to consummate the Merger is subject to
certain additional conditions, including the following: (i) the accuracy of the
representations and warranties of PBTC and Peoples Bank set forth in the Merger
Agreement as of the date thereof and on the Closing Date; (ii) the performance
by PBTC and Peoples Bank of all material obligations, and the compliance by them
with all material covenants required to be performed by them, on or before the
Closing Date; (iii) the receipt from PBTC and Peoples Bank of certificates
attesting to satisfaction of certain of the conditions set forth in the Merger
Agreement; (iv) the absence of any material adverse change in the financial
condition, results of operations, assets, properties, businesses or operations
of PBTC, Peoples Bank and PBTCAEs other subsidiaries taken as a whole, other
than any such change resulting from a change in economic conditions, law or
generally accepted accounting principles that impair both PBTC and Elmore County
in a substantially similar manner; (iv) the receipt of legal opinions from
Gamble, Gamble, Calame & Wilson, L.L.C., and Kutak Rock as to certain matters
set forth in Exhibit D to the Merger Agreement; (v) the receipt of the opinion
of its financial advisor, Johnson & Associates, to the effect that terms of the
Merger Agreement, including the Exchange Ratio, are fair to the Elmore County
shareholders from a financial point of view, and the continued effectiveness of
such opinion at the time of the Elmore County Meeting; and (vi) the approval for
listing on the Nasdaq SmallCap Market of the PBTC Common Stock to be issued in
the Merger, subject to official notice of issuance.
The obligation of PBTC to consummate the Merger also is subject to
additional conditions, including the following: (i) the accuracy of the
representations and warranties of Elmore County and Tallassee Bank set forth in
the Merger Agreement as of the date thereof and on the Closing Date; (ii) the
performance by Elmore County and Tallassee Bank of all material obligations, and
the compliance by them with all material covenants, required to be performed by
them, on or before the Closing Date; (iii) the termination of certain employment
agreements with directors, officers or other employees of Elmore County; (iv) to
the extent that any material contracts or leases binding Elmore County require
the consent of any third party to the Merger, the receipt of such consent; (v)
the receipt from Elmore County and Tallassee Bank of certificates attesting to
satisfaction of certain of the conditions set forth in the Merger Agreement;
(vi) the absence of any material adverse change in the financial condition,
results of operations, assets, properties, businesses or operations of Elmore
County, Tallassee Bank and Elmore County's other subsidiaries taken as a whole,
other than any such change resulting from a change in economic conditions, law
or generally accepted accounting principles that impair both PBTC and Elmore
County in a substantially similar manner; (vii) the receipt of a legal opinion
from Bowles & Cottle as to certain matters set forth in Exhibit E to the Merger
Agreement; (viii) the receipt of the opinion of its financial advisor, Baxter
Fentriss, to the effect that terms of the Merger Agreement are fair to the PBTC
shareholders from a financial point of view; (ix) the receipt by PBTC from each
"affiliate" of Elmore County of a written agreement to observe certain
restrictions on the sale of the PBTC Common Stock received in the Merger; (x)
the receipt of an opinion from PBTC's independent accountants to the effect
that the Merger will qualify for accounting treatment as a pooling of interests;
(xi) the perfection of dissenter's rights of appraisal by holders of less than
10% of the outstanding shares of Elmore County Common Stock; and (xii) the
receipt by PBTC of an environmental report, satisfactory to PBTC, regarding all
real property owned by Elmore County and Tallassee Bank.
REQUIRED REGULATORY APPROVALS
The Merger is subject to the receipt of prior approval by the FRB.
PBTC's application for approval of the Merger and its acquisition of Tallassee
Bank was approved by the FRB on April 15, 1998.
It is a condition to consummation of the Merger that all requisite
regulatory approvals be obtained without any condition that in the reasonable
judgment of PBTC would have a material adverse effect on the condition, business
operations, assets or prospects of, or would materially impair the value of,
PBTC, Peoples Bank, Elmore County or Tallassee Bank. See "-- Conditions to
the Merger." The FRB's approval of the Merger did not contain any such
conditions.
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WAIVER AND AMENDMENT
Prior to the Effective Time, PBTC or Elmore County may, by written
instrument signed by an executive officer of such party, extend the time for the
performance of any of the obligations of the other party to the Merger Agreement
and may waive any inaccuracies of the other party in its representations or
warranties, compliance with any of the covenants, undertakings or agreements of
the other party, the other party's performance of any of its obligations under
the Merger Agreement or the satisfaction of any of the conditions precedent to
its obligations under the Merger Agreement; provided, however, that neither
party may waive any required regulatory approvals or other conditions that, if
not satisfied, would result in a violation of law. In addition, the Merger
Agreement may be amended or supplemented at any time by action of the respective
Boards of Directors of PBTC and Elmore County. No such waiver or amendment,
however, shall reduce either the Merger Consideration or the payment terms for
fractional interests without the further approval of the Elmore County
shareholders.
TERMINATION OF THE MERGER AGREEMENT
The Merger Agreement may be terminated at any time on or before the
Closing Date by the mutual written consent of all the parties thereto. The
Merger Agreement also may be terminated at the option of either PBTC or Elmore
County under certain circumstances, including the following: (i) at any time, in
the event of a material breach by the other party to the Merger Agreement that
is not cured in accordance with the provisions of the Merger Agreement; (ii) on
the Closing Date, by either PBTC or Elmore County, if any of the conditions
precedent to the obligations of such party to consummate the Merger have not
been satisfied; (iii) at any time, if the Merger Agreement is not approved by
the shareholders of both PBTC and Elmore County at their respective meetings of
shareholders; (iv) at any time, if either party determines in good faith that
The Roberts and Mildred Blount Educational and Charitable Foundation, Inc. (the
"Blount Foundation") will not both consent to the Merger and execute an
agreement with PBTC restricting the Blount Fondation's transfer of the PBTC
Common Stock to be received by it in the Merger, as described below under
"__ Resale of PBTC Common Stock"; and (v) at any time, if either party
determines in good faith that any condition precedent to its obligations to
consummate the Merger is or would be impossible to satisfy. See "Beneficial
Ownership of Elmore County Common Stock -- Principal Holders of Elmore County
Common Stock."
In addition, the Merger Agreement may be terminated by PBTC in writing if
any regulatory application the approval of which is required for the Merger to
occur is denied or if any approval of such an application contains a condition
that would have a material adverse effect on the condition, business operations,
assets or prospects of, or would materially impair the value of, any of the
parties to the Merger Agreement. Finally, the Merger Agreement may be terminated
by either PBTC or Elmore County in writing if the Closing Date has not occurred
on or before September 11, 1998, provided that such right to terminate is not
available to any party whose failure to perform an obligation under the Merger
Agreement resulted in the failure to consummate the Merger before such date.
REPRESENTATIONS AND WARRANTIES
In the Merger Agreement, each of PBTC and Elmore County has made
representations and warranties relating to, among other things, the parties'
respective capital structure, organization, ownership of subsidiaries, accuracy
of financial statements, the absence of material adverse changes in its
business, financial condition, operations or properties, the absence of
undisclosed liabilities, the truth and accuracy of information prepared and
provided by them in connection with this Joint Proxy Statement / Prospectus, the
absence of certain legal proceedings, the absence of known obstacles to the
receipt of required regulatory approvals, compliance with laws, regulations and
other requirements, material agreements and contracts, tax matters, federal
deposit insurance and brokers, finders and advisors retained in connection with
the Merger. Elmore County has made additional representations and warranties to
PBTC relating to, among other things, environmental matters, Tallassee Bank's
loan portfolio, employee benefit plans, stock repurchase agreements, the
properties and assets of Elmore County and Tallassee Bank and the accuracy of
information furnished to PBTC.
COVENANTS PENDING CLOSING
PBTC and Elmore County have each agreed to use their best efforts to take
or cause to be taken all action necessary or desirable on its part to permit
consummation of the Merger at the earliest possible date.
CONDUCT OF BUSINESS OF ELMORE COUNTY PENDING THE MERGER. Pursuant to the
Merger Agreement, each of Elmore County and Tallassee Bank has agreed that it
will not, except with the prior written consent of PBTC: (i) carry
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on its business other than in the usual, regular and ordinary course; (ii)
declare, set aside or pay any dividend or other distribution to shareholders
except for the payment of its regular semi-annual dividend of $0.25 per share,
in June and December; (iii) purchase or otherwise acquire, or pledge or
otherwise encumber, any shares of its capital stock; (iv) issue, grant or
authorize any rights or options to acquire any of its capital stock or effect
any recapitalization, reclassification, stock dividend, stock split or other
change in capitalization; (v) purchase, sell or encumber any assets or incur any
liabilities other than in the ordinary course of business consistent with past
practice and policies; (vi) engage in any transaction or agreement with any
officer, director or greater than 5% shareholder of Elmore County or Tallassee
Bank or any affiliate of any such officer, director or shareholder; (vii) amend
its Articles of Incorporation or Bylaws; (viii) impose, or suffer the
imposition, on any share of stock held by Elmore County or any material lien,
charge or encumbrance or permit any such lien to exist; (ix) waive or release
any material right or cancel or compromise any material debt or claim other than
in the ordinary course of business; (x) fail to comply in any material respect
with any laws, regulations, ordinances, or governmental actions applicable to it
and to the conduct of its business except where Elmore County or Tallassee Bank
is in good faith contesting the validity of any of the foregoing; (xi) except as
contemplated by the Merger Agreement, elect any additional officers or
directors, increase the rate of compensation of any of its directors, officers
or employees, pay or agree to pay a bonus or provide any other employee benefit
or incentive to any of its directors, officers or employees, or effect any
change in its retirement benefits; (xii) enter into any pension, retirement,
stock option, stock purchase, stock appreciation right, savings, profit sharing,
deferred compensation, consulting, bonus, group insurance or other employee
benefit, incentive or welfare contract, plan or arrangement, or trust agreement
related thereto, renew or amend (except as required by applicable law) any such
arrangement or plan now in existence, except that Elmore County and/or Tallassee
Bank shall purchase tail coverage under their directors' and officers'
liability insurance for a period of three years after the Effective Time);
(xiii) enter into any material agreement or commitment other than in the
ordinary course of business, other than agreements or memoranda of understanding
with regulatory authorities; (xiv) incur any additional debt obligation except
in the ordinary course of business; (xv) enter into any agreement with a
consultant, any employment, severance, election or retention in office agreement
with any present or former director, officer or employee, or any contract,
agreement or understanding with a labor union; (xvi) change its method of
accounting (except as required by changes in regulation or generally accepted
accounting principles); (xvii) change its method of reporting income and
deductions for federal income tax purposes (except as required by changes in law
or regulation); or (xviii) agree to do any of the foregoing.
NON-SOLICITATION OF ACQUISITION PROPOSALS. Pursuant to the Merger
Agreement, each of Elmore County and Tallassee Bank has agreed that it will not,
except with the prior written consent of PBTC, (i) solicit or encourage
proposals with respect to, furnish any information relating to, or participate
in any negotiations or discussions concerning, any acquisition or purchase of
all or a substantial portion of the assets of or a substantial equity interest
in Elmore County or Tallassee Bank or any business combination with Elmore
County or Tallassee Bank other than as contemplated by the Merger Agreement,
except as may be required if the directors of Elmore County conclude, based on
reasoned legal advice of their legal counsel, that the failure to furnish such
information or participate in such negotiations or discussions would constitute
a breach of the directors' fiduciary or legal obligations, (ii) authorize or
permit any officer, director, agent or affiliate of Elmore County or Tallassee
Bank to do any of the above, or (iii) fail to notify PBTC immediately if any
such inquiries or proposals are received by, any such information is required
from, or any such negotiations or discussions are sought to be initiated with,
Elmore County.
CONDUCT OF BUSINESS OF PBTC PENDING THE MERGER. Pursuant to the Merger
Agreement, PBTC has agreed that it will not, except with the prior written
consent of Elmore County: (i) authorize or create any class of capital stock
that ranks prior to the PBTC Common Stock in respect of dividend payments or
liquidation distributions or that has per share voting rights greater than the
PBTC Common Stock; (ii) authorize any share of capital stock other than (a)
shares of PBTC Common Stock reserved for issuance in connection with the Merger
or in connection with any subsequent merger combinations wherein, if
consummated, PBTC would be the surviving corporation or (b) shares to be issued
with respect to stock splits or stock dividends subsequently declared and
distributed on a basis consistent with its past practices and current policy,
subject to the antidilutive adjustments to be made to the Exchange Ratio in
accordance with the Merger Agreement; (iii) amend its Articles of Incorporation
or Bylaws or issue securities on terms or with voting rights so as to adversely
affect the rights of the Elmore County shareholders as if they had been holders
of PBTC Common Stock as of the date of the Merger Agreement; (iv) enter into any
agreement, understanding or commitment with any other party that would impede in
any material respect PBTC's ability to perform its obligations under the Merger
Agreement; (v) enter into a merger or other business combination transaction
with any other entity in which PBTC or Peoples Bank would not be the surviving
corporation after the consummation thereof; or (vi) sell or lease any material
portion of the assets and business of PBTC and Peoples Bank, except where any
such sale or lease would not materially and adversely affect their respective
businesses and operations.
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RESALE OF PBTC COMMON STOCK
The PBTC Common Stock issued pursuant to the Merger will be freely
transferable under the Securities Act except for shares issued to any Elmore
County shareholder who may be deemed to be an "affiliate" of Elmore County for
purposes of Rule 145 under the Securities Act. It is expected that each such
affiliate will enter into an agreement with PBTC providing that such affiliate
will not transfer any such PBTC Common Stock received in the Merger except in
compliance with the Securities Act and Accounting Series Releases of the SEC
relating to the "pooling of interest" method of accounting. This Joint Proxy
Statement/Prospectus does not cover resales of PBTC Common Stock.
EXPENSES
Pursuant to the Merger Agreement, each party shall be responsible for its
own costs and expenses, with the following exceptions: (i) legal fees and
expenses in connection with the preparation of the Registration Statement and
other related filings with the SEC shall be paid equally by PBTC and Elmore
County, subject to a cap of $15,000 on the share of such costs to be paid by
Elmore County; and (ii) if either party to the Merger Agreement breaches its
obligations under the Merger Agreement or willfully fails to satisfy a condition
precedent to the consummation of the Merger, such party will be liable to the
other for all of its out-of-pocket expenses, in addition to all other rights and
remedies such other party may have.
ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to qualify as a "pooling of interest" for
accounting and financial reporting purposes. Under this method of accounting,
the recorded assets and liabilities of PBTC and Elmore County will be carried
forward to PBTC at their recorded amounts; income of PBTC will include income of
PBTC and Elmore County for the entire fiscal year in which the Merger occurs;
and the reported income of the separate corporations for prior periods will be
combined and restated as income of PBTC.
The Merger Agreement provides that a condition to the consummation of the
Merger is the receipt of an opinion from PBTC's independent accountants to the
effect that the Merger qualifies for accounting treatment as a "pooling of
interests." PBTC has determined that it will not consummate the Merger unless it
receives a letter from PBTC's independent accountants, Coopers & Lybrand,
L.L.P., to the effect that such independent accountants concur with the
conclusion of PBTC's and Elmore County's management that no conditions exist
with respect to each company which would preclude accounting for the Merger as a
pooling of interests. In the event such letter is not received by PBTC, the
Merger would not be consummated unless the condition were waived and approval of
those shareholders entitled to vote on the Merger was resolicited.
FEDERAL INCOME TAX
The following is a discussion of material federal income tax consequences
of the Merger, is included for general information purposes only and may not
apply to special situations, such as Elmore County stockholders who received
their Elmore County Common Stock upon the exercise of employee stock options or
otherwise as compensation, that hold their Elmore County Common Stock as part of
a "straddle" or "conversion transaction" or that are insurance companies,
securities dealers, financial institutions or foreign persons.
Kutak Rock, special counsel for PBTC, have advised PBTC and Elmore County
that, in their opinion:
(i) No gain or loss will be recognized for federal income tax
purposes by Elmore County shareholders upon the exchange in the
Merger of shares of Elmore County Common Stock solely for PBTC
Common Stock (except with respect to cash received in lieu of a
fractional share interest in PBTC Common Stock deemed received).
(ii) The basis of PBTC Common Stock received in the Merger by Elmore
County shareholders (including the basis of any fractional share
interest in PBTC Common Stock deemed received) will be the same
as the basis of the shares of Elmore County Common Stock
surrendered in exchange therefor.
(iii) The holding period of the PBTC Common Stock received in the
Merger by Elmore County shareholders (including the holding
period of any fractional share interest in PBTC Common Stock)
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will include the holding period of the shares of Elmore County
Common Stock surrendered in exchange therefor, provided such
shares of Elmore County Common Stock were held as capital assets
at the Effective Time.
(iv) Cash received by a holder of Elmore County Common Stock in lieu
of a fractional share interest in PBTC Common Stock will be
treated as received for such fractional share interest and,
provided the fractional share would have constituted a capital
asset in the hands of such holder, the holder should in general
recognize capital gain or loss in an amount equal to the
difference between the amount of cash received and the portion of
the adjusted tax basis in the Elmore County Common Stock
allocable to the fractional share interest.
In addition, consummation of the Merger is conditioned, among other
things, upon receipt by PBTC and Elmore County of an opinion of Kutak Rock dated
as of the Closing Date, that (i) the Merger constitutes a reorganization within
the meaning of Section 368 of the Internal Revenue Code and (ii) no gain or loss
will be recognized by PBTC or Elmore County by reason of the Merger. PBTC and
Elmore County do not currently intend to waive the receipt of such tax opinion;
however, if receipt of such tax opinion were waived and the material federal
income tax consequences of the Merger were materially different from those
summarized above, Elmore County would resolicit its shareholders prior to
consummating the Merger. The tax opinion of Kutak Rock summarized above will be
based, among other things, on representations relating to certain facts and
circumstances of, and the intentions of the parties to, the Merger.
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON THE
PARTICULAR CIRCUMSTANCES OF EACH ELMORE COUNTY STOCKHOLDER AND OTHER FACTORS,
EACH ELMORE COUNTY SHAREHOLDER IS URGED TO CONSULT SUCH HOLDER'S OWN TAX
ADVISOR TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE
MERGER (INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER
TAX LAWS).
Elmore County shareholders who receive cash proceeds upon the surrender of
all their shares of Elmore County Common Stock, whether held directly or
indirectly within the meaning of Section 302 of the Internal Revenue Code,
pursuant to the exercise of dissenters' rights will be treated as having
effected a taxable sale or exchange of such shares, and such shareholders will
recognize gain or loss equal to the difference between the amount received for
such shares and the tax basis for such shares. Subject to the limitations
imposed by Section 302 of the Internal Revenue Code, such gain or loss will
constitute a capital gain or loss if such shares are held as a capital asset at
the Effective Time.
NASDAQ LISTING
The PBTC Common Stock currently is quoted on the Nasdaq SmallCap Market
under the symbol "PBTC." It is a condition to the Merger that the shares of
PBTC Common Stock to be issued in the Merger be approved for listing on the
Nasdaq SmallCap Market, subject to official notice of issuance. See
"Comparative Market Prices and Dividends."
CERTAIN RELATED TRANSACTIONS
STOCK OPTION AGREEMENT
The information in this Joint Proxy Statement/Prospectus concerning the
terms of the Stock Option Agreement is qualified in its entirety by reference to
the full text of the Stock Option Agreement, which is attached hereto in
Appendix I and incorporated by reference herein.
GENERAL. As an inducement and a condition to PBTC's entering into the
Merger Agreement, Elmore County entered into the Stock Option Agreement with
PBTC, which granted PBTC an option to purchase up to 110,273 shares of Elmore
County Common Stock (the "Option"), representing approximately 19.9% of the
issued and outstanding shares of Elmore County Common Stock, at an exercise
price of $26.45 per share (the "Exercise Price"). The Option may only be
exercised upon the occurrence of specified events (as discussed further below),
none of which has occurred as of the date hereof.
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EFFECT OF STOCK OPTION AGREEMENT. The Stock Option Agreement is intended
to increase the likelihood that the Merger will be consummated in accordance
with the terms of the Merger Agreement. Consequently, certain aspects of the
Stock Option Agreement may have the effect of discouraging persons who might now
or prior to the consummation of the Merger be interested in acquiring Elmore
County or Tallassee Bank from considering or proposing such an acquisition, even
if such persons were prepared to pay a higher price per share for the Elmore
County Common Stock than contemplated by the Merger Agreement. The acquisition
of Elmore County or Tallassee Bank, or Elmore County's entry into an agreement
for such a transaction, could cause the Option to become exercisable. The
existence of such Option could significantly increase the cost to a potential
acquiror of acquiring Elmore County compared to the cost of such an acquisition
had the Stock Option Agreement not been entered into. Such increased costs might
discourage a potential acquiror from considering or proposing an acquisition or
might result in a potential acquiror proposing to pay a lower per share price to
acquire Elmore County than it might otherwise have proposed to pay. The exercise
of the Option may prohibit any acquiror of Elmore County from accounting for
such an acquisition using the pooling of interests accounting method for a
period of two years. This could discourage the acquisition of Elmore County by
another party.
TERMS OF STOCK OPTION AGREEMENT. The following is a brief summary of
certain provisions of the Stock Option Agreement, which is attached as Exhibit C
to the Merger Agreement (Appendix I hereto).
Pursuant to the Stock Option Agreement, the Option would become
exercisable in whole or in part after the occurrence of an "Initial Triggering
Event." An Initial Triggering Event would occur if (i) Elmore County, without
receiving PBTC's prior consent, enters into an agreement with any person (other
than PBTC) to effect (a) a merger, consolidation or similar transaction
involving Elmore County, (b) the purchase, lease or other acquisition of all or
substantially all of the assets of Elmore County, or (c) the purchase or other
acquisition (including by way of merger, consolidation, share exchange or
otherwise) of beneficial ownership of securities representing 10% or more of the
voting power of Elmore County (any of the foregoing being referred to as an
"Acquisition Transaction"); (ii) any person (other than PBTC or the current
holders of Elmore County Common Stock) acquires beneficial ownership of, or the
right to acquire beneficial ownership of, 15% or more of the outstanding shares
of Elmore County Common Stock; (iii) any person other than PBTC makes a proposal
to Elmore County or its shareholders to engage in an Acquisition Transaction by
public announcement or written communication that is or becomes the subject of
public disclosure; or (iv) any person other than PBTC or a subsidiary thereof,
without the prior consent of PBTC, files an application or notice with the FRB
or other federal or state bank regulatory authority for approval to engage in an
Acquisition Transaction, which application or notice is accepted for processing.
Any purchase of shares by PBTC pursuant to the Stock Option Agreement would be
subject to compliance with applicable law, including any applicable federal and
state regulatory approval requirements.
In the event that any person or entity other than PBTC or an affiliate of
PBTC (i) completes a tender offer for between 20% and 25% of the outstanding
shares of Elmore County, (ii) commences a tender offer for 25% or more of the
outstanding shares of Elmore County, or (iii) enters into any agreement with
Elmore County to engage in an Acquisition Transaction in which the Elmore County
Common Stock would be exchangeable for securities or assets of another entity or
cash, then PBTC, at its election and subject to the receipt of any required
regulatory approvals, shall be entitled to receive a payment in cash in
consideration for the cancellation of the Stock Option (the "Cancellation
Payment"). The Cancellation Payment payable to PBTC in such event would be equal
to (i) the excess, if any, of (a) the highest price paid by the third party for
any shares so acquired less (b) the Exercise Price, multiplied by (ii) 110,273
shares, less the number of shares (if any) that had previously been purchased by
PBTC upon exercise of the Stock Option. The Cancellation Payment may, at the
option of PBTC, be such lesser amount, if any, as may be paid by Elmore County
without being required to obtain any regulatory approval from or to make any
filing with a regulatory authority.
The number and type of securities subject to the Option, the Exercise
Price and the Cancellation Payment will be appropriately adjusted for any change
in Elmore County Common Stock by reason of a stock dividend, stock split,
merger, recapitalization, combination, exchange of shares or similar
transaction.
The Option will expire upon the earliest to occur of (i) the Effective
Time, (ii) the termination of the Stock Option Agreement prior to the occurrence
of an Initial Triggering Event, (iii) 18 months after the first occurrence of an
Initial Triggering Event, (iv) 18 months after termination of the Merger
Agreement by PBTC pursuant to provisions of the Merger Agreement permitting PBTC
to terminate on the basis of a breach by Tallassee Bank or the non-fulfillment
of a condition precedent to its obligation to consummate the Merger, or (v) the
date of termination of the Merger Agreement in accordance with its terms (other
than by PBTC).
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THE BANK MERGER
Subsequent to the Merger, Tallassee Bank will be merged with and into
Peoples Bank, with Peoples Bank the surviving institution (the "Bank Merger").
The Bank Merger will be accomplished pursuant to a separate merger agreement to
be entered into after the Effective Time.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
The directors and officers of PBTC will not be affected by the Merger
except that, pursuant to the Merger Agreement, Arnold B. Dopson, currently
Chairman of the Elmore County Board and the Board of Directors of Tallassee
Bank, and Dr. D.P. Wilbanks, currently a director of Elmore County and Tallassee
Bank, will be named directors of PBTC effective as of the Effective Time for a
term ending at the next annual meeting of shareholders of PBTC following the
Effective Time. See "Management of PBTC."
The principal occupation(s) and business experience for the past five
years of Messrs. Dopson and Wilbanks is set forth below:
Arnold B. Dopson, age 67, has been an employee of Tallassee Bank since
1949. Mr. Dopson has been Chairman of the Board and Chief Executive Officer of
Tallassee Bank since 1971 and Chairman of the Board and Chief Executive Officer
of Elmore County since its incorporation in 1983. See "Business of Elmore
County -- Executive Compensation."
D.P. Wilbanks, age 60, is engaged in the practice of family dentistry in
Tallassee, Alabama.
The directors and officers of Peoples Bank will not be affected by the
Merger, except that, upon the Bank Merger, Messrs. Arnold B. Dopson and David W.
Baggett, Jr. will become officers of the Tallassee Division of Peoples Bank.
Furthermore, upon the Bank Merger, the directors of Tallassee Bank, other than
Messrs. Dopson and Wilbanks, will be offered the opportunity to become regional
advisory directors of Peoples Bank. Regional advisory directors of Peoples Bank
are paid a fee of $400 per month.
DESCRIPTION OF PBTC CAPITAL STOCK
GENERAL
The authorized capital stock consists of 10,000,000 shares, consisting of
9,000,000 shares of PBTC Common Stock (par value $0.10 per share) and 1,000,000
shares of PBTC Preferred Stock (par value $0.10 per share). As of June 1, 1998,
3,428,744 shares of PBTC Common Stock and no shares of PBTC Preferred Stock were
issued and outstanding. The PBTC Common Stock is listed on the Nasdaq SmallCap
Market under the symbol "PBTC." See "Comparative Stock Prices and Dividend
Information." The stock transfer agent and registrar for the PBTC Common Stock
is Peoples Bank.
COMMON STOCK
Each share of PBTC Common Stock has the same relative rights as and is
identical in all respects to each other share of the PBTC Common Stock. The
PBTC Common Stock represents non-withdrawable capital, is not of an insurable
type and is not insured by the FDIC or any other government agency.
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Subject to any prior rights of the holders of any PBTC Preferred Stock
then outstanding, holders of the PBTC Common Stock are entitled to receive such
dividends as are declared by the PBTC Board out of funds legally available
therefor. Full voting rights are vested in the holders of PBTC Common Stock,
each share being entitled to one vote, subject to the rights of the holders of
any PBTC Preferred Stock then outstanding. The Articles of Incorporation of PBTC
authorize the PBTC Board of Directors to issue authorized shares of PBTC Common
Stock without shareholder approval. However, the PBTC Common Stock is listed on
the Nasdaq SmallCap Market, which requires shareholder approval of the issuance
of additional shares of PBTC Common Stock under certain circumstances, including
the issuance of PBTC Common Stock pursuant to the Merger Agreement. Subject to
any prior rights of the holders of any PBTC Preferred Stock then outstanding, in
the event of liquidation, dissolution or winding up of PBTC, holders of shares
of PBTC Common Stock are entitled to receive, pro rata, any assets distributable
to shareholders in respect of shares held by them. Holders of shares of PBTC
Common Stock do not have any preemptive rights to subscribe for any additional
securities which may be issued by PBTC or cumulative voting rights. The
outstanding shares of PBTC Common Stock are fully paid and non-assessable.
Certain provisions of the PBTC Articles of Incorporation may have the
effect of delaying, deferring or preventing a change in control of PBTC pursuant
to an extraordinary corporate transaction involving PBTC, including a merger,
reorganization, tender offer or transfer of substantially all of its assets.
See "Differences in Rights of Shareholders."
PREFERRED STOCK
The PBTC Articles of Incorporation authorizes the issuance by PBTC of up
to 1,000,000 shares of PBTC Preferred Stock, none of which was issued and
outstanding as of June 1, 1998. The PBTC Preferred Stock may be issued in one
or more series at such time or times and for such consideration or
considerations as the PBTC Board may determine. The PBTC Board is expressly
authorized at any time, and from time to time, to provide for the issuance of
PBTC Preferred Stock with such voting and other powers, preferences and
relative, participating, optional or other special rights, and qualifications,
limitations or restrictions thereof, as shall be stated and expressed in the
PBTC Board resolution providing for the issuance thereof. The PBTC Board is
authorized to designate the series and the number of shares comprising such
series, the dividend rate on the shares of such series, the redemption rights,
if any, any purchase, retirement or sinking fund provisions, any conversion
rights and any special voting rights.
SHARES AVAILABLE FOR FUTURE ISSUANCE
Following the Merger, PBTC will have approximately 3,813,000 authorized
shares of PBTC Common Stock and all of its authorized shares of PBTC Preferred
Stock remaining available for issuance as the need arises in connection with
future acquisitions, combinations, equity financings, share distributions and
dividends, employee benefit plans and other corporate purposes. The issuance of
additional shares of PBTC Common Stock and the issuance of any shares of PBTC
Preferred Stock may occur without further authorization by shareholders on such
terms as PBTC's Board of Directors, subject to its fiduciary duties, may
lawfully determine. The effect of the issuance of additional shares of PBTC
Common Stock (other than on a pro rata basis among holders of such shares) would
be to dilute the present voting power and, depending on the terms of issuance,
possibly the book or market value of the PBTC Common Stock from that prior to
such issuance.
The ability to issue additional shares of PBTC Common Stock or any shares
of PBTC Preferred Stock, in addition to the other corporate purposes described
above, could enable the PBTC Board of Directors to make more difficult the
replacement of incumbent directors or the accomplishment of certain business
combinations or takeover attempts opposed by the Board of Directors, even though
any such business combination or takeover attempt may be supported by holders of
a significant percentage of the outstanding shares of PBTC Common Stock.
PBTC presently has no plan, understanding or arrangement to issue
additional shares of PBTC Common Stock, other than in connection with the
Merger, or upon the proper exercise of stock options granted pursuant to PBTC's
1992 Stock Option Plan or, if necessary, pursuant to PBTC's Dividend
Reinvestment and Stock Purchase Plan.
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DIFFERENCES IN RIGHTS OF SHAREHOLDERS
GENERAL
Upon consummation of the Merger, holders of Elmore County Common Stock,
whose rights are presently governed by Alabama law and the Elmore County
articles of incorporation (the "Elmore County Articles") and bylaws (the "Elmore
County Bylaws"), will become shareholders of PBTC, which also is an Alabama
corporation. Upon the Merger, the rights of the Elmore County shareholders will
continue to be governed by Alabama law; however, their rights will also be
subject to the provisions of the PBTC articles of incorporation (the "PBTC
Articles") and bylaws (the "PBTC Bylaws").
Material differences between the Elmore County Articles and Bylaws and the
PBTC Articles and Bylaws that may affect the rights and interests of the Elmore
County shareholders are set forth below. This summary is not intended to be an
exhaustive description of the provisions discussed, and is qualified in its
entirety by reference to the Elmore County Articles, the Elmore County Bylaws,
the PBTC Articles and the PBTC Bylaws.
ISSUANCE OF CAPITAL STOCK
The PBTC Articles authorize the issuance of 9,000,000 shares of common
stock, par value $.10 per share, and 1,000,000 shares of preferred stock, par
value $.10 per share. The Elmore County Articles authorize the issuance of
1,680,000 shares of common stock, par value $.05 per share, and do not authorize
the issuance of preferred stock. At June 1, 1998, 3,428,744 shares and 554,140
shares of PBTC Common Stock and Elmore County Common Stock, respectively, were
issued and outstanding. No shares of preferred stock of PBTC were outstanding at
such date. Under the PBTC Articles and the Elmore County Articles, the
respective corporations have the authority to issue additional shares of capital
stock up to the authorized amounts without shareholder approval.
AMENDMENT OF BYLAWS
The Elmore County Bylaws and the PBTC Bylaws provide that such Bylaws may
be amended or repealed by the respective Boards of Directors.
In addition, under the ABCA, a corporation's shareholders may amend or
repeal the corporate's bylaws if the votes cast in favor of such action at a
meeting of shareholders at which a quorum is present exceed the votes cast
opposing such action, unless the corporation's articles of incorporation
provide a higher voting requirement for approval of such action. Since the
Elmore County Articles do not include any provisions regarding the amendment of
the Elmore County Bylaws by the Elmore County shareholders, the Bylaws may be
amended by a plurality vote of shareholders as provided in the ABCA. Under the
PBTC Articles, on the other hand, shareholder amendments of the PBTC Bylaws must
be approved by the holders of a majority of PBTC's outstanding stock at a
regular or special meeting of shareholders.
REMOVAL OF DIRECTORS
Under the ABCA, directors of a corporation may be removed by the
shareholders with or without cause, unless the corporation's articles of
incorporation provide that directors may be removed only for cause. Since the
Elmore County Articles do not provide for the removal of directors, Elmore
County directors may be removed with or without cause.
The PBTC Articles provide that directors may be removed only for cause and
only by the affirmative vote of the shareholders at a meeting held for such
purpose, following service of specific charges, adequate notice, and full
opportunity to refute the charges. "Cause" is defined as a final conviction of a
felony, unsound mind, adjudication of bankruptcy, nonacceptance of office or
conduct prejudicial to the interests of PBTC. The effect of these provisions of
PBTC's Articles may be to make removal of incumbent directors by the
shareholders more difficult.
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NUMBER AND TERM OF DIRECTORS
Under the PBTC Articles, the Board of Directors shall consist of at least
three, and not more than 18, directors, with the specific number to be fixed by
the Board of Directors. Currently, the PBTC Board of Directors consists of 12
members, each of whom has been elected for a one-year term.
The Elmore County Articles provide that the Board of Directors of Elmore
County shall consist of not more than 12 members and that the Board shall
determine how many directors are to be elected in any year. Currently, the
Elmore County Board of Directors consists of eight members, each of whom has
been elected for a one-year term.
NOMINATIONS FOR DIRECTORS
The PBTC Bylaws provide that shareholders may make nominations for
directors to be elected at the annual meeting if such nominations are made in
writing and submitted to the secretary or president of PBTC at least three days
before the date of the meeting. As neither the ABCA nor any provision of the
Elmore County Articles or Bylaws includes any limitation on the ability of
shareholders to make nominations for directors, the shareholders of Elmore
County may nominate individuals for election as director during, or at any time
prior to, an annual meeting of shareholders of Elmore County.
LIMITATIONS ON DIRECTORS' LIABILITY
Under the ABCA, an Alabama corporation may include in its articles of
incorporation a provision that eliminates or limits a director's personal
liability for monetary damages for actions taken as a director, subject to
certain limitations. Pursuant to such authority, the PBTC Articles include a
provision eliminating the personal liability of a director for any action taken,
or failure to take any action, except liability for: (a) the amount of a
financial benefit received by a director to which he or she is not entitled; (b)
an intentional infliction of harm on the corporation or its shareholders; (c) a
vote for or assent to an unlawful distribution to the corporation's shareholders
that is prohibited under the ABCA; (d) an intentional violation of criminal law;
or (e) a breach of the director's loyalty to the corporation or its
shareholders. This provision of the PBTC Articles does not, however, relieve
directors of their duty of due care, and does not affect the availability of
injunctive or other equitable relief as a remedy for breach of the duty of care.
The Elmore County Articles do not include a similar provision limiting the
personal liability of directors for monetary damages.
INDEMNIFICATION
The PBTC Articles provide that PBTC shall have the authority to indemnify,
to the full extent permitted by Alabama or other applicable law, any person who
was or is a party to or threatened to be made a party to any threatened, pending
or completed action, suit or proceeding of any kind, including an action by or
in the right of PBTC, as a result of the fact that such person was or is serving
as a director, officer, employee or agent of PBTC or was serving at the request
of the Board of Directors as a director, officer, employee or agent of another
corporation, partnership, or other enterprise, against expenses (including
attorney's fees), judgments, penalties, fines or amounts paid in settlement in
connection therewith.
The ABCA limits the instances in which an Alabama corporation may provide
indemnification. Under the ABCA, a corporation may provide indemnification
(other than in connection with a proceeding by or in the right of the
corporation) only if the person being indemnified acted in good faith and in a
manner he or she reasonably believed to be in the best interests of the
corporation or its shareholders and, with respect to any criminal action or
proceeding, if the person had no reasonable cause to believe his or her conduct
was unlawful. The termination of any action by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its equivalent is not, of
itself, determinative that the person did not meet this statutory standard of
conduct. An Alabama corporation is required to provide indemnification of
directors, officers, employees or agents against all reasonably incurred
expenses to the extent the individual has been successful on the merits or
otherwise in defense in defense of an action, suit or proceeding. An individual
may also apply to the court conducting the proceeding or to another court of
competent jurisdiction for indemnification. Such a court may order
indemnification if it determines that the person either is entitled to mandatory
indemnification of is fairly and reasonable entitled to indemnification in view
of all the relevant
37
<PAGE>
circumstances, whether or not the applicable standard of conduct described above
has been satisfied.
The Elmore County Bylaws further limit the right of indemnification.
Under such Bylaws, Elmore County is required to indemnify any person made a
party to any action, suit or proceeding by reason of the fact that he or she was
a director, officer or employee of Elmore County or served as a director,
officer or employee of another corporation at the request of Elmore County
against reasonable expenses, including attorney's fees, actually and necessarily
incurred by him or her in connection with any such action, except in relation to
matters as to which it shall be adjudged in such action that such person is
liable for negligence or misconduct in the performance of his duties. Elmore
County may also reimburse any such director, officer or employee the reasonable
cost of settlement of any such action if the majority of Elmore County's
directors finds that such settlement is in the best interest of Elmore County
and that the director, officer or employee was not guilty of negligence or
misconduct. The Elmore County Bylaws further provide that the amount of
indemnity to which any officer or director may be entitled shall be fixed by the
shareholders.
COMPARATIVE MARKET PRICES AND DIVIDENDS
PBTC
PBTC Common Stock is traded in the over-the-counter market and is quoted
on the Nasdaq SmallCap Market under the symbol "PBTC."
The following table indicates bid information for the PBTC Common Stock
as reported by Nasdaq, and the dividends declared per share. All data prior to
June 16, 1997 has been restated to reflect the effect of a two-for-one stock
split effected in the form of a stock dividend. Quotations reflect inter-dealer
prices, without retail mark-up, mark-down or commission, and may not reflect
actual transactions.
<TABLE>
<CAPTION>
High Low Dividends
---- --- ---------
<S> <C> <C> <C>
1996 - First Quarter $ 11.50 $ 9.25 $ .065
Second Quarter 11.00 10.75 .065
Third Quarter 11.25 10.75 .065
Fourth Quarter 13.50 11.25 .075
1997 - First Quarter 17.00 13.50 .075
Second Quarter 18.50 17.00 .075
Third Quarter 19.00 18.00 .08
Fourth Quarter 31.00 17.00 .08
1998 - First Quarter 31.50 27.00 .08
Second Quarter
(through 5/31/98) 31.88 28.25 .08
</TABLE>
On December 11, 1997, the business day immediately prior to the public
announcement of the Merger, the closing price of the PBTC Common Stock as
reported through the Nasdaq Small Cap Market was $24.125 per share.
Although PBTC has no established policy regarding dividends, PBTC has
paid regular dividends in recent years. There can be no assurance, however, as
to whether or in what amounts dividends might be declared by PBTC in the future
or whether such dividends, once declared, will continue. Future dividends are
subject to the discretion of the PBTC Board and depend on a number of factors,
including future earnings, financial condition, and capital requirements, along
with economic and market conditions.
PBTC derives substantially all of its income from dividends received
from Peoples Bank. Various statutory provisions limit the amount of dividends
Peoples Bank may pay without regulatory approval. In addition, federal statutes
restrict the ability of a subsidiary bank to make loans to PBTC, and regulatory
policies may also restrict such dividends. See "Regulation, Supervision and
Governmental Policy" and Note 12 of Notes to Consolidated Financial Statements
of PBTC.
38
<PAGE>
ELMORE COUNTY
There is no established public trading market in which shares of Elmore
County Common Stock are regularly traded, nor are there any uniformly quoted
prices for such shares. The last sale of Elmore County Common Stock known to
Elmore County's management occurred in June 1997 at $25.00 per share.
The following table indicates the dividends declared per share of Elmore
County Common Stock.
<TABLE>
<CAPTION>
Dividends
---------
<S> <C>
1996 - First Quarter $ --
Second Quarter .25
Third Quarter --
Fourth Quarter .25
1997 - First Quarter --
Second Quarter .25
Third Quarter --
Fourth Quarter .25
1998 - First Quarter .13
Second Quarter .12
(through 5/31/98)
</TABLE>
See "Regulation, Supervision and Governmental Policy."
PRO FORMA COMBINED FINANCIAL INFORMATION
CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED)
The following summary includes (i) the condensed consolidated statement of
condition of PBTC on a historical basis as of March 31, 1998, (ii) the condensed
statement of condition of Elmore County as of March 31, 1998, (iii) adjustments
to give effect to the proposed Merger, and (iv) the pro forma statement of
condition of PBTC as if the Merger had occurred on March 31, 1998 on a pooling
of interests basis.
This summary should be read in conjunction with the accompanying notes and
the separate consolidated statements of condition of PBTC and Elmore County,
included elsewhere herein. The pro forma information provided below may not be
indicative of future results.
39
<PAGE>
<TABLE>
<CAPTION>
March 31, 1998
-------------------------------------------------------------------------------
Consolidated Consolidated
The Peoples BancTrust Elmore County Adjustment Pro Forma
Company, Inc. Bancshares, Inc. (Deductions) Combined Total
----------------------- ------------------- -------------- -----------------
<S> <C> <C> <C> <C>
(Dollars in thousands)
ASSETS
Cash and due from banks.................. $ 17,813 $ 2,097 $ 19,910
Federal funds sold and securities
purchased under agreements
to resell........................... 37,585 2,175 39,760
Securities available for sale............ 94,954 8,753 103,707
Securities held to maturity.............. 0 29,785 29,785
Loan, net of unearned income............. 263,071 46,756 309,827
Allowance for loan losses................ (3,142) (700) (3,842)
-------- ------- ------------ --------
Loans.................................... 259,929 46,056 305,985
Bank premises and equipment, net......... 8,635 1,459 10,094
Other real estate owned, net............. 231 231
Intangibles.............................. 10,283 10,283
Other assets............................. 8,409 2,192 10,601
-------- ------- ------------ --------
Total assets............................. $ 437,839 $ 92,517 $ $ 530,356
======== ======= ============ ========
Liabilities and Shareholders'
Equity
Noninterest-bearing deposits............. $ 55,826 $12,927 $ 68,753
Interest-bearing deposits................ 308,899 63,527 372,426
Federal funds purchased and
securities sold under
agreements to repurchase............ 4,159 0 4,159
Other borrowed funds..................... 25,091 0 25,091
Other liabilities........................ 5,546 938 6,484
-------- ------- ------------ --------
Total liabilities........................ 399,521 77,392 476,913
Common stock............................. 348 42 $ 129 (1) 519
Additional paid in capital............... 6,521 411 (582) (1) 6,350
Treasury stock........................... (762) (1,526) 1,526 (1) (762)
Retained earnings........................ 32,152 16,112 (1,073) (1) 47,191
Net unrealized gain on
securities.......................... 59 86 145
-------- ------------
Total equity............................. 38,318 15,125 0 53,443
-------- ------- ------------ --------
Total liabilities and equity............. $ 437,839 $ 92,517 $ 0 $ 530,356
======== ======= ============ ========
Capital ratios:
Capital ratio......................... 8.75% 10.08%
Tangible leverage ratio............... 6.74% 7.76%
Tier One capital ratio*............... 9.96% 11.76%
Total capital ratio*.................. 11.08% 12.91%
</TABLE>
*Based on risk-weighted assets.
40
<PAGE>
(1) To record the issuance of 1,711,905 shares of PBTC Common Stock in
exchange for all of the outstanding shares of Elmore County Common Stock:
<TABLE>
<CAPTION>
Outstanding
Shares
-----------
<S> <C> <C>
Elmore County outstanding shares...................................... 554,140
Conversion ratio...................................................... 3.0893
PBTC shares to be issues.............................................. 1,711,905
Par value of 1,711,905 shares to be issued at $0.10 per share......... $171
Excess recorded as additional paid-in capital......................... (171)
Excess recorded as a decrease to retained earnings.................... (1,073)
----------
(1,073)
To eliminate Elmore County:
Common stock............................................................... (42)
Additional paid-in capital................................................. (411)
Treasury stock............................................................. 1,526
---------
1,073
---------
Net change in equity............................................ $ --
==========
</TABLE>
41
<PAGE>
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)
The following summary includes (i) the condensed statements of income of
PBTC for the year ended December 31, 1997, (ii) the condensed statements of
income of Merchants & Planters and Elmore County for the year ended December 31,
1997, (iii) adjustments to give effect to the acquisition of Merchants &
Planters and the proposed Merger, and (iv) the pro forma statements of income of
PBTC as if the acquisitions of Merchants & Planters and Elmore County had
occurred on January 1, 1997 on a purchase and pooling of interests basis,
respectively.
This summary should be read in conjunction with the accompanying notes and
the separate consolidated statements of income of PBTC and the consolidated
statements of income of Merchants & Planters and Elmore County included
elsewhere herein. The pro forma information provided below may not be
indicative of future results.
<TABLE>
<CAPTION>
Year Ended December 31, 1997
----------------------------------------------------------------------------
Consolidated Consolidated
The PBTC Merchants Consolidated
BancTrust & Planters Adjustments Elmore County
Company, Inc. Bancshares (Deductions) (1) Subtotal Bancshares, Inc.
------------- ------------ ---------------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
(In thousands, except share and per share data)
Interest income........................... $ 27,418 $ 4,808 $ (565) $ 31,661 $ 7,195
Interest expense.......................... 11,765 2,297 675 14,737 2,820
---------- ------- -------- ---------- --------
Net interest income....................... 15,653 2,511 (1,240) 16,924 4,375
Provision for loan losses................. 1,732 38 1,770 135
---------- ------- ---------- --------
Net interest income after
provision for loan losses............ 13,921 2,473 (1,240) 15,154 4,240
---------- ------- -------- ---------- --------
Noninterest income........................ 4,136 375 4,511 1,157
Noninterest expense....................... 12,099 1,648 894 14,641 3,319
---------- ------- -------- ---------- --------
Income before income taxes................. 5,958 1,200 (2,134) 5,024 2,078
Applicable income taxes.................... 1,955 343 (696) 1,602 488
---------- ------- -------- ---------- --------
Net income................................. $ 4,003 $ 857 $ (1,438) $ 3,422 $ 1,590
========== ======= ======== ========== ========
Average diluted shares
outstanding............................ 3,426,660 21,159 (21,159) 3,426,660 554,140
Earnings per share -
diluted................................ $ 1.17 $ 40.08 $ 1.00 $ 2.87
<CAPTION>
Pro Forma
Adjustments Combined
(Deductions) Total
----------- ----------
<S> <C> <C>
Interest income........................... $ 38,856
Interest expense.......................... 17,557
----------- ----------
Net interest income....................... 21,299
Provision for loan losses................. 1,905
----------- ----------
Net interest income after
provision for loan losses 19,394
----------- ----------
Noninterest income 5,666
Noninterest expense 17,960
----------- ----------
Income before income taxes 7,102
Applicable income taxes 2,090
----------- ----------
Net income $ 5,012
=========== ==========
Average diluted shares
outstanding...................... (554,140) 5,138,565
1,711,905
Earnings per share -
diluted................................ $ 0.98
</TABLE>
42
<PAGE>
PRO FORMA ADJUSTMENTS: (IN THOUSANDS)
Completed business combination
(1) Adjustments applicable to the purchase method business combination with
Merchants & Planters:
<TABLE>
<CAPTION>
Year Ended
December 31, 1997
-----------------
<S> <C>
Increase in expenses:
Interest expense on funds borrowed for transaction............................ $ (675)
Amortization of core deposit tangible (10 year period, accelerated method).... (548)
Depreciation of fixed asset write-up (15 year period)......................... (92)
Amortization of goodwill (25 year period)..................................... (254)
--------
(1,569)
Decrease in income:
Lost earnings from liquidation of investment securities....................... (565)
Net decrease in income before tax................................................ (2,134)
Tax effect of the pro forma adjustments.......................................... 696
--------
Net decrease in income........................................................... $(1,438)
========
</TABLE>
The following summaries include (i) the consolidated statements of income
of PBTC, (ii) the combined condensed statements of Elmore County for the years
ended December 31, 1996 and 1995, (iii) adjustments to give effect to the
proposed Merger, and (iv) the pro forma statements of income of PBTC as if the
Merger had occurred on January 1, 1996 and 1995 on a pooling of interests basis.
This summary should be read in conjunction with the accompanying notes and
the separate consolidated statements of income of PBTC and the consolidated
statements of income of Elmore County included elsewhere herein. The pro forma
information provided below may not be indicative of future results.
<TABLE>
<CAPTION>
Year Ended December 31, 1996
---------------------------------------------------------------
Consolidated
The Peoples Consolidated Pro Forma
BancTrust Elmore County Adjustments Combined
Company, Inc. Bancshares, Inc. (Deductions) Total
------------- ---------------- ------------ ----------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C>
Interest income.................... $ 25,665 $ 7,150 $ 32,815
Interest expense................... 11,220 2,843 14,063
---------- ---------- ---------- ----------
Net interest income................ 14,445 4,307 0 18,752
Provision for loan losses.......... 1,835 279 2,114
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses........ 12,610 4,028 0 16,638
---------- ---------- ---------- ----------
Noninterest income................. 3,725 969 4,694
Noninterest expense................ 11,110 3,178 14,288
---------- ---------- ---------- ----------
Income before income taxes......... 5,225 1,819 0 7,044
Applicable income taxes............ 1,643 461 2,104
---------- ---------- ---------- ----------
Net income......................... $ 3,582 $ 1,358 $ 0 $ 4,940
========== ========== ========== ==========
Average diluted shares
outstanding...................... 3,408,444 554,140 (554,140) 5,120,349
1,711,905
Earnings per share -
diluted......................... $ 1.05 $ 2.45 $ 0.96
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31, 1995
---------------------------------------------------------------
Consolidated
The Peoples Consolidated Pro Forma
BancTrust Elmore County Adjustments Combined
Company, Inc. Bancshares, Inc. (Deductions) Total
------------- ---------------- ------------ ---------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C>
Interest income.................. $ 24,040 $ 6,921 $ 30,961
Interest expense................. 11,074 2,735 13,809
---------- ---------- ---------- ----------
Net interest income.............. 12,966 4186 0 17,152
Provision for loan losses........ 848 72 920
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses...... 12,118 4,114 0 16,232
---------- ---------- ---------- ----------
Noninterest income............... 3,309 1,002 4,311
Noninterest expense.............. 11,001 3,469 14,470
---------- ---------- ---------- ----------
Income before income taxes....... 4,426 1,647 0 6,073
Applicable income taxes.......... 1,278 542 1,820
---------- ---------- ---------- ----------
Net income....................... $ 3,148 $ 1,105 $ 0 $ 4,253
========== ========== ========== ==========
Average diluted shares
outstanding.................... 3,529,398 554,140 (554,140) 5,241,303
1,711,905
Earnings per share-
diluted....................... $ 0.89 $ 1.99 $ 0.81
</TABLE>
The following summary includes (i) the condensed statements of income of
PBTC, (ii) the combined condensed statements of income of Merchants & Planters
and Elmore County for the quarter ended March 31, 1998, (iii) adjudtments to
give effect to the acquisition of Merchants & Planters and the proposed Merger,
and (iv) the pro forma statements of income of PBTC as if the acquisitions of
Merchants & Planters and Elmore County had occurred on January 1, 1998 on a
purchase and pooling of interests basis, respectively.
44
<PAGE>
This summary should be read in conjunction with the accompanying notes and
the separate consolidated statements of income of PBTC and the consolidated
statements of Merchants & Planters and Elmore County, included elsewhere herein.
The pro forma information provided below may not be indicative of future
results.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998
-----------------------------------------------------------------------------------------------------
Consolidated Consolidated
The PBTC Merchants Consolidated Pro Forma
BancTrust & Planters Adjustments Elmore County Adjustments Combined
Company, Inc Bancshares, Inc (1) (Deductions) (2) Subtotal Bancshares, (Deductions) Total
------------ ------------------- ---------------- -------- ------------- ------------ --------
Inc.
----
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income............. $ 7,417 $ 838 $ (94) $ 8,160 $ 1,788 $ 9,948
Interest expense............ 3,233 411 113 3,756 710 4,466
------------ ---------- ----------- ---------- ----------- ---------- ----------
Net interest income......... 4,184 427 (207) 4,404 1,078 0 5,482
Provision for loan losses... 251 21 272 25 297
------------ ---------- ----------- ---------- ----------- ---------- ----------
Net interest income after
provision for loan losses 3,933 405 (207) 4,132 1,053 0 5,185
------------ ---------- ----------- ---------- ----------- ---------- ----------
Noninterest income.......... 1,095 42 1,137 267 1,404
Noninterest expense......... 3,503 332 149 3,984 746 4,730
------------ ---------- ----------- ---------- ----------- ---------- ----------
Income before income taxes.. 1,525 116 (356) 1,285 574 0 1,859
Applicable income taxes..... 507 41 (124) 424 154 678
------------ ---------- ----------- ---------- ----------- ---------- ----------
Net income.................. $ 1,018 $ 75 $ (231) $ 862 $ 420 $ 0 $ 1,281
============ ========== =========== ========== =========== ========== ==========
Average diluted shares
outstanding............... 3,439,206 $3,439,206 554,140 (554,140) 5,151,111
1,711,905
Earnings per share-
diluted.................. $ 0.30 $ 0.25 $ 0.76 $ 0.25
</TABLE>
________________________________
(1) Includes period from January 1, 1998 to acquisition on March 6, 1998.
(2) Pro rata adjustment for purchase accounting effect for period prior to
acquisition on March 6, 1998.
<PAGE>
The following summary includes (i) the condensed statements of income of
PBTC, (ii) the combined condensed statements of income of Elmore County for the
quarter ended March 31, 1997, (iii) adjustments to give effect to the proposed
Merger, and (iv) the pro forma statements of income of PBTC as if the Merger had
occurred on January 1, 1997 on a pooling of interests basis.
This summary should be read in conjunction with the accompanying notes and
the separate consolidated statements of income of PBTC and the consolidated
statements of Elmore County, included elsewhere herein. The pro forma data
provided below may not be indicative of future results.
<TABLE>
<CAPTION>
Three Months Ended March 31, 1997
----------------------------------------------------------------------------------------
Consolidated
The Peoples Consolidated Pro Forma
Banc Trust Elmore County Adjustments Combined
Company, Inc. Bancshares, Inc. (Deductions) Total
-------------- ----------------- ------------- -----
(In thousands, except share and per share data)
<S> <C> <C> <C> <C>
Interest income................. $ 6,465 $ 1,794 $ 8,259
Interest expense................ 2,850 695 3,545
---------- -------- ---------- ----------
Net interest income............. 3,615 1,099 0 4,714
Provision for loan losses....... 360 75 435
---------- -------- ---------- ----------
Net interest income after
provision for loan losses..... 3,255 1,024 0 4,279
---------- -------- ---------- ----------
Noninterest income.............. 959 257 1,216
Noninterest expense............. 2,874 790 3,664
---------- -------- ---------- ----------
Income before income taxes...... 1,340 491 0 1,831
Applicable income taxes......... 437 128 565
---------- -------- ---------- ----------
Net income...................... $ 903 $ 363 $ 0 $ 1,266
========== ======== ========== ==========
Average diluted shares
outstanding................... 3,418,414 554,140 (554,140) 5,130,319
1,711,905
Earnings per share -
diluted...................... $ 0.27 $ 0.66 $ 0.25
</TABLE>
<PAGE>
SELECTED FINANCIAL AND OTHER DATA OF PBTC
The following tables set forth certain historical financial information
for PBTC. This information is based on the consolidated financial statements of
PBTC including applicable notes incorporated by reference elsewhere herein.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months
Ended March 31, Years Ended December 31,
---------------------- ---------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 4,184 $ 3,615 $ 15,653 $ 14,445 $ 12,966 $ 11,344 $ 10,323
Provision for loan losses 251 360 1,732 1,835 848 348 484
Income before income taxes 1,525 1,340 5,958 5,226 4,426 3,316 3,057
Provision for income taxes 507 437 1,955 1,643 1,278 962 808
Net income 1,018 903 4,003 3,583 3,148 2,354 2,173
------- -------- -------- -------- -------- -------- --------
Net income per share (1) .30 .27 1.17 1.05 .89 .66 .665
Cash dividends per share (1) .08 0.75 .31 .27 .255 .24 .22
</TABLE>
________________________
(1) Restated to show effect of a 2-for-1 stock split in the form of a stock
dividend paid in March 1995 and a 2-for-1 stock split in the form of a
stock dividend paid in June 1997.
SELECTED QUARTERLY INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996
------- ------------------------------------- -------------------------------------
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
------- ------- -------- ------- ------- ------- -------- ------- --------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 4,184 $ 4,338 $ 3,930 $ 3,770 $ 3,615 $ 3,653 $ 3,549 $ 3,807 $ 3,436
Provision for loan losses 251 640 368 364 360 418 368 723 326
Income before income taxes 1,525 1,498 1,610 1,511 1,340 1,403 1,203 1,208 1,413
Provision for income taxes 507 509 543 466 437 434 321 383 506
Net income 1,018 988 1,067 1,045 903 969 882 825 907
--------- -------- -------- -------- -------- -------- -------- -------- --------
Net income per share (1) .30 .28 .31 .31 .27 .28 .26 .24 .27
Cash dividends per share (1) .08 .08 .08 .075 .075 .075 .065 .065 .065
--------- -------- -------- -------- -------- -------- -------- -------- --------
Total Assets $437,839 $361,362 $344,319 $334,320 $327,095 $343,301 $314,655 $322,974 $320,656
========= ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
________________________
(1) Restated to show effect of a 2-for-1 stock split in the form of a stock
dividend paid in June 1997.
FINANCIAL CONDITION DATA
<TABLE>
<CAPTION>
At December 31,
At March 31, --------------------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Total assets $ 437,839 $ 361,362 $ 343,301 $ 318,311 $ 301,228 $ 281,871
Loans, net 259,929 256,027 225,886 189,126 160,939 136,975
Deposits 364,725 298,108 288,385 272,782 263,164 241,502
Stockholders' equity 38,318 37,233 34,185 31,514 27,630 28,788
</TABLE>
<PAGE>
SELECTED RATIOS
<TABLE>
<CAPTION>
Three Months Ended
March 31, (2) Years Ended December 31,
---------------------- ---------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Return on assets (net
income divided by
average total assets)...... 1.09% 1.10% 1.20% 1.12% 1.03%
Return on equity (net
income divided by
average equity)............ 10.77% 10.47% 10.95% 11.01% 10.51%
Dividend payout ratio
(dividends declared
per share divided
by net income per
share)(1).................. 26.67% 27.78% 26.50% 25.72% 28.65%
Equity-to-assets ratio
(average equity
divided by average
total assets).............. 10.12% 10.50% 10.85% 10.13% 9.77%
</TABLE>
____________________________
(1) Restated to show effect of a 2-for-1 stock split in the form of a stock
dividend paid in March 1995 and a 2-for-1 stock split in the form of a
stock dividend paid in Jun June 1997.
(2) Annualized.
48
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA OF ELMORE COUNTY
The following tables set forth certain historical financial
information for Elmore County. This information is based on the
consolidated financial statements of Elmore County including applicable
notes incorporated by reference elsewhere herein.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
March 31, Years Ended December 31,
---------------------- ----------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Net interest income $ 1,078 $ 1,099 $ 4,376 $ 4,307 $ 4,186
Provision for loan losses 25 75 135 279 73
Income before income taxes 574 491 2,079 1,820 1,647
Provision for income taxes 154 128 488 461 542
Net income 420 363 1,591 1,359 1,105
-------- ------- -------- ---------- ---------
Net income per share .76 .66 2.87 2.45 1.99
Cash dividends per share .13 -- .50 .50 .25
</TABLE>
SELECTED QUARTERLY INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996
-------- ----------------------------------- ------------------------------------
Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
-------- ------- -------- ------- ------- ------- -------- ------- -------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 1,078 $ 1,185 $ 1,076 $ 1,049 $ 1,066 $ 1,059 $ 1,063 $ 1,104 $ 1,081
Provision for loan losses 25 36 17 8 74 59 69 94 57
Income before income taxes 574 339 752 360 628 302 551 451 516
Provision for income taxes 154 80 176 85 147 77 139 114 131
Net income 420 259 576 275 481 225 412 337 385
-------- ------- ------- ------- ------- ------- ------- ------- -------
Net income per share (1) .76 .47 1.03 .50 .87 .41 .74 .61 .69
Cash dividends per share (1) .13 .25 -- .25 .-- .25 .-- .25 .--
-------- ------- ------- ------- ------- ------- ------- ------- -------
Total Assets $ 92,517 $92,465 $91,708 $91,319 $90,808 $88,439 $88,956 $89,548 $89,751
======== ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
________________________
(1) Restated to show effect of a 3-for-1 stock split paid in May 1996.
FINANCIAL CONDITION DATA
<TABLE>
<CAPTION>
At March 31, At December 31,
---------------- ------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Total assets $ 92,517 $ 92,465 $ 88,439
Loans, net 46,056 46,261 40,242
Deposits 76,454 76,773 73,881
Stockholders' equity 15,125 14,775 13,467
</TABLE>
49
<PAGE>
SELECTED RATIOS
<TABLE>
<CAPTION>
Three Months Ended
March 31, (2) Years Ended December 31,
----------------------- ----------------------------
1998 1997 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Return on assets (net
income dividend by
average total assets)........ 1.82% 1.63% 1.75% 1.52%
Return on equity (net
income divided by
average equity).............. 11.33% 10.72% 11.15% 10.40%
Dividend payout ratio
(dividends declared
per share divided
by net income per
share)(1).................... 17.11% --% 17.42% 20.41%
Equity-to-assets ratio
(average equity
divided by average
total assets)................ 16.07% 15.18% 15.69% 14.54%
</TABLE>
____________________________
(1) Restated to show effect of a 3-for-1 stock split paid in May 1996.
(2) Annualized.
50
<PAGE>
PRO FORMA SELECTED FINANCIAL DATA OF PBTC
AND ELMORE COUNTY
The following tables set forth certain pro forma financial information for
PBTC and Elmore County. Such pro forma information has been prepared assuming
consummation of the Merger on a pooling of interests accounting basis as of the
beginning of each of the periods presented. See "The Merger - Anticipated
Accounting Treatment." This information is based on the consolidated financial
statements of PBTC and Elmore County, including applicable notes included
elsewhere herein.
Pro forma financial information is intended to show how the Merger might
have affected historical financial statements if the Merger had been consummated
at an earlier time. The pro forma selected financial information does not
purport to be indicative of the results that actually would have been realized
had the Merger taken place at the beginning of the applicable periods indicated,
nor is it indicative of the combined financial position or results of operations
for any future periods.
Pro forma results of operations for the three months ended March 31, 1998
and for the year ended December 31, 1997 reflect the effects of the acquisition
of Merchants & Planters as if such acquisition had been consummated at the
beginning of such periods. This information is based on the consolidated
financial statements of Merchants & Planters, including applicable notes
included elsewhere herein.
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months
Ended March 31, Years Ended December 31,
--------------------------- --------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
Net interest income $ 5,482 $ 4,714 $ 21,299 $ 18,752 $ 17,152
Provision for loan losses 297 435 1,905 2,114 920
Income before income taxes 1,859 1,831 7,107 7,044 6,073
Provision for income taxes 678 565 2,090 2,104 1,820
Net income 1,281 1,266 5,012 4,940 4,253
------- ------- -------- -------- --------
Net income per share .25 .25 .98 .96 .81
Historical dividends per share .08 .75 .31 .27 .26
</TABLE>
FINANCIAL CONDITION DATA
<TABLE>
<CAPTION>
At December 31,
At March 31, -------------------------------
1998 1997 1996
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Total assets $ 530,356 $ 453,827 $ 431,740
Loans, net 305,985 302,288 266,128
Deposits 441,179 374,881 362,266
Stockholders' equity 53,443 52,006 47,652
</TABLE>
51
<PAGE>
MANAGEMENT'S DISCUSSION AND ANAYLSIS OF PBTC -
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
INTRODUCTION
This discussion focuses on the financial condition and results of
operations of PBTC, and is intended to be read in conjunction with the
Consolidated Financial Statements of PBTC included herein. Reference should be
made to those statements and other financial data presented elsewhere herein.
Management's discussion and analysis includes certain forward-looking
statements addressing, among other things, PBTC'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 PBTC's future
necessarily involve a number of assumptions and estimates. Factors that could
cause actual results to differ from the expectations expressed herein include:
substantial changes in interest rates and changes in the general economy, as
well as changes in PBTC'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.
BALANCE SHEET SUMMARY
LOANS. PBTC's largest earning asset category is its loan portfolio.
Because loans generate the highest yields, most other assets and liabilities are
managed to accommodate fluctuations in the loan portfolio.
Loans, net of unearned interest, for 1997, had an average balance of
$225,706,000. This volume represented a 14.46% increase over the 1996 average of
$197,187,000. Continued emphasis on loan generation, and year-end loan demand,
coupled with a healthy economy, caused loans net of unearned interest to rise
from a December 31, 1996 total of $228,370,000 to their December 31, 1997 total
of $258,777,000. Due to the aforementioned loan growth, PBTC's loan to deposit
ratio at December 31, 1997, rose to 86.8%, as compared to the December 31, 1996
ratio of 78.3%.
The largest segmental growth in the loan portfolio was in commercial and
industrial loans. 1997 saw an increase of $9,902,000 from $82,001,000 at
December 31, 1996 to $91,903,000 at December 31, 1997. PBTC monitors
concentrations of loans by certain industry segments. At December 31, 1997,
those segments and their approximate respective loan amounts were: health care
$45,700,00; timber $31,800,000; construction $28,000,000 and agriculture
$25,100,000. No other single industry segment accounted for greater than
$25,000,000 of loans.
Real estate loans experienced a $16,209,000 growth, to finish the year at a
balance of $88,246,000. The expanding economies in the counties where PBTC
concentrates its business contributed to an increased demand for new home
financing, thus causing the growth in real estate loans. The personal loan
portfolio increased by $1,359,000, to a balance of $71,978,000 at December 31,
1997. This rise was primarily due to higher demand for automobile financing.
Credit lines increased from $4,910,000 at December 31, 1996 by $1,513,000 to
$6,423,000 at December 31, 1997. Checking overdrafts increased from $335,000 at
December 31, 1996 to $613,000 at December 31, 1997, representing a $278,000
increase. The 1996 level was below that of 1995, with the 1997 level more
closely resembling what management regards as a normal balance.
ALLOWANCE FOR LOAN LOSSES. Management's estimate of the uncollectible
loans within PBTC's loan portfolio is represented by the allowance for loan
losses. A charge to the allowance for loan losses occurs when management has
cause to believe that the prospect of principal repayment of a loan has
significantly diminished. Should a loan that has been charged off be recovered,
either partially or entirely, it is credited back to the allowance. Periodic
reviews of the loan portfolio that include analysis of such factors as current
and expected economic conditions, historical loss experience, levels of non-
accruing loans and delinquencies, determine the appropriate level at which to
maintain the allowance for loan losses. Because the allowance is based on
assumptions and subjective judgement, it is not necessarily reflective of the
charge-offs which could ultimately occur.
52
<PAGE>
At December 31, 1997, PBTC's allowance for loan losses had a balance of
$2,750,000 as compared to $2,484,000 at December 31, 1996. As a result, the
ratios of allowance to total loans net of unearned interest were 1.06% and 1.09%
for 1997 and 1996, respectively. Loans requiring special attention because of
potential weaknesses fell from $10,900,000 at December 31, 1996 to $9,086,000 at
December 31, 1997. As a percentage of total loans net of unearned interest, non-
accruing loans decreased slightly, standing at .66% on December 31, 1997 as
compared to .73% on December 31, 1996. The current level of allowance for loan
losses exceeds the minimum requirements set forth by the regulatory authorities.
It is management's belief that at its current level, the allowance for loan
losses is sufficient to absorb any potential losses in PBTC's loan portfolio.
See Note 1 of Notes to Consolidated Financial Statements of PBTC.
INVESTMENTS. PBTC's investment portfolio declined $12,956,000 to
$69,737,000 at December 31, 1997, as compared to $82,693,000 at December 31,
1996. This decrease represents a shift of funds from the investment portfolio to
the higher yielding loan portfolio.
During 1995, the entire portfolio was classified as "available-for-sale",
causing it to be marked-to-market. The portfolio had a net unrealized loss of
$125,000 (net of tax benefits of $64,000) at December 31, 1997, compared to a
net unrealized loss of $219,000 (net of tax benefits of $113,000) at December
31, 1996. Notes 1 and 4 of Notes to Consolidated Financial Statements of PBTC
discuss additional aspects of Investment Securities.
SHORT-TERM INVESTMENTS. Federal funds sold and securities purchased under
agreement to resell constitute the bulk of the short-term investments. These
investments are used extensively in PBTC's liquidity management. The utilization
of short-term investments also produces interest income on funds that might
otherwise lay dormant. Management watches short-term investments closely and is
always looking for alternative uses for these funds.
Short-term investments totaled $6,677,000 at December 31, 1997, as compared
to $3,912,000 at December 31, 1996, which was an increase of $2,765,000.
DEPOSITS. The funding of loans and investments is primarily achieved with
deposits. At December 31, 1997, total deposits amounted to $298,108,000 , as
compared to $288,385,000 at December 31, 1996, representing an increase of
$9,723,000 or 3.37%. This increase is accounted for in a $20,025,000 rise in
time deposits, offset by a $8,928,000 decrease in demand deposits and a
$1,374,000 decrease in savings, which represents a shift into higher priced term
deposits. PBTC's strategy is to price deposits competitively to attract
additional funds for asset allocation.
LIQUIDITY. The term liquidity is used in describing PBTC's ability to meet
its needs for cash. Those needs primarily include lending, withdrawal demands of
customers and operating expenses.
PBTC's primary sources of cash are interest and fee income, loan repayments
and the maturity or sales of other earning assets including investment
securities. Approximately 13% of the total investment securities portfolio
matures within one year. At December 31, 1997, the entire investment portfolio
was classified as available-for-sale. These securities are high grade, and enjoy
a ready market, having a value of $69,737,000. Liquid assets of PBTC, which
consist primarily of cash on hand and short-term investments, totaled
$20,661,000 at December 31, 1997, versus $22,015,000 at December 31, 1996.
The liability base provides liquidity through deposit growth, the rollover
of maturing deposits and accessibility to external sources of funds. PBTC
typically sells federal funds, though it may, during occasional fluctuations in
its liquidity position, purchase federal funds or borrow from the Federal
Reserve Bank or Federal Home Loan Bank to meet its cash needs. Borrowed funds
amounted to $21,939,000 at December 31, 1997, compared to $18,338,000 at year
end 1996. Demand for loan funding is the primary reason for this increase.
PBTC's sources of external funds are believed by management to be adequate for
both current and projected needs.
STOCKHOLDERS' EQUITY. Stockholder's equity, also referred to as capital,
indicates PBTC's net worth and soundness. Stockholders' equity was $37,233,000
at December 31, 1997, compared to $34,185,000 at December 31, 1996. Net income
for 1997 totaled $4,003,000. Cash dividends in the amount of $1,050,000 were
declared in 1997.
53
<PAGE>
The FRB has adopted risk-based capital regulations. These regulations
require all bank holding companies and banks to achieve, and maintain, specified
ratios of capital to risk-weighted assets. The risk-based capital rules assign
weight factors to different classes of 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 are required to 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). PBTC's and Peoples Bank's capital ratios
at December 31, 1997 were far above the minimum regulatory requirements. See
Note 12 of Notes to Consolidated Financial Statements of PBTC.
In 1997, PBTC entered into definitive agreements with two other Alabama
bank holding companies to acquire all their outstanding shares. The first
acquisition, Merchants & Planters, was completed on March 6, 1998, and accounted
for as a purchase. As a result, PBTC's capital ratios were reduced, but not
below the required minimums for capital adequacy. Conversely, the Merger will be
accounted for as a pooling of interests and is expected to increase PBTC's
capital ratios, thus providing a partial offset to the reducing effect of the
Merchants & Planters acquisition. However, there can be no assurance that the
Merger will be consummated, or if consummated, that the Merger will increase
PBTC's capital ratios as currently expected. See Note 18 of Notes to
Consolidated Financial Statements of PBTC.
INCOME SUMMARY
NET INCOME. PBTC reported net income of $4,003,000 for the year ended
December 31, 1997. This represented an 11.7% increase over the 1996 net income
figure of $3,583,000. Net income for 1995 was $3,148,000. Respectively, for the
years ended 1997, 1996 and 1995, diluted net income per share was $1.17, $1.05
and $.89.
NET INTEREST INCOME. Net interest income is the residual amount of total
interest earned on loans and investments, after the interest expense for
interest-bearing deposits and borrowed funds has been subtracted. This is the
single largest income source for PBTC. Movements in interest rates, coupled with
other factors such as changes in the relationship of interest earning assets to
interest bearing liabilities, have direct effects on PBTC's net interest income.
The following table, "Analysis of Changes in Interest Income and Expense,"
illustrates the changes, and causes of those changes, in each line item that
make up net interest income. The next table, "Average Balance Sheets and
Analysis of Net Interest Income," is a presentation of the average balance
sheet, along with the income or expense realized or incurred with each of its
components. Only earning assets and interest bearing liabilities have income and
expense associated with them.
54
<PAGE>
ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 and 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 Compared to 1996 1996 Compared to 1995
----------------------------------- ----------------------------------
Changes in Changes Changes in Changes
Total Volume in Rates Total Volume in Rates
----- ------ -------- ----- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Interest income on:
Loans $ 2,363 $ 2,817 $ (454) $ 1,902 $ 2,214 $ (312)
Taxable investment securities (560) (736) 176 (293) (607) 314
Nontaxable investment securities (10) (27) 17 (15) 19 (34)
Federal funds sold and securities
purchased under agreements to resell (40) (59) 19 31 66 (35)
-------- -------- -------- ------- -------- --------
Total interest income $ 1,753 $ 1,995 $ (242) $ 1,625 $ 1,692 $ (67)
Interest expense on:
Interest bearing demand deposits $ 19 $ 45 $ (26) $ (165) $ 30 $ (195)
Savings deposits (29) (30) 1 (82) (43) (39)
Time deposits 523 570 (47) 16 170 (154)
Federal funds purchased and securities sold
under agreements to repurchase 45 (31) 76 73 96 (23)
Other borrowed funds (13) 45 (58) 304 278 26
-------- -------- -------- ------- -------- --------
Total interest expense $ 545 $ 599 $ (54) $ 146 $ 531 $ (385)
Net change in net interest income before
loan losses $ 1,208 $ 1,479
</TABLE>
The above table describes the extent to which changes in interest
rates and changes in volume of interest-earning assets and interest-bearing
liabilities have affected PBTC'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).
Non-accrual loans affecting loan income amounted to $1,701,000 and
$1,679,000 in 1997 and 1996, respectively.
55
<PAGE>
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, and 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
-------------------------------- --------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- ------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Loans, net(1) $225,706 $22,394 9.92% $197,187 $ 20,031 10.16%
Taxable investment
securities 73,036 4,551 6.03% 84,751 5,111 6.3%
Nontaxable investment
securities 1,886 66 3.50% 2,515 76 3.02%
Federal funds sold and
securities purchased under
agreements to resell 7,664 407 5.31% 8,760 447 5.10%
-------- ------- ---- -------- -------- -----
Total interest earning
assets $308,292 $27,418 8.89% $293,213 $ 25,665 8.75%
Non-Interest Earning Assets:
Cash and due from banks 13,955 15,295
Bank premises and
equipment (net) 6,191 5,831
Other Assets 8,661 6,992
-------- --------
Total non-interest
earning assets 28,807 28,807
-------- --------
Total Assets $337,099 $321,331
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing Liabilities:
Interest bearing demand
deposits $ 66,543 $ 2,316 3.48% $ 65,211 $ 2,297 3.52%
Savings deposits 27,829 798 2.87% 28,882 828 2.87%
Time deposits 144,743 7,949 5.49% 134,354 7,425 5.53%
Federal funds purchased
and securities sold under
agreements to repurchase 5,592 186 3.32% 8,164 205 2.51%
Other borrowed funds 6,672 516 7.73% 6,223 465 7.47%
-------- ------- ---- -------- -------- -----
Total interest bearing
liabilities $251,379 $ 11,765 4.68% $242,834 $ 11,220 4.62%
Non-interest bearing
demand deposits 45,968 42,529
Other liabilities 3,186 3,420
-------- --------
Total non-interest
bearing liabilities $ 49,154 $ 45,949
Total liabilities $300,533 $288,783
Stockholders' equity 36,566 32,548
-------- --------
Total liabilities and
stockholders' equity $337,099 $321,331
======== ========
Net interest income $ 15,653 $ 14,444
Net yield on interest
earning assets 5.08% 4.93%
<CAPTION>
1995
-------------------------------
AVERAGE YIELD/
BALANCE INTEREST RATE
------- -------- ----
<S> <C> <C> <C>
ASSETS
Interest Earning Assets:
Loans, net(1) $175,318 $18,129 10.34%
Taxable investment
securities 94,298 5,404 5.73%
Nontaxable investment
securities 2,171 91 4.19%
Federal funds sold and
securities purchased under
agreements to resell 5,201 416 8.00%
-------- -------- -----
Total interest earning
assets $276,988 $24,040 8.68%
Non-Interest Earning Assets:
Cash and due from banks 5,920
Bank premises and
equipment (net) 5,749
Other Assets
--------
Total non-interest
earning assets 29,597
Total Assets $306,585
========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing Liabilities:
Interest bearing demand
deposits $ 64,419 $ 2,462 3.82%
Savings deposits 30,351 910 3.00%
Time deposits 129,866 7,409 5.71%
Federal funds purchased
and securities sold under
agreements to repurchase 3,939 132 3.35%
Other borrowed funds 2,460 161 6.54%
-------- -------- -----
Total interest bearing
liabilities $231,035 $11,074 4.79%
Non-interest bearing
demand deposits 41,634
Other liabilities 3,954
--------
Total non-interest
bearing liabilities $ 45,588
Total liabilities $276,623
Stockholders' equity 29,962
--------
Total liabilities and
stockholders' equity $306,585
========
Net interest income $12,966
Net yield on interest
earning assets 4.68%
</TABLE>
(1) Average balances include non-accruing loans approximately $1,701,000,
$1,679,000 and $1,503,000 in 1997, and 1996 and 1995. respectively.
The table above sets forth certain information relating to PBTC's
average interest-earning assets and interest-bearing liabilities and
reflects the average yield on assets and average cost on liabilities for
the years indicated. Such yields and costs are derived by dividing income
or expenses by the average daily balance of assets or liabilities,
respectively, for the years indicated.
56
<PAGE>
1997 versus 1996. 1997 saw total interest income in the amount of
$27,418,000 compared to the 1996 total of $25,665,000. This increase was largely
attributable to higher loan demand, raising average loans from a 1996 total of
$197,187,000 to a 1997 total of $225,706,000. The loan volume increase was
funded mostly by moving funds out of the investment portfolio, which allows them
to earn higher yields by taking the form of loans. The yield on the loan
portfolio fell from a 1996 rate of 10.16% to its 1997 rate of 9.92%. PBTC ended
1997 with average earning assets of $308,292,000 as compared to a 1996 figure of
$293,213,000, representing a 5.15% increase in average earning assets.
The investment portfolio experienced a 10.99% reduction in interest income
in 1997. Interest income on the investment portfolio totaled $5,187,000 in 1996
as opposed to $4,617,000 in 1997. This drop is mostly due to the reduction in
the average balance in the investment portfolio, caused by the movement of
investment funds into loans. The reduction in the investment volume is slightly
offset by an increase in their yields. The investment portfolio yielded 5.94% in
1996, and 6.17% in 1997.
Federal funds sold and securities purchased under agreements to resell
earned $407,000 in 1997, whereas $447,000 was earned in 1996. The decrease was
largely the result of a decrease in the average balance of short-term
investments from $8,760,000 in 1996 to $7,664,000 in 1997. As in the case of the
investment portfolio, the drop in volume was somewhat offset by an increase in
yields from 5.10% in 1996 to 5.31% in 1997. Interest expense increased in 1997
to $11,765,000 from the 1996 total of $11,220,000. A 2.0% increase in the
average balance of interest-bearing deposits and a 7.2% increase in the average
balance of other borrowed funds attributed to the increase in interest expense.
In order to fund loan growth, and otherwise provide for liquidity, specific term
and short-term borrowings increased in 1997. Average interest-bearing deposits
grew by 4.67% in 1997 to a balance of $239,115,000, compared to an average
balance in 1996 of $228,447,000. The majority of this growth was in time
deposits, with a slight increase in interest bearing demand deposits, and a
decrease in savings. The average balance of other borrowed funds increased by
$449,000 from the 1996 average balance of $6,223,000 to the 1997 average balance
of $6,672,000.
Changes in the makeup of liabilities caused PBTC's cost of funds to
increase to 4.68% in 1997 from 4.62% in 1996.
Net interest income for 1997 was $15,653,000 as compared to the 1996 total
of $14,444,000, for an increase of 8.4%.
1996 versus 1995. PBTC'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 the
result of increased loan demand driving the average volume of loans from a 1995
average of $175,318,000 to a 1996 average volume of $197,187,000. This increased
loan volume was partially funded through a shift of funds from the investment
security portfolio into the loan portfolio and thereby earning at a higher rate
of interest. Interest rates on the loan portfolio 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 total
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
agreements 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
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 was primarily due to a 107.3% increase in the average balance of
federal funds purchased and securities sold under agreements to repurchase,
combined with a 153% increase in the average balance of other borrowed funds
during 1996. Specific term and short-term borrowing increased during 1996
primarily to fund loan growth and to otherwise provide for liquidity. The
average balance of federal funds purchased and securities sold under agreements
to repurchase 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
57
<PAGE>
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 average balance in 1996 of
$228,447,000. The primary growth was recorded in demand deposits with decreases
in savings and time deposits. As a result of the declining interest rates during
1996 and the shift in the liability mix, PBTC'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%.
PROVISION FOR LOAN LOSSES. The provision for loan losses is an expense
item that allows for systematic application of the fact that some loans will not
be paid back in full. It offsets the effect of net charge-offs in the allowance
for loan loss account, while building reserves for the growth of the loan
portfolio. The provision for loan losses in 1997 equaled $1,732,000, compared
with the 1996 provision of $1,835,000. The $103,000 decrease in the provision
was due to management's assessment of the loan portfolio. The allowance for loan
losses is monitored closely by management, with adjustments to charges to the
provision for loan losses made as deemed necessary to guard against future
losses. See Note 1 of Notes to Consolidated Financial Statements of PBTC.
NON-INTEREST INCOME. Additional fee income is generated for PBTC through
the wide variety of financial services offered. With continued pressure on net
interest income, PBTC views the expansion of fee income and the development of
new services as a major source of future earnings. PBTC's primary sources of
non-interest income are deposit service charges, fee-based trust services,
brokerage income, credit life commissions, and income contributions from PBTC's
insurance and finance (see below) subsidiaries.
1997 versus 1996. In 1997, non-interest income totaled $4,137,000 as
compared to $3,725,000 for 1996. The increase is primarily attributable to a
rise in deposit service charges with the balance of the increase spread over the
remaining non-interest income items. In May of 1996, PBTC opened Loan Express,
Inc., a consumer finance company that extends credit to consumers who may not be
eligible for loans under PBTC's credit standards. Loan Express, Inc. recorded a
net loss in 1996 of $68,000, while in 1997 a net profit of $24,000 was posted.
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 was primarily
attributable to an increase in deposit service charges with the balance of the
increase spread over the remaining 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, PBTC opened a consumer finance company, Loan Express, Inc.
("Loan Express"), which extends credit to consumers who may not otherwise meet
PBTC's credit standards. Loan Express recorded losses during 1996 in the amount
of $68,000. The losses were the result of first year start-up expense and low
volumes. By December 31, 1996, Loan Express was reporting monthly profits.
NON-INTEREST EXPENSE. 1997 versus 1996. Total non-interest expense for
1997 was $12,100,000 as compared to $11,108,000 for 1996. Salaries and benefits
are the largest segment in this category, and rose in 1997 from $6,045,000 in
1996 to $6,177,000. This increase is the result of standard salary increases and
the hiring of additional staff. Automations, fixed assets and computer expense,
along with other expense categories rose in direct relation to new branch
additions, and the personnel necessary to staff them.
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 technology. 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 made
possible by the 1996 enactment of federal legislation to recapitalize the
Savings Association Insurance Fund ("SAIF"). PBTC was assessed a one-time
recapitalization fee on its SAIF deposits in the amount of $41,000 during 1996.
The cost of occupancy and fixed asset depreciation and maintenance increased
$95,000 during 1996.
PROVISION FOR INCOME TAXES. 1997 versus 1996. Net income before the
charge for income taxes equaled $5,958,000 at December 31, 1997 compared to
$5,226,000 at December 31, 1996, an increase of 14%. The provision for income
tax totaled $1,955,000 for 1997, and $1,643,000 for 1996. The effective tax
rates for 1997 and 1996 were 31.1% and 31.4%, respectively. PBTC participates in
several low income housing projects which provide tax credits, thus reducing its
effective tax rate by 5.1% and 5.2% in 1997 and 1996 respectively.
58
<PAGE>
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 effective tax rate for 1996 and 1995 was 31.4% and
28.9%, respectively. PBTC's participation in multiple issues of low income
housing credits reduced the effective tax rate by 5.2% and 3.7% for 1996 and
1995, respectively.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and accompanying data herein have been prepared
according to generally accepted accounting principles. Those principles dictate
that financial position and operating results be measured in terms of historical
dollars, with no consideration made for changes in the relative purchasing power
of money over time due to inflation.
The nature of a financial institution's assets and liabilities differs
greatly from that of most commercial concerns. They are monetary in nature,
whereas those of most commercial and industrial entities are concentrated in
fixed assets or inventories. Inflation does, however, affect the growth of total
assets, creating the need for more equity capital in order to maintain
appropriate ratios of capital to assets. Inflation also affects non-interest
expenses, which tend to rise during periods of inflation.
INTEREST RATE RISK
The profitability of most financial institutions, including PBTC, is
greatly dependent on net interest income. Given this, management believes
changes in interest rates impact PBTC's profitability to a greater extent than
the effects of general inflation levels. Interest rates do not always move with
the same magnitude, or in the same direction as, inflation. When interest-
earning assets are repricing to market rate levels at a different pace than
interest-bearing liabilities, net interest income is affected either positively
or negatively, depending on the direction market rates are moving. When interest
rates are volatile, liquidity and maturity of PBTC's assets and liabilities is
crucial in maintaining desired performance levels. Management is unable to
predict the future of interest rate movements; therefore, management attempts to
strike a relative balance between rate sensitive assets and liabilities. This
strategy is designed to protect PBTC's profitability against radical shifts in
interest rate levels. Management believes the current relationship between rate
sensitive assets and rate sensitive liabilities is well matched, indicating a
minimal exposure to interest-rate risk. On December 31, 1997, PBTC had a
positive cumulative one-year gap position of $36,793,000, indicating that while
$174,653,000 in assets were repricing, only $137,860,000 in liabilities would
reprice in the same time frame. For a quantitative expression of interest-rate
risk, see the table titled "Interest Rate Sensitivity Position."
59
<PAGE>
INTEREST RATE SENSITIVITY POSITION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Expected Maturity Date
---------------------------------------------------------------------------------------
1998 1999 2000 2001 2002 Thereafter Total Fair Value
---- ---- ---- ---- ---- ---------- ----- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
- ------------------------
Federal funds sold under agreements
to resell............................... $ 6,677 $ -- $ -- $ -- $ -- $ -- $ 6,677 $ 6,677
Average interest rate.................... 5.40% --% --% --% --% --% 5.40%
Loans, net of unearned
interest................................. 157,154 $31,944 $ 19,471 $18,266 $21,123 $ 10,819 $258,777 $261,927
Average interest rate.................... 9.30% 9.60% 9.33% 8.78% 8.73% 8.70% 9.24%
Investment securities...................... 8,822 $14,994 $ 10,710 $12,852 $ 4,284 $ 18,075 $ 69,737 $ 69,737
Average interest rate................... 5.90% 6.11% 6.255% 6.77% 6.85% 7.20% 6.24%
Total interest-earning assets.............. $172,653 $46,938 $ 30,181 $31,118 $25,407 $ 28,894 $335,191 $338,341
Interest-Bearing Liabilities:
- -----------------------------
Savings.................................... $ 1,052 $ 785 $ 785 $ 523 $ 307 $ 22,699 $ 26,150 $ 26,150
Average interest rate.................... 2.75% 2.75% 2.75% 2.75% 2.75% 2.75% 2.75%
Time deposits.............................. $120,301 $24,333 $ 6,312 $ 4,172 $ -- $ -- $155,118 $155,738
Average interest rate.................... 5.18% 5.95% 6.29% 6.22% 4.88% 0.00% 4.83%
Money market and transaction
accounts................................. $ 2,656 $ 1,992 $ 1,992 $ 1,328 $ 1,328 $ 57,647 $ 66,943 $ 66,943
Average interest rate................... 3.48% 3.48% 3.48% 3.48% 3.48% 3.48% 3.48%
Federal funds purchased under agreements to
repurchase................................ $ 13,642 $ -- $ -- $ -- $ -- $ -- $ 13,642 $ 13,642
Average interest rate.................... 5.40% --% --% --% --% --% 5.40%
Federal Home Loan Bank
advances................................. $ 209 $ 94 $ -- $ -- $ 3,824 $ 4,170 $ 8,297 $ 8,297
Average interest rate.................... 5.65% 6.02% 0.00% 0.00% 6.38% 6.81% 6.50%
Total interest-bearing
liabilities............................. $137,860 $27,204 $ 9,089 $ 6,023 $ 5,459 $ 84,516 $270,150 $270,770
Interest sensitivity gap................... 34,793 $19,735 $ 21,092 $ 25,095 $ 19,948 $ (55,622) $ 65,041
Cumulative interest sensitive gap.......... $ 34,793 $56,528 $ 77,620 $102,715 $122,663 $ 65,041 $130,083
Interest sensitive gap to
total assets............................. 9.63% 5.46% 5.84% 6.94% 5.52% (15.39)% 18.00%
Cumulative interest sensitive gap
to total assets......................... 9.63% 5.09% 20.93% 27.87% 33.39% 18.00% 36.00%
------------------------------------------------------------------------------------
</TABLE>
(1) PBTC has presented substantial balances of deposits as non-rate sensitive
and/or not repricing within one year.
The above table reflects a positive cumulative gap position in all
maturity classifications. This is the result of core deposits being used to fund
short-term interest earning assets, such as loans and investment securities. A
positive cumulative gap position implies that interest earning assets (loans and
investments) will reprice at a faster rate than interest-bearing liabilities
(deposits and debt). In a rising rate environment, this position will generally
have a positive effect on earnings, while in a falling rate environment this
position will generally have a negative effect on earnings. Other factors,
however, including the speed at which assets and liabilities reprice in response
to changes in market rates and the interplay of competitive factors, can also
influence the overall impact on net income of changes in interest rates.
Management believes that a rapid, significant and prolonged increase or decrease
in rates could have a substantial impact on PBTC's net interest margin. The
actual interest rate sensitivity of PBTC's assets and liabilities could vary
significantly from the information set forth in this table due to market and
other factors.
60
<PAGE>
YEAR 2000 RISK ASSESSMENT AND ACTION PLAN
PBTC 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 PBTC depend upon the successful operation on a daily basis of
its computer software programs. PBTC 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 PBTC 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
PBTC's operation. These systems are being tested to assure they will be able to
handle the year 2000 event, thus minimizing risk to PBTC.
PBTC 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 December 31, 1997, Year 2000 compliance costs have not been material.
PBTC currently anticipates that its Year 2000 expenditures will total
approximately $350,000.
NEW ACCOUNTING STANDARDS
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. In June 1996, the Financial Accounting Standards
Board (FASB) issued Statement of Financial 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 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 allocating 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, Deferral 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, deferred securities lending and similar
transactions. The effective date for all other transactions addressed by SFAS
No. 125 is unchanged. PBTC adopted SFAS 125 as of January 1, 1997. The adoption
of SFAS 125 did not have a material impact on PBTC's financial statements.
REPORTING OF COMPREHENSIVE INCOME. In June 1997, the FASB issued Statement
of Financial Accounting Standards No. 130, Reporting of Comprehensive Income
(SFAS No. 130), which establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of financial statements. This statement also 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.
This statement is effective for fiscal years beginning after December 15,
1997. Earlier application is permitted. Reclassification of financial statements
for earlier periods provided for comparative purposes is required.
61
<PAGE>
DISCLOSURE ABOUT SEGMENTS AND RELATED INFORMATION. In June 1997, the FASB
issued FAS No. 131, Disclosures about Segments of an Enterprise and Related
Information (SFAS 131), which 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
stockholders. This statement also establishes standards for related disclosures
about products and services, geographic areas, and major customers. This
statement requires the reporting of financial and descriptive information about
an enterprise's reportable operating segments.
This statement is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. PBTC 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.
While PBTC is segmented by geographic divisions for managerial purposes, these
segments are expected to meet the aggregation criteria of SFAS 131.
PENSIONS AND OTHER POSTRETIREMENT BENEFITS. The FASB recently issued SFAS
No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits
(SFAS 132), which changes current financial-statement disclosure requirements
from those that were required under SFAS 87, Employers' Accounting for Pensions,
SFAS 88, Employers' Accounting for Settlements and Curtailments of Defined
Benefit Pension Plans and for Termination Benefits, and SFAS 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions.
Some of the more significant effects of SFAS 132 are that it:
. Standardizes the disclosure requirements for pensions and other
postretirement benefits and presents them in one footnote.
. Requires that additional information be disclosed regarding changes in the
benefit obligation and fair values of plan assets.
. Eliminates certain disclosures that are no longer considered useful,
including general descriptions of the plans.
. Permits the aggregation of information about certain plans.
. Provides reduced disclosure requirements for nonpublic entities.
SFAS 132 does not change the existing measurement or recognition provisions
of the above standards and is effective for fiscal years beginning after
December 15, 1997, though early application is permitted. PBTC has not yet
adopted SFAS 132 but does not expect that adoption will have a material impact
on PBTC's financial statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PBTC
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
GENERAL
The following analysis focuses on the financial condition of PBTC and
should be read in conjunction with the unaudited condensed consolidated
financial statements included herein.
As discussed in the accompanying Notes to the Unaudited Condensed
Consolidated Financial Statements, PBTC completed its acquisition of Merchants &
Planters on March 6, 1998 and has included the operations and income of
Merchants & Planters in the income of PBTC from the date of purchase.
FINANCIAL CONDITION
Total consolidated assets of PBTC and its subsidiaries totaled $437,839,000
at March 31, 1998, an increase of $76,477,000 from the December 31, 1997 total
of $361,362,000. The acquisition of Merchants & Planters' assets had a
$78,773,000 positive effect on total assets, whereas total assets net of
Merchants & Planters fell by
62
<PAGE>
$2,296,000. Earning assets at March 31, 1998 were $392,468,000 as compared to
$332,441,000 at December 31, 1997. This $60,027,000 increase resulted from the
acquisition ($64,723,000), whereas PBTC, excluding the acquisition, experienced
a decrease of $4,696,000 from December 31, 1997 to March 31, 1998.
INVESTMENTS. Excluding the effect of the acquisition, PBTC's securities
portfolio declined $4,218,000, mostly relating to a liquidation of securities to
fund the purchase price of Merchants & Planters.
At year end 1997, and March 31, 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 $59,000 at March 31, 1998.
SHORT-TERM INVESTMENTS. Short-term investments (primarily federal funds
and securities purchased under agreements to resell) totaled $37,585,000 at
March 31, 1998 as compared to $6,677,000 at December 31, 1997. This is an
increase of $30,908,000, of which $7,585,000 is attributable to Merchants &
Planters, and $23,323,000 attributable to Peoples Bank. The sharp rise in short-
term investments resulted from a large influx of funds into customer "sweep"
accounts during the first quarter 1998. Management constantly monitors these
funds, seeking alternative uses for them.
LOANS. Loans, net of unearned income, increased $4,294,000 from year-end
1997 to $263,071,000 at first quarter end 1998. The addition of Merchants &
Planters' loan portfolio had an increasing effect in the amount of $28,153,000,
whereas Peoples Bank's loan portfolio fell by $23,859,000. The reduction in
Peoples Bank'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, Peoples Bank 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 PBTC's portfolio.
Management's determination of the adequacy of the allowance is based, among
other things, on estimates of the historical loan loss experience, evaluations
of economic conditions in general and in various sectors of PBTC's customer
base, and periodic reviews of loan portfolio quality by PBTC'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 PBTC'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.
PBTC's allowance for loan losses totaled $3,142,000 at March 31, 1998 as
compared to $2,750,000 at December 31, 1997. The resulting ratios of allowance
to total loans net of unearned interest were 1.19% and 1.06% as of March 31,
1998 and December 31, 1997, respectively. Of the $3,142,000 allowance for loan
losses at March 31, 1998, $2,680,000 is attributable to Peoples Bank, with
$462,000 attributable to Merchants & Planters. The amount of loans determined by
management that require special attention due to potential weaknesses as of
March 31, 1998 was $9,614,000, a $528,000 increase from the $9,086,000 reported
at year end 1997. All loans requiring special attention were in the portfolio of
Peoples Bank at March 31, 1998. A total of $5,409,000 in business loans were
classified at March 31, 1998, with $2,848,000 in agricultural and $1,357,000 in
personal. Standing at 3.7% 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 March 31, 1998, total deposits had increased $66,617,000 to
$364,725,000 from their December 31, 1997 total. Of this increase, $56,151,000
was purchased in the acquisition of Merchants & Planters, with the deposits of
Peoples Bank having increased $10,466,000. Analysis of the Peoples Bank increase
indicates that non-interest-bearing demand deposits decreased by $267,000.
Interest-bearing demand deposits increased $907,000 from December 31, 1997.
Savings accounts increased $1,871,000 from December 31, 1997 to March 31, 1998.
The largest increase was in time deposits, in the amount of $4,367,000 from
December 31, 1997 to March 31, 1998.
63
<PAGE>
LIQUIDITY. PBTC has periodic needs for short-term borrowings. At March
31, 1998, short-term borrowings in the form of federal funds purchased totaled
$4,159,000, as opposed to $13,642,000 at December 31, 1997. Other borrowed
funds increased $16,794,000 to $25,091,000 during the quarter primarily to
finance the acquisition. The effect of the acquisition of Merchants & Planters
short-term borrowings was minimal, representing an increase of $606,000.
STOCKHOLDERS' EQUITY. Total stockholders' equity at March 31, 1998 was
$38,318,000 compared to $37,233,000 at year end. The $1,085,000 increase is
accounted for through first quarter earnings of $1,018,000 combined with a
change in unrealized gain on available for sale securities of $184,000 and a
reduction of $274,000 for common stock dividends. Stock options having a net
increasing effect on stockholders equity of $156,000 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 and all other identifiable
intangible assets). The following table indicates PBTC's Tier 1 capital ratio
and total capital ratio at March 31, 1998 were 9.70% and 10.79%, respectively.
PBTC maintained, at March 31, 1998, a leverage ratio of Tier 1 capital to total
assets of 6.73% compared to the minimum regulatory requirement of 3.00% required
of the strongest companies and banks. In addition, the table indicates that the
ratios of PBTC's subsidiary banks also well exceed the minimum requirements of
the regulation.
<TABLE>
<CAPTION>
Risk-Based Capital Ratios and Leverage Ratios as of March 31, 1998
--------------------------------------------------------------------------
RISK-BASED CAPITAL RATIOS (Dollars in thousands)
- -------------------------
Merchants & Planters
PBTC Peoples Bank Bank (1)
-------------------- -------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital $ 27,928 9.70% $ 27,217 10.78% $ 19,994 49.32%
Tier 1 Capital - Minimum Required 11,522 4.00% 10,098 4.00% 1,622 4.00%
--------- ------ --------- ------ --------- ------
Excess $ 16,406 5.70% $ 17,119 6.78% $ 18,372 45.31%
--------- ------ --------- ------ --------- ------
Total Capital $ 31,070 10.79% $ 29,897 11.84% $ 20,456 50.46%
Total Capital - Minimum Required 23,044 8.00% 20,198 8.00% 3,243 8.00%
--------- ------ --------- ------ --------- ------
Excess $ 8,026 2.79% $ 9,699 3.84% 17,213 42.46%
--------- ------ --------- ------ --------- ------
Net risk-weighted assets $ 283,869 $ 252,473 $ 40,543
--------- --------- ---------
LEVERAGE RATIOS
- ---------------
Merchants & Planters
PBTC Peoples Bank Bank (1)
------------------- -------------------- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Total Tier 1 Capital $ 27,928 6.73% $ 27,217 7.65% $ 19,994 29.56%
Minimum Leverage Requirement 12,453 3.00% 10,674 3.00% 2,029 3.00%
--------- ------ --------- ------ --------- ------
Excess $ 15,475 3.73% $ 16,543 4.65% $ 17,965 26.56%
--------- ------ --------- ------ --------- ------
Average Total Assets,
Net of all goodwill $415,102 $ 355,813 $ 67,648
--------- --------- ---------
</TABLE>
________________________
(1) Merchants & Planters Bank was merged with and into Peoples Bank on April
10, 1998.
64
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998, COMPARED TO THREE MONTHS ENDED MARCH 31,
1997. PBTC's profitability, like that of many financial institutions, is
dependent to a large extent upon its net interest income. 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 first quarter of 1998 (the "1998 Quarter") was
$7,417,000 compared to $6,465,000 for the same quarter of 1997 (the "1997
Quarter"). That portion of interest income attributable to Merchants & Planters
was $372,000. Average earning assets grew to $343,753,000 for the 1998 Quarter
from $299,804,000 for the 1997 Quarter. Of this $43,949,000 increase in average
earning assets, the inclusion of Merchants & Planters accounts for $18,338,000.
The average volume of PBTC's securities portfolio increased to $81,166,000
for the 1998 Quarter from $77,193,000 for the 1997 Quarter, resulting in a rise
in investment income of $76,000. Interest income on investments totaled
$1,257,000 for the 1998 Quarter as opposed to $1,181,000 for the same period in
1997. The acquisition of Merchants & Planters contributed $137,000 of total
interest earned on investments.
Interest income from business loans totaled $1,764,000 for the 1998 Quarter
compared to $1,669,000 for the 1997 Quarter. This increase is mainly due to
volume growth from $74,000,000 to $79,040,000 for the twelve months ended March
31, 1998. Of this $5,040,000 increase in average business loans, the inclusion
of Merchants & Planters accounted for $1,268,000.
Interest income from business loans totaled $1,764,000 for the 1998 Quarter
compared to $1,699,000 for the prior period. This increase is mainly due to
volume growth from an average balance of $78,275,000 to $79,040,000 during the
1998 Quarter. Of this $765,000 increase in average business loans, the inclusion
of Merchants & Planters accounted for $1,268,000, while PBTC net of the
acquisition saw a reduction of $503,000 for the 1998 Quarter.
Personal loan interest income increased to $1,806,000 for the 1998 Quarter
from $1,757,000 for the prior year period. The average volume of personal loans
slightly increased between periods.
Interest income earned on real estate loans totaled $2,134,000 for the 1998
Quarter as compared to $1,642,000 for the 1997 Quarter. The average volume of
real estate loans increased to $92,288,000 from $73,124,000 between the 1998 and
1997 Quarters. The addition of Merchants & Planters accounted for $5,032,000 of
the $19,164,000 increase.
The average volume of interest-bearing deposits increased from $234,053,000
for the 1997 Quarter to $265,836,000 for the 1998 Quarter. Interest paid on
these deposits totaled $3,069,000 for the 1998 Quarter, as compared to
$2,662,000 for the 1997 Quarter. The inclusion of Merchants & Planters accounted
for a $14,071,000 increase in the average balance of interest-bearing deposits
and $170,000 increase in the interest paid on them.
Non-interest income for the 1998 Quarter totaled $1,081,000 as compared to
$947,000 for the same period in 1997. Merchants & Planters is credited with
$24,000 of the $134,000 increase in this category.
Non-interest expenses increased $629,000 to $3,503,000 for the 1998 Quarter
from $2,874,000 for the 1997 Quarter. Merchants & Planters is responsible for
$164,000 of the increase.
Income before taxes for the 1998 Quarter was $1,525,000, compared to
$1,340,000 for the same period in 1997. The income tax provision increased
between the quarters by $70,000 to $507,000. The resulting 1998 Quarter net
income was $1,018,000, versus net income for the 1997 Quarter of $903,000.
Merchants & Planters contributed to the $115,000 increase in net income for the
1998 Quarter in the amount of $82,000. Earnings per share for the 1998 Quarter
was $.30, compared to $.27 for the same quarter of 1997.
65
<PAGE>
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1998 and 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
----------------------------- ------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Loans, net(1) $238,153 $ 5,886 9.89% $219,323 $ 5,212 9.51%
Taxable investment
securities 79,121 1,233 6.23% 77,039 1,171 6.08%
Nontaxable investment
securities 2,045 23 4.50% 1,274 10 3.14%
Federal funds sold and
securities purchased under
agreements to resell 20,793 275 5.29% 5,592 72 5.15%
-------- ------- ---- -------- ------- ----
Total interest earning
assets $340,112 $ 7,417 8.72% $303,228 $ 6,465 8.53%
Non-Interest Earning Assets:
Cash and due from banks 14,425 13,850
Bank premises and
equipment (net) 8,113 5,904
Other Assets 10,901 9,115
-------- --------
Total non-interest
earning assets 33,439 28,869
-------- --------
Total Assets $373,551 $332,097
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest bearing Liabilities:
Interest bearing demand
deposits $ 32,072 $ 249 3.11% $ 27,318 $ 219 3.21%
Savings deposits 28,223 155 2.20% 27,849 160 2.30%
Time deposits 205,568 2,667 5.19% 180,331 2,283 5.06%
Federal funds purchased
and securities sold under
agreements to repurchase 6,523 53 3.25% 9,651 76 3.15%
Other borrowed funds 6,606 109 6.60% 6,080 112 7.37%
-------- ------- ---- -------- ------- ----
Total interest bearing
liabilities $278,992 $ 3,233 4.64% $251,229 $ 2,850 4.54%
Non-interest bearing
demand deposits 46,815 43,020
Other liabilities 9,924 3,550
-------- --------
Total non-interest
bearing liabilities $ 56,739 $ 46,570
Total liabilities $335,731 $297,799
Stockholders' equity 37,820 34,298
-------- --------
Total liabilities and
stockholders' equity $373,551 $332,097
======== ========
Net interest income $ 4,184 $ 3,615
Net yield on interest
earning assets 4.92% 4.77%
</TABLE>
(1) Average balances include non-accruing loans of approximately $1,824 and
1,606 in the three months ended March 31, 1998 and 1997.
The table above sets forth certain information relating to PBTC's
average interest-earning assets and interest-bearing liabilities and reflects
the average yield on assets and average cost on liabilities for the periods
indicated. Such yields and costs are derived by dividing income or expense by
the average daily balance of assets or liabilities, respectively, for the
periods indicated.
66
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS
See Notes to the Unaudited Condensed Consolidated Financial Statements.
INTEREST RATE 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 PBTC's
profitability. Management believes, however, that PBTC'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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF ELMORE COUNTY -
YEARS ENDED DECEMBER 31, 1997 AND 1996
INTRODUCTION
The subsequent discussion, together with the accompanying financial
information, is meant to complement the consolidated financial statements of
Elmore County, and notes thereto. Therefore, this discussion depends heavily on
information contained in the aforementioned financial statements and should be
read with that relationship in mind. It is the opinion of management that in
order to obtain a thorough understanding of this discussion, the consolidated
financial statements should be referenced during its reading.
Included herein are certain forward looking statements. These statements
are not intended to represent actual future results. They are subjective in
nature, and reflect management's estimates and opinions regarding the effect of
future events on earnings and condition. Forward looking statements are not
predictions, they are opinions as to the impact on Elmore County of both present
and anticipated events. Sudden and unanticipated changes in interest rates, a
downturn in the general economy and changes in the legal environment of Elmore
County, are some examples of events that could occur to cause actual outcomes to
differ from those included in this discussion. Forward looking statements may be
indicated by words such as "believes" and "expects," and other subjective terms.
SUMMARY OF FINANCIAL CONDITION
The financial condition of Elmore County, is composed of its assets,
liabilities and the equity of its shareholders. Changes in the financial
condition of Elmore County occur through the acquisition of assets and the
assumption of liabilities, coupled with the retention of earnings and the
payment of dividends.
Total assets at December 31, 1997 were $92,465,000, as compared to
$88,439,000 at December 31, 1996. Of these totals, $87,028,000 and $82,139,000
were interest earning assets at December 31, 1997 and 1996, respectively. The
largest earning category is loans net of unearned interest, followed by
investment securities and then federal funds sold.
LOANS AND LOAN LOSS ALLOWANCE. At December 31, 1997, the loan portfolio
comprised 53.96% of all earning assets. The December 31, 1997 balance
represented a 14.72% increase over the December 31, 1996 balance of $40,931,000,
which constituted 49.83% of earning assets. At December 31, 1997, approximately
38.0% of the portfolio was loans to individuals totaling $17,690,000, followed
by real estate loans in the amount of $17,129,000 and business loans of
$10,522,000. The remaining loans in the portfolio were construction and land
development loans totaling $707,000, farm land and agricultural loans totaling
$578,000, with other types of loans totaling $330,000.
67
<PAGE>
An unavoidable consequence of engaging in lending activities is the non-
repayment of a portion of those funds loaned. In order to provide for this
contingency, there exists a line item under loans net of unearned interest
entitled "allowance for loan losses." The amount of allowance for loan losses
is affected by several factors, and is ultimately determined by management.
Funds are systematically added to the allowance through a charge against income
referred to as a "provision for loan losses." When a loan has reached the point
where it is unlikely its principal will be repaid, and all reasonable methods to
recover the funds have been exhausted, the loan will be debited to the allowance
for loan losses account, thus reducing the allowance balance. On the other
hand, should a loan that has been previously charged off be paid back, the
amount of the repayment will be credited to the allowance for loan losses
account, thus increasing the allowance balance. At December 31, 1997 the
allowance for loan losses totaled $695,000, compared to $689,000 at December 31,
1996.
INVESTMENTS. At December 31, 1997, Elmore County's investment securities
portfolio totaled $37,272,000, compared to $40,808,000 at December 31, 1996. At
December 31, 1997, $9,351,000 of the portfolio was classified as available-for-
sale. The balance of the portfolio consisted of held-to-maturity securities in
the amount of $27,921,000. This net reduction in the securities portfolio can be
attributed to a shift of funds out of investments, and into the higher yielding
loan portfolio. At December 31, 1997, all available-for-sale securities were
U.S. Treasuries. The held-to-maturity securities were grouped as follows: other
U.S. government and agency securities-$13,648,000, state and municipal
securities-$10,681,000, collateralized mortgage obligations-$1,783,000 and
mortgage-backed securities-$1,809,000. Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115),
dictates a difference in the reporting of securities available-for-sale and that
of securities held-to-maturity. Securities that are available-for-sale, are
reported at their fair market value, whereas those being held maturity are
reported at their amortized cost, not unlike that of a fixed asset net of its
depreciation.
Elmore County has another class of investments which are short term in
nature, often being held only overnight. In order to meet the cash
requirements of federal regulators, banks often have to borrow money from one
another, so as not to fall below the minimum set for them on any given day.
Those banks having funds above the required minimum, are the lenders to those
banks that do not, and are said to be a seller of federal funds. Such was the
case with Elmore County at December 31, 1997. Federal funds sold had a balance
of $2,800,000 at December 31, 1997, as compared to $400,000 at December 31,
1996.
LIQUIDITY. Liquidity is a term used when expressing Elmore County's
ability to meet its cash needs. Among those needs are operating expenses, and
the borrowing and withdrawal demands of customers. Both assets and liabilities
are managed with Elmore County's liquidity needs in mind.
The primary sources of cash that Elmore County has, are interest and fee
income, loan repayments and the maturity or sale of other earning assets.
Maturing investment securities are a constant source of cash, with the
concentration and frequency of the cash flow dictated by the maturity schedules
of those securities held. At December 31, 1997, $885,000 of held-to-maturity
securities were set to mature in one year, and $2,218,000 of available-for-sale
securities were set to mature with in one year. All securities classified as
available-for-sale are high quality, and have a ready market, making them
available, if needed, to meet cash needs not met through the aforementioned
primary sources.
Liabilities also provide for liquidity through deposit growth, maturing
deposits being rolled over and access to outside funds. While there were no
short term borrowings at December 31, 1997, Elmore County may, from time to
time, find itself in the position whereby it will need to purchase (borrow)
federal funds to meet its short term liquidity needs.
DEPOSITS. Those funds placed in Tallassee Bank by customers in the form of
deposit accounts are the primary source from which loans and investments are
made. Just as Elmore County makes efforts to attract the business of borrowers,
so too does it make an effort to attract the business of depositors in an effort
to increase the deposit base, from which loans and investments can then be made.
Total deposits at December 31, 1997 were $76,773,000, representing an
increase of $2,892,000 over the December 31, 1996 total of $73,881,000.
68
<PAGE>
STOCKHOLDERS' EQUITY. Stockholders' equity is an expression of Elmore
County's capital base. It is that portion of the total assets reported value
for which no liabilities have been incurred. Viewed another way, it can be said
stockholders' equity is that portion of total assets reported value to which the
stockholders of Elmore County can lay claim. At December 31, 1997 stockholders'
equity totaled $14,775,000 as compared to $13,467,000 at December 31, 1996. The
increase of $1,308,000, or 9.71%, is a direct result of a strong year in
earnings. For a quantitative reconciliation of this change, refer to the report
titled, "Consolidated Statements of Stockholders' Equity," found in the
consolidated financial statements. Earnings will be addressed in greater detail
in a following section of this discussion.
Elmore County, like all banking institutions, must comply with capital
adequacy guidelines set forth by the FRB and FDIC. There are currently two
basic measures for capital adequacy. The first is a risk based measure, and
second is a leverage measure. The risk-based measure is designed to make the
regulatory capital position of a bank more sensitive to various levels of risk
in lending, to give consideration to off-balance sheet commitments and to
provide for some measure of an incentive in holding more liquid assets. Assets
and off balance sheet items are separated among predetermined risk factors,
based on the level of risk regulatory authorities see as being inherent to them.
Those risk categories are: 0%, 20%, 50% and 100%, with the 0% category
considered to have no exposure to credit risk, i.e. cash. At December 31, 1997
Elmore County was well above the required minimum ratios for total capital to
risk-weighted assets, tier one capital to risk-weighted assets and tier one
capital to average assets (leverage ratio). Those minimums are 8%, 4% and 4%
respectively, with Elmore County's ratios at December 31, 1997 standing at
28.9%, 28.8% and 16% respectively. See Note 14 of Notes to Consolidated
Financial Statements of Elmore County for additional discussion, and a
quantitative expression on the regulatory capital position of Elmore County.
INCOME SUMMARY
For the year ended December 31, 1997, Elmore County earned a net profit of
$1,591,000. This is an increase of $232,000 over the 1996 net profit of
$1,359,000. Expressed on a per share basis, earnings were $2.87 and $2.45 for
1997 and 1996 respectively.
NET INTEREST INCOME. The difference between the amount of interest income
realized, and the amount of interest expense incurred, is referred to as net
interest income. For the year 1997, Elmore County realized $4,376,000 of net
interest income before deducting for loan loss provision, as compared to
$4,307,000 for the year ended 1996. The following table gives a quantitative
expression of the extent to which net interest income was affected by changes in
both volume of interest-earning assets and interest-bearing liabilities, and
changes in the rates earned and paid on those assets and liabilities.
69
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, and 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 Compared to 1996 1996 Compared to 1995
------------------------------- ------------------------------
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 $ 179 $ 453 $ (274) $ 348 $ 242 $ 106
Taxable investment securities (205) (243) 38 47 43 4
Nontaxable investment securities 60 32 28 (118) (31) (87)
Federal funds sold and securities
purchased under agreements to resell 13 5 8 (49) (48) (1)
----- ------ ------ ------ ------ -----
Total interest income $ 47 $ 247 $ (200) $ 228 $ 206 $ 22
Interest expense on:
Interest bearing demand deposits $ (7) $ (9) $ 2 $ 130 $ 132 $ (2)
Savings deposits (3) (7) 4 (133) (119) (14)
Time deposits (12) 30 (42) 123 30 93
Federal funds purchased and
securities sold under agreements to
repurchase 0 0 0 0 0 0
Other borrowed funds 0 0 0 (13) (6) (7)
----- ------ ------ ------ ------ -----
Total interest expense $ (22) $ 14 $ (36) $ 107 $ 37 $ 70
Net change in net interest income
before loan losses $ 69 $ 121
</TABLE>
The above table describes the extent to which changes in interest
rates and changes in volume of interest-earning assets and interest-bearing
liabilities have affected Elmore County'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).
Non-accrual loans affecting loan income amounted to $32,000 and
$369,000 in 1997 and 1996 respectively.
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<PAGE>
ELMORE COUNTY BANCSHARES, INC.
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, and 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ----------------------------- ---------------------------
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(1) $44,653 $4,669 0.46% $40,425 $4,491 11.11% $38,232 $4,143 10.84%
Taxable investment securities 28,499 2,046 7.18% 31,870 2,251 7.06% 31,255 2,205 7.05%
Nontaxable investment securities 10,127 377 3.72% 9,290 318 3.42% 10,044 436 4.34%
Federal funds sold and securities
purchased under agreements to
resell 1,900 103 5.42% 1,800 90 5.00% 2,760 139 5.04%
------- ------ ----- ------- ------ ------ ------- ------ ------
Total interest earning
assets $85,179 $7,195 8.45% $83,385 $7,150 8.57% $82,291 $6,922 8.41%
Non-Interest Earning Assets:
Cash and due from banks 2,430 2,684 2.965
Bank premises and equipment (net) 1,453 1,540 1,554
Other Assets 1,893 2,080 1,830
------- ------- -------
Total non-interest earning
asset 5,776 6,304 $ 6,349
------- ------- -------
Total Assets $90,955 $89,689 $88,640
======= ======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Interest Bearing Liabilities:
Interest bearing demand deposits $14,062 $ 481 3.42% $14,314 $ 488 3.41% 10,427 $ 358 3.43%
Savings deposits 7,940 2250 2.83% 8,210 228 2.78% 12,520 361 2.88%
Time deposits 40,147 2,114 5.27% 39,618 2,127 5.37% 39,030 2,003 5.13%
Securities sold under agreements to
repurchase 0 0 0.00% 0 0 0.00% 0 0 0.00%
Other borrowed funds 0 0 0.00% 0 0 0.00% 260 13 5.00%
------- ------ ----- ------- ------ ------ ------- ------ ------
Total interest bearing
liabilities $62,149 $2,820 4.54% $62,143 $2,843 4.59% $62,237 $2,733 4.39%
Non-interest bearing demand deposits 13,421 13,136 12,770
Other liabilities 1,115 1,365 1,389
------- ------- -------
Total non-interest bearing
liabilities $14,536 $14,501 $14,159
------- ------- -------
Total liabilities $76,685 $76,644 $76,396
Stockholder's equity 14,270 13,045 12,243
------- ------- -------
Total liabilities and
stockholder's equity $90,955 $89,689 $88,640
======= ======= =======
Net interest income $4,375 $4,308 $4,187
Net yield on interest earning
assets 5.14% 5.17% 5.09%
</TABLE>
(1) Average balances include non-accruing loans of approximately $32,000,
$369,000, and $148,000 in 1997, 1996 and 1995, respectively.
The table above sets forth certain information relating to Elmore
County's average interest-earning assets and interest-bearing liabilities
and reflects the average yield on assets and average cost on liabilities
for the years indicated. Such yields and costs are derived by dividing
income or expense by the average balance of assets or liabilities,
respectively, for the years indicated.
71
<PAGE>
1997 versus 1996. Total interest income for 1997 equaled $7,195,000,
compared to $7,150,000 in 1996. While the average volume of earning assets went
up, the yield on them went down, slightly offsetting the positive earnings
effect of the increased volume. Average earning assets in 1997 totaled
$85,179,000, whereas they totaled $83,385,000 in 1996, representing a $1,794,000
increase. However, as mentioned, the rate of return on these earning assets
fell from 8.57% in 1996 to 8.45% in 1997.
In 1997, total interest and fee income on loans came to $4,669,000,
representing a $178,000 increase over the $4,491,000 earned in 1996. As was the
case with total earning assets, so to was the case with loans. The rise in loan
income is solely attributable to increased volume, given that yields fell by
.65% from 11.11% in 1996 to 10.46% in 1997.
Income earned on investments came to $2,423,000 in 1997 compared to
$2,569,000 in 1996. While the rate of return on investments rose slightly,
from 6.24% in 1996 to 6.27% in 1997, the reduction in average volume of
$2,534,000, is the main reason for the $146,000 drop in income.
Federal funds sold, increased in 1997 to an average balance of $1,900,000
from a $1,800,000 average balance in 1996. Consequently, the income earned on
them increased as well, from $90,000 in 1996, to $103,000 in 1997.
Interest expense fell in 1997 to $2,820,000 from $2,842,000 in 1996. This
slight reduction is due to a .03% fall in the rate paid on interest-bearing
deposits.
1996 versus 1995. Total interest income in 1996 was $7,150,000, compared
to $6,922,000 for 1995. The increase of $228,000 came about as the result of an
increase in the average balance of interest-earning assets, as well as an
increase in the rate of interest earned on them.
Interest and fees on loans increased by $348,000 in 1996 to a total of
$4,491,000 from $4,143,000 at year end 1995. This increase is due to the fact
that during 1996, the average balance of the loan portfolio grew to $40,425,000
from its 1995 average balance of $38,232,000. The increase in loan income was
further compounded by the loan portfolio yield going from 10.84% in 1995 to
11.11% in 1996.
The investment securities portfolio earned $2,569,000 in 1996, down $71,000
from its 1995 total of $2,640,000. This fall in investment earnings is due to
the average volume of investments falling $139,000 from $41,299,000 in 1995 to
$41,160,000 in 1996, with their yields falling from 6.39% in 1995 to 6.24% in
1996.
Interest earned on federal funds sold in 1996 was off $49,000 from its 1995
total of $139,000 to end 1996 at $90,000. This is due to the average volume of
federal funds sold in 1996 dropping $960,000 to $1,800,000 from its 1995 average
balance of $2,760,000.
During 1996, interest expense rose by $108,000 to $2,843,000 from its 1995
total of $2,735,000. The average balance of interest-bearing deposits rose
during 1996 by $165,000, as did the interest rate paid on them by .18%.
PROVISION FOR LOAN LOSSES. The provision for loan losses is an expense
charged against net interest income. It reflects managements estimate of the
amount that should be systematically set aside, in the allowance for loan loss
reserve, in order to provide for recognition of the fact that some loans will
not be paid back in full. It is the means by which the reserve for loan loss
account on the balance sheet is increased. In 1997, the provision for loan
losses totaled $135,000, down from its 1996 total of $279,000. The loan loss
provision was greater in 1996 than in 1997 because of management's efforts to
bring the allowance for loan loss account back up to, what it felt was, an
acceptable level. When the allowance for loan loss account reached its desired
level, the provision for loan loss charge could be lowered, as it was during
1997. Note 4 of Notes to Consolidated Financial Statements of Elmore County
shows the activity of, and relationship between, the allowance for loan loss
account and the provision for loan loss charge for the years ended December 31,
1997, 1996 and 1995.
72
<PAGE>
NON-INTEREST INCOME. Net-interest income is not the only source of income
available to Elmore County. Additional income is generated through customer
service fees, gains on sale of assets and profits from subsidiaries. Due to
increasingly strong competition in the banking industry, the spread between
interest earned, and interest paid has gotten smaller. This causes the
generation of non-interest income the be increasingly significant to Elmore
County's profitability.
1997 versus 1996. Non-interest income was up in 1997 by $187,000 to end
the year at $1,157,000 compared to a total of $970,000 for 1996. The increase
is accounted for in a $47,000 rise in customer service fees and a $117,000 rise
in the combined earnings of Elmore County subsidiaries. Those subsidiaries are
Tallassee Financial Services, Inc., Southeastern Insurance Agency and Eclectic
Finance Company. The balance of the increase, $23,000, was across the other
non-interest income categories.
1996 versus 1995. In 1996, non-interest income totaled $970,000,
representing a $32,000 decrease from its 1995 total of $1,002,000. Customer
service fees fell in 1996 by $61,000. Tallassee Financial Services, Inc.,
Southeastern Insurance Agency and Eclectic Finance Company recorded reductions
in their collective profits of $72,000 during 1996. These two decreases in non-
interest income were offset, to some extent, by rises in other categories
totaling $101,000.
NON-INTEREST EXPENSE. 1997 versus 1996. In 1997, non-interest expense
totaled $3,319,000 as compared to $3,178,000 in 1996. The majority of non-
interest expense is in employee salaries and benefits. Salaries and benefits
were up in 1997 by $40,000, to $1,972,000 from a 1996 total of $1,932,000. A
$57,000 loss on the sale of assets was recorded during 1997, further causing
non-interest expense to rise. The balance of the increase, $45,000, lay across
the other non-interest expense categories.
1996 versus 1995. Total non-interest expense fell $290,000 during 1996 to
$3,178,000, from its 1995 total of $3,468,000. Every category of non-interest
expense saw reductions during 1996, the largest being a reduction in employee
salaries and benefits in the amount of $152,000. During 1995, Elmore County
recorded a loss on sale of assets, and a write-off of other real estate
totalling $30,000, which was reduced to $0 in 1996. The balance of the
reduction, $108,000, lay across the other non-interest expense categories.
PRICE CHANGES AND INFLATIONARY INFLUENCES
All of the financial information included herein has been extracted from
financial statements prepared in accordance with generally accepted accounting
principles (GAAP). GAAP requires that both financial condition and operating
results be measured in terms of historical dollars, and that no consideration be
given for the changes in the purchasing power of money over time, as the result
of inflation.
The assets and liabilities of a financial institution are not the same in
nature as those of most commercial concerns. They are monetary in nature, with
those of other commercial concerns typically being concentrated in fixed assets
and inventories. The growth of total assets is affected by inflation, creating
a need for greater levels of equity capital, in order to maintain minimum
capital ratios. Non-interest expense is also affected by inflation, through the
reducing effect it has on the purchasing power of money.
INTEREST RATE RISK
Net interest income is the single largest component of Elmore County net
profits. As a result, the relationship between interest-earning assets and
interest-bearing liabilities is of paramount importance in maintaining desired
performance levels. The rate at which interest-earning assets are repricing
faster than interest-bearing liabilities, and visa versa, can have either a
positive or negative effect on net interest income, depending on the direction
in which market interest rates are moving. In its attempts to maintain
performance levels, management tries to strike a relative balance between the
repricing schedules of assets and liabilities. At December 31, 1997 Elmore
County had $37,593,000 in assets set to reprice within one year, and $32,947,000
in liabilities set to reprice in one year. At December 31, 1997, Elmore County
had a one-year positive gap position of $4,646,000. The following table gives a
quantitative expression of Elmore County's interest rate risk position at
December 31, 1997.
73
<PAGE>
INTEREST RATE SENSITIVITY ANALYSIS
ELMORE BANCSHARES, INC.
DECEMBER 31, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Total
0-3 4-12 1 Year 1-5 Over 5 Fair
Months Months or less Years years Total Value
------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans 13,523 17,280 30,803 14,228 1,925 46,956 46,486
Investment securities 787 2,316 3,103 22,787 11,382 37,272 37,755
Federal funds sold 2,800 2,800 2,800 2,800
-------------------------------------------------------------
Total earning assets 17,110 19,596 36,706 37,015 13,307 87,028 87,041
Percent of total earning assets 19.66% 22.52% 42.17% 42.53% 15.29% 100.00%
====================================================================================================
Interest bearing liabilities:
Interest-bearing demand deposits 282 282 564 1,411 12,253 14,228 14,086
Savings 154 154 308 704 6,655 7,667 7,590
Time 13,584 18,301 31,865 8,260 364 40,489 40,084
-------------------------------------------------------------
Total interest-bearing
liabilities 14,000 18,737 32,737 10,375 19,272 62,384 61,760
Percent of total interest-
bearing liabilities 22.44% 30.03% 52.48% 16.63% 30.89% 100.00%
====================================================================================================
Interest sensitivity gap 3,110 859 3,969 26,640 (5,965) 24,644
Cumulative interest sensitivity
gap 3,110 3,969 3,969 30,609 24,644
Interest sensitive gap to total assets 3.39% .94% 4.33% 29.05% (6.50%) 26.87%
Cumulative interest sensitivity gap
to total assets 3.39% 4.33% 4.33% 33.38% 26.87%
</TABLE>
The above table reflects a positive cumulative gap position in all
maturity classifications. This is the result of core deposits being used to
fund short term interest earning assets, such as loans and investment
securities. A positive cumulative gap position implies that interest earning
assets (loans and investments) will reprice at a faster rate than interest-
bearing liabilities (deposits and debt). In a rising rate environment, this
position will generally have a positive effect on earnings, while in a falling
rate environment this position will generally have a negative effect on
earnings. Other factors, however, including the speed at which assets and
liabilities reprice in response to changes in market rates and the interplay of
competitive factors, can also influence the overall impact on net income of
changes in interest rates. Management believes that a rapid, significant and
prolonged increase or decrease in rates could have a substantial impact on
Elmore County's net interest margin. The actual interest rate sensitivity of
Elmore County's assets and liabilities could vary significantly from the
information set forth in this table due to market and other factors.
Year 2000 Risk Assessment
There exists a problem throughout the world with computer programs
that do not properly recognize the year 2000 date format. Many programs around
the world were written to recognize a date using two digits. For example, these
programs would identify the year 1997 as 97. Consequently, when the last day of
1999 is over, these programs will read 00 as 1900. Great efforts have been, and
continue, to be made to correct this problem. Failure by a business to properly
identify and correct a year 2000 problem, could result in an extreme disruption
in the operation of that business.
On December 11, 1997, Elmore County executed a definitive agreement
with PBTC providing for the Merger. PBTC has in place a year 2000 action plan
mandated by federal banking regulators. Upon completion of the Merger, all
records of Elmore County will be incorporated into the year 2000 compliant
computer system of PBTC.
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<PAGE>
NEW ACCOUNTING STANDARDS
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES. In June 1996, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities
(SFAS No. 125). 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 allocating 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, Deferral 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, deferred securities lending and similar transactions. The
effective date for all other transactions addressed by SFAS No. 125 is
unchanged. The adoption of SFAS No. 125 did not have a material impact on Elmore
County's financial statements.
REPORTING OF COMPREHENSIVE INCOME. In June 1997, the FASB issued Statement
of Financial Accounting Standards No. 130, Reporting of Comprehensive Income
(SFAS No. 130), which establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of financial statements. This statement also 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.
This statement is effective for fiscal years beginning after December 15,
1997. Earlier application is permitted. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
DISCLOSURE ABOUT SEGMENTS AND RELATED INFORMATION. In June 1997, the FASB
issued FAS No. 131, Disclosures about Segments of an Enterprise and Related
Information (SFAS 131), which 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
stockholders. This statement also establishes standards for related disclosures
about products and services, geographic areas, and major customers. This
statement requires the reporting of financial and descriptive information about
an enterprise's reportable operating segments.
This statement is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. Elmore County does not believe
there will be any significant impact to its financial statements and disclosures
because of SFAS 131, as it operates in only one reportable segment - commercial
banking.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF ELMORE COUNTY -
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
INTRODUCTION
The subsequent discussion and accompanying financial information is meant to
compliment the unaudited consolidated financial statements of Elmore County and
notes thereto. Therefore, this discussion depends heavily on information
contained in the aforementioned financial statements and should be read with
that relationship in mind. It is the opinion of management that in order to
obtain a thorough understanding of this discussion, the unaudited consolidated
financial statements should be referenced during its reading.
SUMMARY OF FINANCIAL CONDITION
The financial condition of Elmore County is composed of its assets,
liabilities and the equity of its shareholders. It is through the acquisition
of assets and the assumption of liabilities, coupled with the retention of
earnings and the payment of dividends, that changes in the financial condition
of Elmore County occur.
Elmore County's total assets at March 31, 1998 were $92,517,000 as compared to
$92,465,000 at December 31, 1997. Of these totals, $87,469,000 and $87,028,000
were interest earning assets at the end of each respective period. The largest
earning category is loans net of unearned interest, followed by investment
securities and then federal funds sold.
LOANS AND LOAN LOSS ALLOWANCE. At March 31, 1998, the loan portfolio of
$46,756,000 constituted 53.45% of all earning assets. The March 31, 1998
balance represented a .43% decrease from the December 31, 1997 balance of
$46,956,000, which constituted 53.96% of earning assets. At March 31, 1998, the
bulk of the portfolio lay in loans to individuals totaling $17,613,000, followed
by real estate loans in the amount of $17,056,000, and business loans of
$10,477,000. The remaining loans in the portfolio at March 31, 1998 were
$704,000 of construction and land development, $576,000 of farm land and
agricultural, with other types of loans equaling $330,000.
At March 31, 1998, the allowance for loan losses totaled $700,000, as compared
to $695,000 at December 31, 1997.
INVESTMENTS. At March 31, 1998, Elmore County's investment securities
portfolio had a balance of $38,538,000, compared to $37,272,000 at December 31,
1997. At March 31, 1998, $8,753,000 of the portfolio was classified as
available-for-sale. The balance of the portfolio lay in securities held-to-
maturity in the amount of $29,785,000 at March 31, 1998. This net rise in the
securities portfolio is due, in large part, to the movement of cash and federal
funds sold into investment securities. At March 31, 1998, all securities
available-for-sale were U.S. Treasuries. The held-to-maturity securities were
made up of other U.S. government and agency securities, state and municipal
securities, collateralized mortgage obligations and mortgage-backed securities.
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS 115), dictates a difference in the reporting
of securities available-for-sale and that of securities held-to-maturity.
Securities that are available-for-sale, are reported at their fair market value,
whereas those being held maturity are reported at their amortized cost, not
unlike that of a fixed asset net of its depreciation.
Elmore County has another class of investments which are short-term in nature,
often being held only overnight. In order to meet the cash requirements of
federal regulators, banks often have to borrow money from one another, so as not
to fall below the minimum set for them on any given day. Those banks having
funds above the required minimum are the lenders to those banks that do not, and
are said to be a seller of federal funds. Such was the case with Elmore County
at March 31, 1998. Federal funds sold had a balance of $2,175,000, as compared
to $2,800,000 at December 31, 1997.
76
<PAGE>
LIQUIDITY. At March 31, 1998, $828,000 of held-to-maturity securities were
set to mature within one year, and $2,365,000 of available-for-sale securities
were set to mature within one year. All securities classified as available-for-
sale are high quality, and have a ready market, making them available, if
needed, to meet cash needs not met through the aforementioned primary sources.
Liabilities also provide for liquidity through deposit growth, maturing
deposits being rolled over and access to outside funds. While there were no
short-term borrowings at March 31, 1998, Elmore County may, from time to time,
find itself in the position whereby it will need to purchase (borrow) federal
funds to meet its short-term liquidity needs.
DEPOSITS. Total deposits at March 31, 1998 were $76,454,000, representing a
decrease of $319,000 from the December 31, 1997 total of $76,773,000.
STOCKHOLDERS' EQUITY. At March 31, 1998, stockholders' equity totaled
$15,125,000, as compared to $14,775,000 at December 31, 1997. The increase of
$350,000, or 2.37%, was a result of first quarter earnings.
At March 31, 1998, Elmore County was well above the required minimum ratios
for total capital to risk weighted assets, tier one capital to risk weighted
assets and tier one capital to average assets (leverage ratio). Those minimums
are 8%, 4% and 4%, respectively, with Elmore County's ratios at March 31, 1998
standing at 29.42%, 28.17% and 15.41% respectively.
INCOME SUMMARY
For the quarter ended March 31, 1998, Elmore County earned a net profit of
$420,000, an increase of $57,000 over the first quarter 1997 net profit of
$363,000. Expressed on a per share basis, first quarter earnings were $.76 and
$.66 for 1998 and 1997, respectively.
NET INTEREST INCOME. The difference between the amount of interest income
realized, and the amount of interest expense incurred, is referred to as net
interest income. For the first quarter of 1998, Elmore County realized net
interest income of $1,078,000 before deducting for loan loss provision, as
compared to $1,099,000 for the same period in 1997. Total interest income for
the first quarter ended March 31, 1998 equaled $1,788,000, compared to
$1,794,000 for the same period in 1997. While the average volume of earning
assets went up, the yield on those assets declined, slightly offsetting the
positive earnings effect of the increased volume. Average earning assets for
the first quarter in 1998 totaled $87,637,000, whereas they totaled $83,422,000
for the same period in 1997, representing a $4,215,000 increase. However, the
annual rate of return on these earnings assets fell from 8.60% in the first
quarter 1997, to 8.16% for the same period 1998.
During the first quarter of 1998, interest and fee income on loans totalled
$1,174,000, representing a $33,000 increase over the $1,141,000 earned during
the same period in 1997. As compared to the average balance for the first
quarter of 1997, the average balance of loans for the first quarter of 1998 rose
by $4,828,000 to $46,911,000.
Income earned on investments during the quarter ended March 31, 1998 was
$569,000, as compared to $627,000 for the same period in 1997. This reduction
in the income earned on investments resulted from a fall in both the rate of
return and volume. For the first quarter of 1998, the average volume of
investment securities was $37,393,000 with an annual rate of return equaling
6.09%. For the same period in 1997, the average volume was $39,000,000 with an
annualized rate of return of 6.27%.
Income earned on federal funds sold during the first quarter of 1998 was
$45,000, as compared to $26,000 during the same period in 1997. The rate earned
on these funds remained steady, with the rise in income attributable to
increased volume.
For the quarter ended March 31, 1998, interest expense rose slightly, to
$710,000 from $659,000 for the same period in 1997. This increase was due to a
2.3% increase in the average balance of interest bearing deposits. For the
quarter ended March 31, 1998, the average balance of interest-bearing deposits
equaled $57,960,000, whereas for the same quarter in 1997 the average balance
was $56,633,000.
PROVISION FOR LOAN LOSSES. During the quarter ended March 31, 1998, the
provision for loan losses totaled
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<PAGE>
$25,000, as compared to $75,000 for the same in 1997. During the first quarter
of 1997, management accelerated provision for loan loss charges in order to
raise the allowance for loan losses balance to what it felt was an appropriate
level.
NON-INTEREST INCOME. Additional income is generated through customer service
fees, gains on sale of assets and profits from subsidiaries. Due to
increasingly strong competition in the banking industry, the spread between
interest earned and interest paid has narrowed. This causes the generation of
non-interest income to be increasingly significant to Elmore County's
profitability. Non-interest income was up slightly during the first quarter of
1998 as compared to the same period in 1997, by $8,000 to $267,000,
respectively.
NON-INTEREST EXPENSE. For the quarter ended March 31, 1998, non-interest
expense totaled $746,000, compared to $790,000 for the same period in 1997.
Salaries and benefits comprise the largest segment of those making up the total
of non-interest expense.
INTEREST RATE RISK
At March 31, 1998 management was of the opinion that the relationship between
interest earning assets and interest bearing liabilities, relative to their
maturities, was such that net-interest income would be maximized through what,
in management's opinion, will be the future direction of market interest rates.
BUSINESS OF PBTC
GENERAL
PBTC is a bank holding company incorporated under the laws of the State of
Alabama in 1984. PBTC is registered under the Bank Holding Company Act of 1956,
as amended (the "Holding Company Act"). PBTC is the holding company for Peoples
Bank, which was chartered by the State of Alabama in 1902 and acquired by PBTC
in April 1985.
PBTC and Peoples Bank are headquartered in Selma, Alabama. Peoples Bank
conducts a general commercial and full-service retail banking business in
Dallas, Autauga, Butler, Bibb and Elmore 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 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, insurance
agency and consumer finance company.
Peoples Bank is a member of the FDIC, and its deposit accounts are insured by
the Bank Insurance Fund ("BIF") of the FDIC to a maximum of $100,000 for each
insured depositor. Peoples Bank is subject to supervision and regulation by 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."
PBTC's executive offices and the main office of Peoples Bank are located at
310 Broad Street, Selma, Alabama 36701. Peoples Bank also operates three
branches in Selma, four branches in Prattville, two branches in Greenville and
one branch in each of Plantersville, Georgiana, McKenzie, Centreville, Millbrook
and Montevallo, Alabama. Peoples Bank has received regulatory approval to
operate an additional branch in Woodstock, Alabama. PBTC's telephone number is
(334) 875-1000.
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<PAGE>
ACQUISITION OF MERCHANTS & PLANTERS
On March 6, 1998, PBTC consummated the acquisition of Merchants & Planters
Bancshares, Inc., the parent company of Merchants & Planters Bank, an Alabama
commercial bank based in Montevallo, Alabama. PBTC paid $20,085.083 in cash for
the outstanding shares of common stock of Merchants & Planters. The operations
of Merchants & Planters Bank were merged with those of Peoples Bank on April 10,
1998. The acquisition of Merchants & Planters was accounted for as a purchase.
LENDING ACTIVITIES
LOAN COMPOSITION. The following table sets forth a comparison of major
categories of PBTC's loans.
<TABLE>
<CAPTION>
At December 31,
At ---------------------------------------------------------
March 31, 1998 1997 1996 1995 1994 1993
-------------- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial............... $ 79,573 $ 91,903 $ 82,001 $ 61,984 $ 48,829 $ 42,006
Real estate - mortgage(1)............... 105,217 88,246 72,037 57,359 50,092 43,685
Personal................................ 72,190 71,978 70,619 71,695 66,170 51,299
Overdrafts and credit lines............. 7,168 7,036 5,245 5,090 4,365 4,929
-------- -------- -------- -------- -------- --------
Total loans........................... $264,148 $259,163 $229,902 $196,128 $169,456 $141,919
======== ======== ======== ======== ======== ========
Less:
Unearned discount..................... $ 1,077 $ 386 $ 1,532 $ 4,996 $ 6,478 $ 4,943
Allowance for loan losses............. 3,142 2,750 2,484 2,005 2,039 2,205
-------- -------- -------- -------- -------- --------
Total loans, net.................... $259,929 $256,027 $225,886 $189,127 $160,939 $134,771
======== ======== ======== ======== ======== ========
</TABLE>
_____________________
(1) Includes real estate-construction loans.
The above loans include agricultural loans totalin g approximately $16.5
million, $16.2 million, $15.6 million, $13.6 million and $7.9 million at
December 31, 1997, 1996, 1995, 1994 and 1993, respectively, and $10.8 million at
March 31, 1998. Such agricultural loans do not include other business or
personal loans the proceeds of which were used for non-agricultural purposes,
with the primary source of repayment being a farm commodity (e.g., timber). See
Note 5 of Notes to Consolidated Financial Statements of PBTC.
LOAN MATURITIES. The following table reflects at December 31, 1997 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 4-12 1-5 After
Months Months Years 5 Years Total
------ ------ ----- ------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial and industrial............. $ 59,194 $12,485 $17,363 $ 2,724 $ 91,766
Real estate-mortgage (1).............. 33,728 25,061 24,359 4,967 88,115
Personal, overdrafts and
credit lines........................ 11,461 15,225 49,082 3,128 78,896
-------- ------- ------- ------- --------
$104,383 $52,771 $90,804 $10,819 $258,777
======== ======= ======= ======= ========
Loans with fixed interest rates....... $ 24,683 $21,633 $57,813 $ 8,714 $112,843
Loans with variable interest rates.... 79,700 31,138 32,991 2,105 145,934
-------- ------- ------- ------- --------
$104,383 $52,771 $90,804 $10,819 $258,777
======== ======= ======= ======= ========
</TABLE>
________________________________
(1) Includes real estate-construction loans of $4.4 million, all of which
mature within one year.
See Note 5 of Notes to Consolidated Financial Statements of PBTC.
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<PAGE>
COMMERCIAL AND INDUSTRIAL LOANS. PBTC's primary lending activity consists of
the origination of commercial and industrial loans. Such loans are generally
originated in PBTC's primary lending area. PBTC's commercial and industrial
loans are made for a variety of business purposes, including working capital,
inventory and equipment and capital expansion. At March 31, 1998, commercial
and industrial loans outstanding, net of unearned discount, totaled $79.3
million, or 30.1% of PBTC'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 PBTC's
underwriting standards. These types of loans are generally considered to be a
higher credit risk than other loans originated by PBTC.
REAL ESTATE MORTGAGE LOANS. PBTC also originates one-to-four family, owner-
occupied residential mortgage loans secured by property located in PBTC's
primary market area. The majority of PBTC's residential mortgage loans consists
of loans secured by owner-occupied, single-family residences. At March 31,
1998, PBTC had $104.8 million, or 39.8% of its total net loan portfolio, in real
estate mortgage loans, net of unearned discount.
PERSONAL LOANS. At March 31, 1998, PBTC's personal loan portfolio, net of
unearned discount, totaled $71.9 million, or 27.3% of PBTC's total net loan
portfolio. PBTC'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. PBTC's limit for unsecured loans to individual customers is
10% of the capital accounts of PBTC. The limit for unsecured and secured loans
combined to individual customers is 20% of the capital accounts of PBTC, subject
to certain terms and conditions. For customers desiring loans in excess of
PBTC's lending limits, PBTC may loan on a participation basis, with its
correspondent banks taking the amount of the loan in excess of PBTC's lending
limits. In other cases, PBTC may refer such borrowers to larger banks or other
lending institutions.
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<PAGE>
NONACCRUAL, PAST DUE, RESTRUCTURED AND POTENTIAL PROBLEM LOANS. PBTC
classifies its problem loans into four categories: nonaccrual loans, past-due
loans, restructured loans, and potential problem loans. At March 31, 1998, 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 March 31, At December 31,
-----------------------------------------------------
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis................. $ 1,824 $ 1,701 $ 1,679 $ 1,503 $ 348 $ ,055
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.............. 222 69 294 301 275 295
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
through the period or since origination, if held for
part of the period..................................... 85 54 77 96 72 131
The amount of interest income on nonaccrual and
restructured loans that was included in net income
for the period......................................... 30 26 22 36 21 34
</TABLE>
Management of PBTC has identified certain loans aggregating approximately
$9.6 million at March 31, 1998 (including loans identified in the above table)
which it has determined require special attention due to potential weaknesses.
The largest five loans aggregated approximately $3.8 million and ranged in size
from $1.1 million to $605,000. 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.
The following table sets forth PBTC's potential problem loans at March 31,
1998 by loan category and the amount and type of collateral securing such loans.
<TABLE>
<CAPTION>
Loan Category/Collateral Amount
------------------------ -------
(In thousands)
<S> <C>
Commercial and Industrial:
Collateralized by Real Estate........ $ 3,112
Collateralized by Other (1).......... 4,934
Unsecured............................ 126
---------
Total Commercial and Industrial...... 8,172
---------
Personal:
Collateralized by Real Estate........ 1,420
Collateralized by Other.............. 22
Unsecured............................ --
---------
Total Personal....................... 1,442
---------
Total......................... $ 9,614
========
</TABLE>
______________
(1) Includes approximately $2.9 million of loans collateralized by accounts
receivable, inventory, furniture and fixtures and automobile dealer floor
plans.
LOAN LOSS EXPERIENCE. See Notes 1 and 5 of Notes to Consolidated Financial
Statements of PBTC.
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<PAGE>
The allowance for possible loan losses at PBTC 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.
The following is a summary of activity in the allowance for loan losses
for the periods:
<TABLE>
<CAPTION>
Three Months Ended
March 31, Year Ended December 31
------------------------ ---------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning of period..... $ 2,750 $ 2,484 $ 2,484 $ 2,005 $ 2,040 $ 2,205 $ 1,897
Charge-offs:
Commercial and industrial........ (167) (2) (211) (152) (388) (184) (441)
Real estate-mortgage (1)......... (5) (12) (57) (29) (20) (34) (10)
Personal......................... (302) (326) (1,804) (1,701) (1,199) (907) (932)
Overdraft and credit line........ -- -- (30) (57) (15) (22) (27)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total charge-offs.............. (474) (340) (2,102) (1,939) (1,622) (1,148) (1,410)
Recoveries:
Commercial and industrial........ 26 1 32 18 51 113 395
Real estate-mortgage............. 13 -- 24 49 21 22 106
Personal......................... 125 110 569 511 665 495 530
Overdraft and credit line........ -- -- 11 6 2 5 15
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total recoveries............... 164 111 636 584 739 635 1,046
Net charge-offs.................... (310) (229) (1,466) (1,355) (882) (513) (364)
Additions charged to operations.... 251 360 1,732 1,834 848 348 484
Addition due to acquisition........ 451 -- -- -- -- -- 188
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at end of period........... $ 3,142 $ 2,615 $ 2,750 $ 2,484 $ 2,005 $ 2,040 $ 2,205
========== ========== ========== ========== ========== ========== ==========
Ratio of net charge-offs to average
loans outstanding, net of unearned
discounts, during the period..... .13% .10% .65% .69% .46% .32% .28%
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
___________________________
(1) Includes real estate-construction loans.
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<PAGE>
The following table presents an allocation of PBTC's allowance for loan
losses at the dates indicated:
<TABLE>
<CAPTION>
At March 31, At December 31,
--------------------------------------------------------
1998 1997 1996 1995
------------------ ----------------- ----------------- ----------------
% Amount % Amount % Amount % Amount
- ------ - ------ - ------ - ------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial............. 45% $ 1,414 35% $ 963 26% $ 645 38% $ 762
Real estate mortgage.................. 11% 345 11% 298 12% 298 18% 361
Personal.............................. 43% 1,351 53% 1,462 60% 1,490 42% 842
Overdrafts and credit lines........... 1% 32 1% 27 2% 51 2% 40
--- ------- --- ------- --- ------- --- -------
Total allowance...................... 100% $ 3,142 100% $ 2,750 100% $ 2,484 100% $ 2,005
=== ======= === ======= === ======= === =======
<CAPTION>
At December 31,
------------------------------------
1994 1993
---------------- ----------------
% Amount % Amount
- ------ - ------
<S> <C> <C> <C> <C>
Commercial and industrial............. 40% $ 816 42% $ 926
Real estate mortgage.................. 15% 307 31% 684
Personal.............................. 43% 877 25% 551
Overdrafts and credit lines........... 2% 40 2% 44
--- ------- --- -------
Total allowance...................... 100% $ 2,040 100% $ 2,205
=== ======= === =======
</TABLE>
INVESTMENT ACTIVITIES
SECURITIES BY CATEGORY. Investments are classified as either
held-to-maturity, trading or available-for-sale securities. See Note 1 to
Consolidated Financial Statements of PBTC. There were no securities classified
as held-to-maturity or trading at December 31, 1995, 1996 and 1997 and at March
31, 1998. The following table sets forth the amount of securities
available-for-sale by major categories held by PBTC at December 31, 1997, 1996
and 1995 and at March 31, 1998.
<TABLE>
<CAPTION>
At March 31, At December 31,
------------------------------------
1998 1997 1996 1995
------------ ---- ---- ----
Securities Available-for Sale (In thousands)
- -----------------------------
<S> <C> <C> <C> <C>
U.S. Treasury, U.S. Agencies and corporations........... $ 67,751 $ 49,036 $ 52,961 $ 56,888
Obligations of states and political subdivisions........ 3,081 1,894 2,050 2,875
Corporate and other securities.......................... 24,122 18,807 27,682 37,824
-------- -------- -------- --------
$ 94,954 $ 69,737 $ 82,693 $ 97,587
======== ======== ======== ========
</TABLE>
Corporate and other securities as of March 31, 1998, were comprised of the
following:
<TABLE>
<CAPTION>
Securities Available-
for-sale
---------------------
<S> <C>
Corporate notes......................... $ 2,338
Collateralized mortgage obligations..... 10,824
Mortgage backed securities............... 7,488
Mutual funds............................ 1,701
Common stock............................ 1,771
----------
$ 24,122
==========
</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 risk.
83
<PAGE>
For information regarding the amortized cost and approximate market value
of securities at December 31, 1997, 1996 and 1995, see Note 4 of Notes to
Consolidated Financial Statements of PBTC.
MATURITY DISTRIBUTIONS OF SECURITIES. The following table sets forth the
distributions of maturities of securities at amortized cost as of March 31,
1998.
<TABLE>
<CAPTION>
Maturity
----------------------------------------------------------------------
Over 1 to 5 Over 5 to 10 Over 10 No Specific
0-3 Months 4-12 Months Years Years Years Due Date
---------- ----------- ----- ----- ----- --------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury, U.S. agencies and
corporations...................... $ 4,533 $ 2,301 $ 71,347 $ 249 $ -- $ --
Obligations of states and
political subdivisions............. 457 189 613 180 24 --
Corporate and other securities...... 1,010 282 8,601 85 3,027 1,771
------- --------- --------- -------- ------- ---------
Total............................... $ 6,000 $ 3,057 $ 80,561 $ 514 $ 3.051 $ 1,771
======= ========= ========= ======== ======= =========
Weighted average yield (%)(1) 5.73% 6.31% 6.40% 7.03% 7.03% 8.63%
======= ========= ========= ======== ======= =========
</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, 1997, by contractual
maturity, see Note 4 of Notes to Consolidated Financial Statements of PBTC.
DEPOSITS
Deposits are the primary source of funds for PBTC. PBTC'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 PBTC's
market area. In addition, PBTC obtains deposits from state and local entities
and, to a lesser extent, U.S. Government and other depository institutions. PBTC
does not accept brokered deposits. As of March 31, 1998, PBTC's total deposits
were $364.7 million.
The following table indicates the amount of PBTC's certificates of deposit
and other time deposits of $100,000 or more by time remaining until maturity as
of March 31, 1998.
<TABLE>
<CAPTION>
Certificates of Other Time
Maturity Period Deposits Deposits
- --------------- --------------- --------------
(In thousands)
<S> <C> <C>
Three months or less..................... $ 11,954 $ 12,536
Over three through six months............ 4,316 5,664
Over six through twelve months........... 1,931 --
Over twelve months....................... 904 --
--------- ----------
Total.................................. $ 19,105 $ 18,200
========= ==========
</TABLE>
84
<PAGE>
The following tables set forth the average balances and average interest
rates based on daily balances for deposits for the periods indicated.
<TABLE>
<CAPTION>
Three Months Ended March 31,
--------------------------------------------------
1998 1997
--------------------------------------------------
Average Average Average Average
Deposits Rate Deposits Rate
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Non-interest bearing demand
deposits.................... $ 54,618 --% $ 43,020 --%
Interest bearing demand
deposits.................... 32,072 3.10% 27,318 3.20%
Savings deposits............. 28,223 2.20% 27,849 2.30%
Time deposits................ 205,568 5.19% 180,331 6.06%
-------- --------
Total deposits.............. $320,481 3.83% $278,518 3.82%
======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1997 1996 1995
-------------------- --------------------- -----------------------
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........................ $ 45,968 --% $ 42,529 --% $ 42,206 --%
Interest bearing demand deposits. 66,543 3.48% 65,211 3.52% 64,419 3.82%
Savings deposits................. 27,829 2.87% 28,882 2.87% 30,351 3.00%
Time deposits.................... 144,743 5.49% 134,354 5.53% 129,866 5.71%
--------- --------- ---------
Total deposits.............. $ 285,083 3.88% $ 270,976 3.89% $ 266,842 4.04%
========= ========= =========
</TABLE>
COMPETITION
In order to compete effectively, PBTC 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.
PBTC is presently competing in its market area with four Alabama bank
holding companies. It also competes with six independent banks, several credit
unions, and various other nonbank financial companies.
The banking business in Alabama generally, and PBTC's primary service
areas specifically, are highly competitive with respect to both loans and
deposits. PBTC 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 PBTC (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 PBTC's total capital accounts), such
banks have substantially higher lending limits than does PBTC. 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 PBTC
in the acquisition of deposits.
Under the Holding Company Act, as amended by the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act"), Alabama
banks and their holding companies may be acquired by out-of-state banks or their
holding companies, and Alabama banks and their holding companies may acquire
out-of-state banks without regard to whether the transaction is prohibited by
the laws of any state. Under the Riegle-Neal Act and Alabama law, the FRB may
not approve the acquisition of a bank in Alabama if such bank has not been in
existence for at least five years or, if following the acquisition, the
acquiring bank holding company and its depository institution affiliates would
control 30% or more of the deposits in depository institutions in Alabama. In
addition, the Riegle-Neal Act authorized 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
85
<PAGE>
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 authorized, 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 March 31, 1998, PBTC employed 256 persons, including executive
officers, loan officers, bookkeepers, tellers and others. None of PBTC's
employees are presently represented by a union or covered under a collective
bargaining agreement. Management of PBTC considers that their employee relations
are excellent.
LEGAL PROCEEDINGS
Management currently is not aware of any material legal proceedings to
which PBTC 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 deposition or other significant discovery has
taken place, except for the production of certain documents. Plaintiffs' counsel
have directed to both defendants a $6,000,000 settlement demand, which Peoples
Bank has declined. Settlement discussions are ongoing. The case is not set for
trial.
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 joins Peoples Bank's
directors and certain officers as defendants, for whom Peoples Bank is providing
a defense. Importantly, plaintiffs admit in their complaint that after they
complained to Peoples Bank about the alleged harassment, the harassment ended.
Motions to dismiss the directors and officers have been filed, which are
pending. Written discovery has been served on the plaintiffs and Peoples Bank
anticipates scheduling the plaintiffs' depositions for mid-July. 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.
86
<PAGE>
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 PBTC cannot estimate with certainty, at this time, the
eventual outcome or potential exposure in the above cases, PBTC does not
currently anticipate that the ultimate liability arising from such proceedings
will have a materially adverse effect on PBTC's financial statements.
PROPERTIES
PBTC's principal executive offices and Peoples Bank's main office are
located at 310 Broad Street, Selma, Alabama in a building owned by Peoples Bank.
At April 30, 1998, Peoples Bank maintained 17 branches in Dallas, Autauga,
Butler, Bibb, Elmore and Shelby counties, of which six are leased.
MANAGEMENT OF PBTC
DIRECTORS
The following table sets forth certain information with respect to PBTC's
directors.
<TABLE>
<CAPTION>
Director Position(s) Held
Name Age(1) Since(2) with PBTC
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Julius R. Brown 58 1992 Director
Clyde B. Cox, Jr. 63 1983 Director
Harry W. Gamble, Jr. 61 1974 Director
Ted M. Henry 59 1968 Director
Elam P. Holley, Jr. 47 1988 Director, President and
Chief Operating Officer
Edith Morthland Jones 48 1996 Director
A. D. Lovelady 68 1978 Director
Richard P. Morthland 56 1977 Chairman of the Board
and Chief Executive Officer
Thomas E. Newton 52 1996 Director
David Y. Pearce 50 1996 Director
C. Ernest Smith 56 1991 Director
Julius E. Talton 69 1974 Director
</TABLE>
_________________
(1) As of March 31, 1998.
(2) Except for Messrs. Brown, Holley, Newton, Pearce and Smith and Mrs. Jones,
includes term of office as director of the Bank prior to formation of PBTC
as the holding company for Peoples Bank in April 1985. Each director of
PBTC is also a director of Peoples Bank.
The principal occupation(s) and business experience for the past five years
of each director of PBTC are set forth below:
Julius R. Brown is President of Wallace Community College, Selma.
Clyde B. Cox, Jr. is a surgeon.
Harry W. Gamble, Jr. is a member of the law firm of Gamble, Gamble, Calame
and Wilson, L.L.C.
Ted M. Henry is Chairman and Chief Executive Officer of Henry Brick
Company, Inc.
87
<PAGE>
Elam P. Holley, Jr. has served as President and Chief Operating Officer of
Peoples Bank since February 1994. Prior to that he was Executive Vice President
and Chief Administrative Officer of Peoples Bank. Mr. Holley served as Secretary
of PBTC from 1984 until 1997 when he was elected President and Chief Operating
Officer of PBTC.
Edith Morthland Jones has served as film liaison for the Selma-Dallas
County Chamber of Commerce since 1988. Prior to that she served as Director of
Tourism and Travel for the Selma-Dallas County Chamber of Commerce. She is the
daughter of Rex J. Morthland, the sister of Richard P. Morthland and the sister-
in-law of M. Scott Patterson, Executive Vice President, Investment Officer and
Secretary of Peoples Bank and Executive Vice President and Secretary of PBTC.
A. D. Lovelady has served as Chairman of the Board of Lovelady Construction
Company, Inc. since January 1996. Prior to that he was President of Lovelady
Construction Company, Inc.
Richard P. Morthland has served as Chairman of the Board and Chief
Executive Officer of Peoples Bank since February 1994. Prior to that he was
President and Chief Executive Officer of Peoples Bank. Mr. Morthland has been
President of PBTC since its formation in 1984. He is the son of Rex J.
Morthland, the brother of Edith Morthland Jones and the brother-in-law of M.
Scott Patterson.
Thomas E. Newton is a partner in the commercial real estate development
firm of Newton, Oldacre, and McDonald, L.L.C., Prattville, Alabama.
David Y. Pearce has been the owner of Pearce Catfish Farms since 1971 and
President of Pearce Catfish Farms, Inc. since 1993.
C. Ernest Smith is the Mayor of Greenville, Alabama and owner of the
Greenville Shoe Shop.
Julius E. Talton is Chairman of the Board of Talton TeleCommunications
Corporation and has served as Chairman of the Board of Talton Holdings, Inc.
since December 1996.
DIRECTORS EMERITUS
Rex J. Morthland is Chairman Emeritus of the Board of Directors of Peoples
Bank.
Wallace A. Buchanan is the President of Buchanan Hardwoods, Inc.
W. Russell Buster, Jr. is retired. Previously he was President of the Bush
Hog Agricultural Implement Division of Allied Products Corporation.
J.A. Minter, Jr. is a farmer and ginner.
Clinton S. Wilkinson, Jr. is a dentist.
B. Frank Wilson is Chairman Emeritus of the Board of Directors of the Bank.
EXECUTIVE COMPENSATION
The following table sets forth cash and noncash compensation for each of
the last three fiscal years awarded to or earned by the named executive officers
of PBTC.
88
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
--------------------------------
Annual Compensation Awards
--------------------------------------------- --------------------------------
Restricted Securities
Name and Other Annual Stock Underlying
Principal Position (1) Year Salary Bonus Compensation (2) Award(s) Options/SARs(#)(3)
- ----------------- ---- ------ ----- ---------------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Richard P. Morthland 1997 $160,487 $23,401 -- -- 4,000
Chairman and Chief 1996 156,339 48,697 -- -- 4,000
Executive Officer of 1995 149,065 33,505 -- -- 4,000
PBTC and Peoples
Bank
Elam P. Holley, Jr. 1997 $111,791 $11,201 -- -- 3,000
President and Chief 1996 103,042 5,787 -- -- 3,000
Operating Officer of 1995 98,145 4,832 -- -- 3,000
PBTC and Peoples
Bank
<CAPTION>
Payouts
-------
LTIP All Other
Payouts Compensation (4)(5)
------- -------------------
Richard P. Morthland
Chairman and Chief -- $10,555
Executive Officer of -- 10,381
PBTC and Peoples -- 12,147
Bank
Elam P. Holley, Jr. -- $10,760
President and Chief -- 8,120
Operating Officer of -- 7,770
PBTC and Peoples
Bank
</TABLE>
__________________
(1) No other executive officer earned in excess of $100,000 in salary and bonus
in 1997, 1996 and 1995.
(2) Executive officers of PBTC receive indirect compensation in the form of
certain perquisites and other personal benefits. The amount of such
benefits in 1997, 1996 and 1995 received by the named executive officers
did not exceed 10% of the executive's annual salary and bonus.
(3) Award amounts and other data herein have been adjusted for a two-for-one
stock split effected through a stock dividend paid in March 1995 and a two-
for-one stock split effected through a stock dividend paid in June 1997.
(4) "All Other Compensation" includes awards to Mr. Morthland of $3,402, $3,680
and $3,672 in 1997, 1996 and 1995, respectively, contributed on behalf of
such executive to the Employee Stock Ownership Plan ("ESOP") to fund
purchases of PBTC Common Stock pursuant to the Incentive Performance and
Reward Program. Also includes contributions of behalf of Mr. Morthland of
$6,653, $6,701 and $8,475 in 1997, 1996 and 1995, respectively, to Peoples
Bank's Section 125 "cafeteria" plan.
(5) "All Other Compensation" includes awards to Mr. Holley of $2,551, $2,662
and $2,415 in 1997, 1996 and 1995, respectively, contributed on behalf of
such executive to the ESOP to fund purchases of PBTC Common Stock pursuant
to the Incentive Performance and Reward Program. Also includes
contributions on behalf of Mr. Holley of $8,209, $5,458 and $5,355 in 1997,
1996 and 1995, respectively, to Peoples Bank's Section 125 "cafeteria"
plan.
DIRECTORS' COMPENSATION
Directors of PBTC and Peoples Bank are presently paid $800 per month for
service in both capacities and $150 for each committee meeting attended.
Directors who are officers of PBTC or Peoples Bank (i.e., Messrs. Richard P.
----
Morthland and Elam P. Holley, Jr.) are not entitled to such fees.
89
<PAGE>
OPTION GRANTS IN FISCAL YEAR 1997
The following table contains information concerning the grant of stock
options under the 1992 Stock Option Plan (the "Option Plan") to the named
executive officers. The Option Plan does not provide for the grant of stock
appreciation rights.
<TABLE>
<CAPTION>
Individual Grants
--------------------------------------------------------------------------
Number of Percent of Potential Realizable
Securities Total Options Value at Assumed
Underlying Granted to Exercise or Annual Rates of Stock
Options Granted Employees in Base Price Expiration Price Appreciation
(Number of Shares) Fiscal Year ($ per Share) Date for Option Term(1)
------------------ -------------- ----------- ---------- ---------------------
<S> <C> <C> <C> <C> <C>
5%($) 10%($)
--------- ----------
Richard P. Morthland 4,000 24.69% 17.05 01/20/02 10,920 31,640
Elam P. Holley, Jr. 3,000 18.52% 15.50 01/20/02 29,250 74,100
</TABLE>
_________________
(1) Represents the difference between the aggregate exercise price of the
options and the aggregate value of the underlying PBTC Common Stock at the
end of the expiration date assuming the indicated annual rate of
appreciation in the value of the PBTC Common Stock.
AGGREGATED FISCAL 1997 OPTION EXERCISES AND YEAR END OPTION VALUES
The following table sets forth information concerning options exercised
during fiscal 1997 and the value of options held by the named executive officers
at the end of the fiscal year.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money Options at
Shares Acquired Options at Fiscal Year End Fiscal Year End ($)(2)
-------------------------- ------------------------
on Exercise Value Exercisable/Unexercisable Exercisable/
Name (Number of Shares) Realized($)(1) (Number of Shares) Unexercisable
- ---- ------------------- --------------- -------------------------- -------------------------
<S> <C> <C> <C> <C>
Richard P. Morthland 13,600 313,380 ---/8,000 ---/134,080
Elam P. Holley, Jr. -- -- 10,700/6,000 253,770/108,180
</TABLE>
________________
(1) Difference between fair market value of underlying PBTC Common Stock and
the exercise price at exercise.
(2) Difference between fair market value of underlying PBTC Common Stock and
the exercise price at fiscal year end. An option is in-the-money if the
fair market value of the underlying security exceeds the exercise price of
the option.
90
<PAGE>
PENSION PLAN
The following table illustrates the maximum estimated annual benefits
payable upon retirement pursuant to PBTC's defined benefit pension plan (the
"Pension Plan") based upon the Pension Plan formula for specified average Final
Compensation and specified years of service.
<TABLE>
<CAPTION>
Average Final Years of Service
--------------------------------------------------------------------------
Compensation 10 20 30 40
- ------------- --------------- -------------- --------------- ------------
<S> <C> <C> <C> <C>
$ 20,000............................... $ 2,000 $ 4,000 $ 6,000 $ 8,000
60,000............................... 7,900 15,800 23,600 30,600
80,000............................... 11,200 22,400 33,500 43,100
100,000............................... 14,500 29,000 43,400 55,700
125,000............................... 18,600 37,200 55,800 71,400
160,000 and above..................... 24,400 48,800 73,100 93,300
</TABLE>
Benefits are hypothetical amounts only. Currently, the maximum annual
benefit payable under the Pension Plan is $125,000. Also, average final
compensation in excess of $160,000 is not covered under the Pension Plan.
"Average Final Compensation," which is based upon the average annual salary (as
defined) for the five consecutive years of highest salary, is based upon
compensation that would appear under the "Salary" column of the Summary
Compensation Table. As of December 31, 1997, Messrs. Morthland and Holley had 34
and 24 years of credited service, respectively, under the Pension Plan. Benefits
set forth in the preceding table are computed as a straight-life annuity and are
adjusted to reflect payments expected to be made to employees by Social
Security.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Harry W. Gamble, Jr., a director of PBTC and Peoples Bank, is a member of
the firm of Gamble, Gamble, Calame and Wilson, L.L.C. which renders legal
services to PBTC and Peoples Bank. In the year ended December 31, 1997, Mr.
Gamble's firm received fees of $128,716 for legal services to PBTC and Peoples
Bank.
CERTAIN TRANSACTIONS
PBTC and Peoples Bank have had, and expect to have in the future,
transactions in the ordinary course of business with directors and executive
officers and members of their immediate families, as well as with principal
shareholders. All loans included in such transactions were made in the ordinary
course of business on substantially the same terms, including interest rates and
collateral, as those prevailing for comparable transactions with non-affiliated
persons. It is the belief of management that such loans neither involved more
than the normal risk of collectability nor presented other unfavorable features.
BUSINESS OF ELMORE COUNTY
GENERAL
Elmore County, which was incorporated under the laws of the State of
Alabama in 1983, is registered as a bank holding company under the Holding
Company Act. Elmore County is the holding company for Tallassee Bank, which was
chartered by the State of Alabama in 1913 and acquired by Elmore County in 1983.
Elmore County and Tallassee Bank are headquartered in Tallassee, Alabama.
Tallassee Bank conducts a general commercial and full-service retail banking
business through five branches in three communities, Tallassee, East Tallassee
and Eclectic. In addition, Tallassee Bank offers trust services.
Tallassee Bank provides banking services to individuals, corporations and
others. Tallassee Bank's services 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 ATM service, bank by mail
and night depository and other customary banking services. Tallassee Bank makes
commercial, personal, construction and real estate loans and accepts both demand
and time deposits.
91
<PAGE>
Tallassee Bank operates three subsidiaries, two of which are consumer
finance companies and an insurance agency. To date, the results of operations of
these subsidiaries have not, however, been material.
Tallassee Bank is a member of the FDIC and its deposit accounts are insured
by the BIF to a maximum of $100,000 for each insured depositor. Tallassee Bank
is subject to supervision and regulation by the FDIC and the Banking Department.
There are also various requirements and restrictions under federal and Alabama
laws which affect the operations of Tallassee Bank. These laws include usury
requirements, restrictions relating to investments and other requirements. See
"Regulation, Supervision and Governmental Policy."
Elmore County and Tallassee Bank have had, and expect to have in the
future, transactions in the ordinary course of business with directors and
executive officers and members of their immediate families, as well as with
principal shareholders. All loans included in such transactions will be made in
the ordinary course of business on substantially the same terms, including
interest rates and collateral, as those prevailing for comparable transactions
with non-affiliated persons. It is the belief of management that such loans
neither involved more than the normal risk of collectability nor presented other
unfavorable features.
Elmore County's executive officers and the main office of Tallassee Bank
are located at 304 Barnett Boulevard, Tallassee, Alabama 36078. Elmore County's
telephone number is (334) 283-6581.
LENDING ACTIVITIES
LOAN COMPOSITION. The following table sets forth a comparison of major
categories of Elmore County's loans.
<TABLE>
<CAPTION>
At December 31,
------------------------------------
1997 1996
---- ----
<S> <C> <C>
Commercial and industrial $ 11,188 $ 9,807
Real estate - mortgage.................... 17,976 16,053
Personal.................................. 17,829 15,872
Overdrafts and credit lines............... 331 16
--------- ---------
Total loans.............................. $ 47,324 $ 41,748
========= =========
Less:
Unearned discount........................ $ 368 $ 817
Allowance for loan losses................ 695 689
--------- ---------
Total loans, net........................ $ 46,261 $ 40,242
========= =========
</TABLE>
LOAN MATURITIES. The following table reflects at December 31, 1997 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 4-12 1-5 After
Months Months Years 5 Years Total
------ ------ ----- ------- ------
(In thousands)
<S> <C> <C> <C> <C> <C>
Real estate-mortgage (1)......... $ 4,720 $ 6,592 $ 681 $ 150 $12,143
All other loans.................. 8,297 9,831 14,783 1,902 34,813
------- ------- ------- ------- -------
$13,017 $16,423 $15,464 $ 2,052 $46,956
======= ======= ======= ======= =======
</TABLE>
- ------------------
(1) Consists of one-to four-family real estate loans.
92
<PAGE>
NONACCRUAL, PAST DUE, RESTRUCTURED AND POTENTIAL PROBLEM LOANS. Elmore
County classifies its problem loans into four categories: nonaccrual loans,
past-due loans, restructured loans, and potential problem loans. At December 31,
1997, 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,
--------------------------------------
1997 1996
---- ----
(In thousands)
<S> <C> <C>
Loans accounted for on a nonaccrual basis................ $ 32 $ 369
Accruing loans which are contractually past due 90
days or more as to interest or principal payments....... 75 76
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............... -- --
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...................................... 7 20
The amount of interest income on nonaccrual and
restructured loans that was included in net income
for the period.......................................... 4 11
</TABLE>
See Note 4 of Notes to Consolidated Financial Statements of Elmore County
for a discussion of impaired loans pursuant to SFAS No. 114.
LOAN LOSS EXPERIENCE. See Note 4 of Notes to Consolidated Financial
Statements of Elmore County.
The allowance for possible loan losses at Elmore County 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.
93
<PAGE>
The following is a summary of activity in the allowance for loan losses
for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period............ $ 689 $ 696
Charge-offs............................... (315) (439)
Recoveries................................ 186 153
Net charge-offs........................... (129) (286)
Additions charged to operations........... 135 279
------ ------
Balance at end of period.................. $ 695 $ 689
====== ======
Ratio of net charge-offs to average loans
outstanding, net of unearned discounts,
during the period........................ .27% .70%
====== ======
</TABLE>
The following table presents an allocation of Elmore County's allowance for
loan losses at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
----------------------------------
1997 1996
---------------- ----------------
% Amount % Amount
- ------ - ------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Commercial and industrial..... 25% $ 175 25% $ 172
Real estate mortgage.......... 36% 254 37% 255
Personal...................... 38% 262 38% 262
Overdraft and credit line..... 1% 4 --% --
--- ----- --- -----
Total allowance.............. 100% $ 695 100% $ 689
=== ===== === =====
</TABLE>
INVESTMENT ACTIVITIES
SECURITIES BY CATEGORY. Investments are classified as either held-to-
maturity, trading or available-for-sale securities. See Note 1 of Notes to
Consolidated Financial Statements of Elmore County. The following tables set
forth the amount of securities available-for-sale and held-to-maturity by major
categories held by Elmore County at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
At December 31,
---------------------------------
Securities Available-for-Sale: 1997 1996
---- ----
(In thousands)
<S> <C> <C>
U.S. Treasury, U.S. Agencies and corporations................... $ 9,351 $ 14,603
Obligations of states and political subdivisions................ -- --
Corporate and other securities.................................. -- --
--------- ---------
$ 9,351 $ 14,603
========= =========
</TABLE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------
Securities Held-to-Maturity: 1997 1996
---- ----
(In thousands)
<S> <C> <C>
U.S. Treasury, U.S. Agencies and corporations................... $ 13,648 $ 11,794
Obligations of states and political subdivisions................ 10,681 10,262
Corporate and other securities.................................. 3,592 4,149
--------- ---------
$ 27,921 $ 26,205
========= =========
</TABLE>
For information regarding the amortized cost and approximate market value
of securities at December 31, 1997 and 1996, see Note 3 of Notes to Consolidated
Financial Statements of Elmore County.
94
<PAGE>
MATURITY DISTRIBUTIONS OF SECURITIES. The following table sets forth the
distributions of maturities of securities at amortized cost as of December 31,
1997.
<TABLE>
<CAPTION>
Maturity
-----------------------------------------------------------
Over 1 to 5 Over 5 to 10
0-3 Months 4-12 Months Years Years
---------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
U.S. Treasury, U.S. agencies and
corporations.................... $ 691 $ 1,466 $ 15,951 $ 2,201
Obligations of states and
political subdivisions.......... - 303 4,557 5,390
Corporate and other securities... 85 558 2,279 -
------- --------- ---------- ----------
Total............................ $ 776 $ 2,327 $ 22,787 $ 7,591
======= ========= ========== ==========
Weighted average yield (%)(1).... 6.86% 6.27% 6.29% 5.67%
======= ========= ========== ==========
<CAPTION>
-----------------------------
Over 10 No Specific
Years Due Date
------- -----------
<S> <C> <C>
U.S. Treasury, U.S. agencies and
corporations.................... $ -- $ --
Obligations of states and
political subdivisions.......... 239 --
Corporate and other securities... -- 3,552
--------- ---------
Total............................ $ 239 $ 3,552
========= =========
Weighted average yield (%)(1).... 5.40% 6.77%
========= =========
</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, 1997, by contractual
maturity, see Note 3 of Notes to Consolidated Financial Statements of Elmore
County.
DEPOSITS
Deposits are the primary source of funds for Elmore County. Elmore County'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 Elmore County's market area. In addition, Elmore County
obtains deposits from state and local entities and, to a lesser extent, U.S.
Government and other depository institutions. Elmore County does not accept
brokered deposits. As of March 31, 1998, Elmore County's total deposits were
$76.5 million.
The following table indicates the amount of Elmore County's certificates of
deposit and other time deposits of $100,000 or more by time remaining until
maturity as of December 31, 1997.
<TABLE>
<CAPTION>
Certificates Other Time
Maturity Period of Deposits Deposits
- --------------- ----------------- -----------------
(In thousands)
<S> <C> <C>
Three months or less................................ $ 4,361 $ 991
Over three through six months....................... 826 --
Over six through twelve months...................... 1,651 --
Over twelve months.................................. 2,356 --
-------- --------
Total.............................................. $ 9,194 $ 991
======== ========
</TABLE>
95
<PAGE>
The following table sets forth the average balances and average interest
rates based on daily balances for deposits for the years indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1997 1996
---------------------- -------------------------
Average Average Average Average
Deposits Rate Deposits Rate
-------- -------- -------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Non-interest bearing demand
deposits....................... $ 13,421 --% $ 13,136 --%
Interest bearing demand deposits 14,062 3.42% 14,314 3.41%
Savings deposits................ 7,940 2.83% 8,210 2.78%
Time deposits................... 40,147 5.27% 39,618 5.37%
--------- ---------
Total deposits................. $ 75,570 3.73% $ 75,278 3.32%
========= =========
</TABLE>
REGULATION, SUPERVISION AND GOVERNMENTAL POLICY
The following is a brief summary of certain statutes, rules and regulations
affecting PBTC, Peoples Bank, Elmore County and Tallassee 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
PBTC and Elmore County are registered as bank holding companies under the
Holding Company Act and, as such, are subject to supervision and regulation by
the FRB. Bank holding companies are required to furnish to the FRB annual and
quarterly reports of their operations and to furnish such additional information
as the FRB may require pursuant to the Holding Company Act. PBTC and Elmore
County are also subject to regular examination by the FRB.
Under the Holding Company Act, a bank holding company must obtain the prior
approval of the FRB before (i) acquiring direct or indirect ownership or control
of any voting shares of any bank or bank holding company if, after such
acquisition, the bank holding company would directly or indirectly own or
control more than 5% of such shares; (ii) acquiring all or substantially all of
the assets of another bank or bank holding company; or (iii) 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.
Under the Holding Company Act, any company must obtain approval of the FRB
prior to acquiring control of a bank holding company, like PBTC and Elmore
County, or a commercial bank, like Peoples Bank and Tallassee Bank. For purposes
of the Holding Company Act, "control" is defined as ownership of more than 25%
of any class of voting securities of a bank holding company or a 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 a bank holding company
or a 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 PBTC or Elmore
County. 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.
96
<PAGE>
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 non-bank activities of PBTC and Elmore County 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 Alabama banking institutions, Peoples Bank and Tallassee Bank are
subject to regulation, supervision and regular examination by the Banking
Department. Peoples Bank is a member of the Federal Reserve System (a "state
member bank") and thus is subject to supervision and regular examination by the
FRB under applicable provisions of the Federal Reserve Act and the FRB's
regulations. As a state bank that is not a member of the Federal Reserve System
(a "state nonmember bank"), Tallassee Bank is subject to regulation, supervision
and regular examination by the FDIC under the applicable provisions of the
Federal Deposit Insurance Act and the FDIC's regulations. The deposits of
Peoples Bank and Tallassee 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, required
reserves, investments, loans, mergers and consolidations, issuance of
securities, payment of dividends, and establishment of branches and other
aspects of the operations of both Peoples Bank and Tallassee Bank.
The approval of regulatory authorities is required if the total of all the
dividends declared by Peoples Bank or Tallassee Bank in any calendar year
exceeds such bank's net income as defined for that year combined with its
retained net income for the preceding two calendar years. Peoples Bank has
obtained regulatory approval for the payment of dividends, as applicable. It is
currently expected that the Merchants & Planters acquisition will require prior
regulatory approval for the payment of dividends by Peoples Bank in the two
years subsequent to such acquisition.
Peoples Bank and Tallassee Bank are subject to various regulatory capital
requirements administered by the federal banking agencies, including applicable
capital adequacy guidelines for state member banks and state non-member banks,
respectively. 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 financial statements of
Peoples Bank, PBTC, Tallassee Bank and Elmore County. See "--Capital
Requirements."
Under joint regulations of the federal banking agencies, including the FRB
and FDIC, state member banks and state nonmember 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")
97
<PAGE>
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 a bank's 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 federally insured banks, Peoples Bank and Tallassee Bank are 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 1998 insurance assessment rates for BIF-insured banks like Peoples
Bank and Tallassee 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 and Tallassee Bank were
"well-capitalized" banks as of March 31, 1998.
In addition, the Deposit Insurance Funds Act of 1996 (the "1996 Act"),
which was enacted to recapitalize the SAIF, requires BIF-member banks to pay
supplemental assessments to assist in covering the annual payments on bonds
issued by the Financing Corporation ("FICO"). Through December 31, 1999, the
annual FICO assessment rate for BIF members is set at approximately .013% of
insured deposits, or one-fifth the rate applicable to SAIF members. From
December 31, 1999 until the retirement of the FICO bonds, BIF and SAIF members
will be subject to FICO assessments at the same rate.
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,
the FDIC 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, the FDIC 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.
Supervision, regulation and examination of the PBTC, Peoples Bank, Elmore
County and Tallassee Bank by the bank regulatory agencies are intended primarily
for the protection of depositors rather than for holders of PBTC or Elmore
County stock or of either holding company as the holder of the stock of their
respective bank subsidiaries.
CAPITAL REQUIREMENTS
The FRB has established guidelines with respect to the maintenance of
appropriate levels of capital by bank holding companies and state member banks,
and the FDIC has promulgated substantially similar capital adequacy regulations
for state nonmember banks. These capital regulations 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.
98
<PAGE>
The regulations of the FRB require bank holding companies and state member
banks, and the FDIC's regulations require state nonmember 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 and the FDIC require bank holding
companies and 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, with limited exceptions for mortgage servicing
rights and purchased credit card relationships. 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 bank holding companies and banks
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, the FDIC 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. The FRB, the FDIC and the other banking agencies have 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.
The FRB and the FDIC have 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 or
FDIC. As of March 31, 1998, Peoples Bank and Tallassee Bank were categorized as
"well-capitalized" under the prompt corrective action regulations.
99
<PAGE>
EFFECTS OF GOVERNMENTAL POLICY
The earnings and business of PBTC, Peoples Bank, Elmore County and
Tallassee 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 and Tallassee
Bank on their deposits and other borrowings and the interest received by Peoples
Bank and Tallassee Bank on loans extended to customers and securities held in
their investment portfolios comprises the major portion of their respective
earnings. The earnings and gross income of Peoples Bank and Tallassee 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 and
Tallassee Bank are not predictable.
BENEFICIAL OWNERSHIP OF PBTC COMMON STOCK
STOCK OWNERSHIP OF PBTC MANAGEMENT
The following table sets forth information as of June 1, 1998 with respect
to the shares of PBTC Common Stock beneficially owned by each director of PBTC,
including the named executive officers, and by all directors and executive
officers of PBTC as a group. This information is based on filings with the SEC
or information furnished to PBTC by such persons.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF PBTC
NATURE OF BENEFICIAL COMMON STOCK
NAME OWNERSHIP(1)(2) OUTSTANDING
- ---- --------------- -----------
<S> <C> <C>
Julius R. Brown 1,246 *
Clyde B. Cox, Jr. 14,160 *
Harry W. Gamble, Jr. 10,136 *
Ted M. Henry 11,131 *
Elam P. Holley, Jr. 19,538 *
Edith Morthland Jones (3) 182,325 5.32%
A. D. Lovelady 38,456 1.12%
Richard P. Morthland (3) 765,818 22.34%
Thomas E. Newton 1,400 *
David Y. Pearce 1,239 *
C. Ernest Smith 2,065 *
Julius E. Talton 102,110 2.98%
All directors and executive
officers as a group (4)
(19 persons) 1,339,505 38.94%
</TABLE>
- --------------------
* Less than 1% of the outstanding PBTC Common Stock.
(1) For purposes of this table and the table under "-- Principal Holders of
PBTC Common Stock," under the rules of the SEC, an individual is considered
to "beneficially own" any share of PBTC Common Stock which he, directly or
indirectly, through any contract, arrangement, understanding, relationship,
or otherwise, has or shares: (a) voting power, which includes the power to
vote, or to direct the voting of, such security; and/or (b) investment
power, which includes the power to dispose, or to direct the disposition
of, such security. In addition, an individual is deemed to be the
beneficial owner of any share of PBTC Common Stock of which he has the
right to acquire voting or investment power within 60 days of June 1, 1998.
100
<PAGE>
(2) Includes shares owned directly by directors and executive officers of
PBTC as well as shares held by their spouses and children, trusts of
which certain directors are trustees and corporations in which certain
directors own a controlling interest. Includes shares allocated to the
accounts of participants in the ESOP, and 11,600 shares of PBTC Common
Stock subject to outstanding options which are exercisable within 60 days
of June 1, 1998. Does not include 33,500 shares of PBTC Common Stock
subject to outstanding options granted to executive officers which are
not exercisable within 60 days of June 1, 1998, of which Richard P.
Morthland holds options for 9,400 shares and Elam P. Holley, Jr. holds
options for 6,600 shares.
(3) See "-- Principal Holders of PBTC Common Stock."
(4) Includes officers of PBTC and executive officers of Peoples Bank.
PRINCIPAL HOLDERS OF PBTC COMMON STOCK
The following table sets forth information as of June 1, 1998 with
respect to the persons believed by PBTC to be the beneficial owners of more than
5% of the PBTC Common Stock. This information is based on filings with the SEC
or information furnished to PBTC by such persons.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF PBTC COMMON
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP(1) STOCK OUTSTANDING
- ------------------- -------------------------- -----------------
<S> <C> <C>
Richard P. Morthland 765,818 (2) 22.34%
310 Broad Street
Selma, Alabama 36701
Ann Plant Morthland 432,279 (3) 12.61%
Rex J. Morthland
1027 Houston Park
Selma, Alabama 36701
Edith Morthland Jones 182,325 (4) 5.32%
432 Church Street
Selma, Alabama 36701
Mary Ann Morthland Patterson 164,329 (5) 4.79%
M. Scott Patterson
209 Church Street
Selma, Alabama 36701
The Peoples Bank and Trust Company 802,483 (6) 23.40%
310 Broad Street
Selma, Alabama 36701
</TABLE>
________________________
(1) See Note (1) to the table under" -- Stock Ownership of PBTC Management."
Except as disclosed in the Notes below, each of the following persons
disclaims that he or she is acting in concert with, or as a member of a
group consisting of, the other named individuals. Richard P. Morthland,
Edith Plant Morthland Jones and Mary Ann Morthland Patterson are the son
and daughters of Rex J. and Ann Plant Morthland.
(2) Included in such 765,818 shares are (a) 137,384 shares owned directly by
Richard P. Morthland, his spouse and a child; (b) 32,160 shares held by a
trust of which Richard P. Morthland is trustee; (c) 553,052 shares held
by three trusts of which Peoples Bank is trustee and under which Richard
P. Morthland has voting power; and (d) 40,322 shares held by a trust of
which Richard P. Morthland is co-trustee with Rex J. Morthland. See Notes
(3)(d) and (4) below. Also included in such 765,818 shares are 2,900
shares allocated to the account of Richard P. Morthland under the ESOP.
Such 765,818 shares do not include 9,400 shares of PBTC Common Stock
subject to outstanding options held by Mr. Morthland which are not
exercisable within 60 days of June 1, 1998, and 3,072 shares held by Mr.
Morthland's son as to which he disclaims beneficial ownership.
(3) Included in such 432,304 shares are (a) 62,050 shares owned directly by
Ann Plant Morthland; (b) 103,432 shares owned directly by Rex J.
Morthland; (c) 145,856 shares held by a trust of which Peoples Bank is
trustee and under which Ann Plant Morthland has voting power; and (d)
120,966 shares held by three trusts of which Rex J. Morthland is co-
trustee with Richard P. Morthland, Edith Morthland Jones and Mary Ann
Morthland Patterson, each as to 40,322 shares. See Note (2)(d) above and
Notes (4)(c), (5)(b) and (6) below.
(4) Included in such 182,290 shares are (a) 109,808 shares owned directly by
Edith Morthland Jones and her spouse and children; (b) 32,160 shares held
by a trust of which Edith Morthland Jones is trustee; and (c)a40,322
shares held by a trust of which Edith Morthland is co-trustee with Rex J.
Morthland. Such 182,290 shares do not include 2,797 shares and 165 shares
held by Mrs. Jones' son and stepson, respectively, as to which she
disclaims beneficial ownership. See Note (3)(d) above.
101
<PAGE>
(5) Included in such 164,329 shares are (a) 122,614 shares owned directly by
Mary Ann Morthland Patterson, her spouse, M. Scott Patterson, and a child;
(b) 40,322 shares held by a trust of which Mary Ann Morthland Patterson is
co-trustee with Rex J. Morthland; and (c) 1,393 shares allocated to the
account of M. Scott Patterson under the ESOP. Such 164,329 shares do not
include 19,120 shares held by the Pattersons' son as to which they disclaim
beneficial ownership and 4,700 shares of PBTC Common Stock subject to
outstanding options held by Mr. Patterson which are not exercisable within
60 days of June 1, 1998. See Note (3)(d) above.
(6) Peoples Bank is the trustee of four trusts for the benefit of members of
the Plant and Morthland families. Under these trusts Peoples Bank is
authorized to dispose of 698,908 shares, which are described in Notes
(2)(c) and (3)(c) above. Under other trusts Peoples Bank has dispositive
power with respect to 86,091 shares of PBTC Common Stock and shared voting
and dispositive power with respect to 16,674 shares of PBTC Common Stock.
BENEFICIAL OWNERSHIP OF ELMORE COUNTY COMMON STOCK
STOCK OWNERSHIP OF ELMORE COUNTY MANAGEMENT
The following table sets forth information as of June 1, 1998 with respect
to the shares of Elmore County Common Stock beneficially owned by each director
of Elmore County, including the named executive officer, and by all directors
and executive officers of Elmore County as a group. This information is based
on information furnished to Elmore County by such persons.
<TABLE>
<CAPTION>
AMOUNT AND PERCENT OF ELMORE COUNTY
NATURE OF BENEFICIAL COMMON STOCK
NAME OWNERSHIP(1)(2) OUTSTANDING
- ---- --------------- -----------
<S> <C> <C>
Arnold B. Dopson 40,704 7.35%
Charles B. Funderburk 18,860 3.40%
Daniel P. Wilbanks 19,720 3.56%
John I. Cottle, III 18,028 3.25%
Lloyd F. Emfinger, Jr. 17,560 3.17%
Carl W. Fuller 17,698 3.19%
O.C. Harden, Jr. 25,720 4.64%
Teddy O. Taylor 16,540 2.98%
All directors and executive 178,390 32.19%
officers as a group (4)
(9 persons)
</TABLE>
__________
(1) For purposes of this table and the table under "-- Principal Holders of
Elmore County Common Stock," under the rules of the SEC, an individual is
considered to "beneficially own" any share of Elmore County Common Stock
which he, directly or indirectly, through any contract, arrangement,
understanding, relationship, or otherwise, has or shares: (a) voting power,
which includes the power to vote, or to direct the voting of, such
security; and/or (b) investment power, which includes the power to dispose,
or to direct the disposition of, such security. In addition, an individual
is deemed to be the beneficial owner of any share of Elmore County Common
Stock of which he has the right to acquire voting or investment power
within 60 days of June 1, 1998.
(2) Includes shares owned directly by directors and executive officers of
Elmore County as well as shares held by their spouses and children, trusts
of which certain directors are trustees and corporations in which certain
directors own a controlling interest.
(3) See "-- Principal Holders of Elmore County Common Stock."
(4) Includes officers of Elmore County and executive officers of Tallassee
Bank.
102
<PAGE>
PRINCIPAL HOLDERS OF ELMORE COUNTY COMMON STOCK
The following table sets forth information as of June 1, 1998 with respect
to the persons believed by Elmore County to be the beneficial owners of more
than 5% of the Elmore County Common Stock. This information is based on
information furnished to Elmore County by such persons.
<TABLE>
<CAPTION>
PERCENT OF ELMORE COUNTY
NAME AND ADDRESS AMOUNT AND NATURE COMMON
OF BENEFICIAL OWNER OF BENEFICIAL OWNERSHIP STOCK OUTSTANDING
- ------------------- ----------------------- -----------------
<S> <C> <C>
The Roberts and Mildred Blount 149,400(1) 26.89%
Educational and Charitable Foundation, Inc.
c/o Regions Bank
60 Commerce Street
Montgomery, Alabama 36104
Arnold B. Dopson 40,704 7.35%
304 Barnett Boulevard
Tallassee, Alabama 36078
</TABLE>
________________________
(1) The Blount Foundation is an Alabama nonprofit corporation. In 1990, the
Blount Foundation and Elmore County entered into an Agreement for Sale of
Stock in which Elmore County agreed, subject to certain limitations, to
repurchase, at the Blount Foundation's option, all shares of Elmore County
Common Stock owned by the Blount Foundation (the "Put Option"). The Put
Option will not survive the Merger and become an obligation of PBTC as the
surviving entity. The Blount Foundation has also entered into an agreement
with PBTC providing that the Blount Foundation will not transfer the PBTC
Common Stock received by it in the Merger except in compliance with the
Securities Act and Accounting Series Releases of the SEC relating to the
"pooling of interests" method of accounting. Such commitment by the Blount
Foundation does not obligate it to vote for the Merger at the Elmore County
Special Meeting.
DATE FOR SUBMISSION OF PBTC SHAREHOLDER PROPOSALS
Any PBTC shareholder who intends to present a proposal for action at the
1999 annual meeting of the shareholders, to be held on or about April 13, 1999,
must forward a copy of the proposal or proposals to PBTC's principal executive
office. Any such proposal or proposals intended to be presented at the 1999
annual meeting of shareholders must be received by PBTC for inclusion in its
proxy statement and form of proxy relating to that meeting by November 20, 1998.
Nothing in this paragraph shall be deemed to require PBTC to include in its
proxy statement and proxy relating to the 1999 annual meeting any shareholder
proposal which does not meet all of the requirements for inclusion established
by the SEC in effect at the time such proposal is received.
LEGAL MATTERS
The legality of the PBTC Common Stock to be issued pursuant to, and the
federal income tax consequences of the transactions to be effected under, the
Merger Agreement will be passed upon for PBTC by Kutak Rock, Washington, D.C.
EXPERTS
The consolidated financial statements of The Peoples BancTrust Company,
Inc. and subsidiary as of December 31, 1997 and 1996 and for each of the years
in the three-year period ended December 31, 1997 included in this registration
statement have been included herein in reliance upon the report of Coopers &
Lybrand L.L.P., independent accountants, given on the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of Merchants & Planters Bancshares,
Inc. and subsidiary as of December 31, 1997 have been included herein and
elsewhere in the registration statement in reliance upon the report of
Donaldson, Holman & West, P.C., independent auditors, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
103
<PAGE>
The consolidated financial statements of Elmore County Bancshares, Inc.
and subsidiary as of December 31, 1997 and for the year ended December 31, 1997
have been included herein and elsewhere in the registration statement in
reliance upon the report of Wilson, Price, Barranco, Blankenship & Billingsley,
P.C., independent auditors, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
Representatives of Coopers & Lybrand L.L.P. and of Wilson, Price,
Barranco, Blankenship & Billingsley, P.C. are expected to be present at the PBTC
Special Meeting and the Elmore County Special Meeting, respectively, will have
the opportunity to make a statement if they desire to do so and are expected to
be available to respond to appropriate questions.
OTHER MATTERS
As of the date of this Joint Proxy Statement/Prospectus, the Boards of
Directors of Elmore County and PBTC know of no matters to be brought before
their respective Special Meetings other than those specifically listed in the
notices of the Special Meetings. However, if further business is properly
presented, the persons named in the accompanying proxy will vote such proxy as
determined by a majority of the Elmore County Board at the Elmore County Special
Meeting and a majority of the PBTC Board at the PBTC Special Meeting.
The Boards of Directors for Elmore County and PBTC urge each shareholder,
whether or not he or she intends to be present at the Special Meeting, to
complete, sign and return the enclosed proxy as promptly as possible.
<TABLE>
<S> <C>
By Order of the Board of Directors of By Order of the Board of Directors of
Elmore County Bancshares, Inc. The Peoples BancTrust Company, Inc.
_____________________________________ ________________________________________
Arnold B. Dopson M. Scott Patterson
Chairman of the Board Secretary
Tallassee, Alabama Selma, Alabama
________________________________, 1998 _________________________________, 1998
</TABLE>
104
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE PEOPLES BANCTRUST COMPANY, INC.
Report of Independent Accountants.................................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1996......................... F-3
Consolidated Statements of Income for the years ended
December 31, 1997, 1996 and 1995.................................................. F-4
Consolidated Statements of Changes in Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995...................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 and 1995.................................................. F-6
Notes to Consolidated Statement Financial Statements................................. F-7
Condensed Consolidated Balance Sheets at March 31, 1998 (unaudited).................. F-23
Condensed Consolidated Statements of Income for the three months
ended March 31, 1998 (unaudited) and 1997 (unaudited)............................. F-24
Condensed Consolidated Statements of Comprehensive Income
for the three months ended March 31, 1998 (unaudited)
and 1997 (unaudited).............................................................. F-25
Condensed Consolidated Statements of Cash Flows for the three months
ended March 31, 1998 (unaudited) and 1997 (unaudited)............................. F-25
Notes to Unaudited Condensed Consolidated
Financial Statements.............................................................. F-26
MERCHANTS & PLANTERS BANCSHARES, INC.
Independent Auditor's Report......................................................... F-29
Consolidated Balance Sheets as of December 31, 1997.................................. F-30
Consolidated Statement of Operations for the year ended December 31, 1997............ F-31
Consolidated Statement of Changes in Stockholders' Equity for the
year ended December 31, 1997...................................................... F-32
Consolidated Statement of Cash Flows for the year ended December 31, 1997............ F-33
Notes to Consolidated Financial Statements........................................... F-34
ELMORE COUNTY BANCSHARES, INC.
Independent Auditors' Report......................................................... F-43
Consolidated Statements of Condition as of December 31, 1997
and 1996 (unaudited).............................................................. F-44
Consolidated Statements of Income for the years ended December 31, 1997,
1996 (unaudited) and 1995 (unaudited)............................................. F-45
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1997, 1996 (unaudited) and 1995 (unaudited).......................... F-46
Consolidated Statements of Cash Flows for the years ended
December 31, 1997, 1996 (unaudited) and 1995 (unaudited).......................... F-47
Notes to Consolidated Financial Statements for the years ended
December 31, 1997, 1996 (unaudited) and 1995 (unaudited).......................... F-48
Condensed Consolidated Balance Sheets as of March 31, 1998 (unaudited)............... F-66
Condensed Consolidated Statements of Income for the three
months ended March 31, 1998 (unaudited) and 1997 (unaudited)...................... F-67
Condensed Consolidated Statements of Cash Flows for the three
months ended March 31, 1998 (unaudited) and 1997 (unaudited)...................... F-68
Notes to Consolidated Financial Statements (unaudited)............................... F-69
</TABLE>
All schedules are omitted because the required information is not applicable or
the required information is included in the Consolidated Financial Statements or
related Notes.
F-1
<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. (the Company) and subsidiary as of December 31, 1997 and
1996, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Peoples
BancTrust Company, Inc. and subsidiary as of December 31, 1997 and 1996, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand, L.L.P.
Birmingham, Alabama
February 6, 1998, except Note 18
as to which the date is March 6, 1998.
F-2
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
---- ----
<S> <C> <C>
Cash and due from banks $ 13,983,969 $ 18,102,785
Federal funds sold and securities purchased under agreements to resell 6,677,487 3,912,036
------------ ------------
Cash and cash equivalents 20,661,456 22,014,821
Available-for-sale securities 69,736,988 82,692,696
Loans, net of unearned discount 258,777,417 228,369,879
Allowance for loan losses (2,750,351) (2,484,122)
------------ ------------
Loans, net 256,027,066 225,885,757
Bank premises and equipment, net 6,588,765 5,962,551
Other real estate, net 243,124 167,587
Interest receivable 2,971,267 3,057,195
Intangible assets acquired, net of accumulated amortization of $2,404,982
and $2,341,152 at December 31, 1997 and 1996 respectively 665,565 718,050
Deferred income taxes 546,348 237,538
Other assets 3,921,700 2,564,926
------------ ------------
$361,362,279 $343,301,121
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand - noninterest bearing $ 49,896,822 $ 47,125,518
Demand - interest bearing 66,943,228 78,642,118
Savings 26,150,460 27,524,463
Time 155,117,733 135,093,063
------------ ------------
Total deposits 298,108,243 288,385,162
Federal funds purchased and securities sold under agreements to repurchase 13,642,411 11,924,708
Other borrowed funds 8,297,433 6,412,729
Deferred income taxes 85,425 85,425
Interest payable 1,319,898 1,109,645
Dividends payable 15,357 12,596
Income taxes payable 745,093 151,932
Other liabilities 1,915,758 1,033,452
------------ ------------
Total liabilities 324,129,618 309,115,649
------------ ------------
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock, $.10 par value; 9,000,000 and 4,000,000 shares authorized,
respectively; 3,475,146 and 1,781,452 shares issued, respectively (Note 3) 347,515 178,146
Additional paid-in capital 6,738,602 7,059,591
Unrealized loss on investments (net of tax benefits of $64,316 and
$112,954, respectively) (124,850) (219,265)
Retained earnings 31,407,359 28,454,585
Treasury stock, 71,410 and 87,758 shares, respectively, at cost (1,135,965) (1,287,585)
------------ ------------
Total stockholders' equity 37,232,661 34,185,472
------------ ------------
$361,362,279 $343,301,121
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Interest Income:
Interest and fees on loans and bankers acceptances $22,394,054 $20,030,577 $18,129,566
Interest and dividends on investment securities: 493,920 796,492 1,055,099
U.S. Treasury securities
Obligations of other U.S. Government agencies and corporations 3,143,085 2,798,078 3,534,840
Obligations of state and political subdivisions and industrial
development bonds:
Nontaxable 65,624 75,829 90,696
Taxable 40,091 42,745 49,268
Other securities and interest-bearing deposits 874,369 1,474,380 764,885
Interest on federal funds sold and securities purchased under
agreements to resell 406,780 446,668 416,270
----------- ----------- -----------
Total interest income 27,417,923 25,664,769 24,040,624
----------- ----------- -----------
Interest expense:
Interest on deposits 11,062,698 10,550,348 10,781,202
Interest on federal funds purchased, securities sold under
agreements to repurchase, and other borrowed funds 701,971 669,961 293,220
----------- ----------- -----------
Total interest expense 11,764,669 11,220,309 11,074,422
----------- ----------- -----------
Net interest income 15,653,254 14,444,460 12,966,202
Provision for loan losses 1,732,000 1,834,811 848,001
----------- ----------- -----------
Net interest income after provision for loan losses 13,921,254 12,609,649 12,118,201
----------- ----------- -----------
Noninterest income:
Trust department income 335,106 296,287 292,003
Service charges on deposit accounts 2,761,196 2,512,185 2,192,844
Net securities gains 78,245 51,454 41,755
Other 962,020 864,640 781,839
----------- ----------- -----------
Total noninterest income 4,136,567 3,724,566 3,308,441
----------- ----------- -----------
Noninterest expenses:
Salaries and wages 5,300,393 5,101,522 4,970,892
Pensions and other employee benefits 877,142 942,942 981,839
Occupancy and furniture and equipment expenses 1,568,922 1,347,674 1,252,866
Other operating expenses 4,353,053 3,716,120 3,795,188
----------- ----------- -----------
Total noninterest expenses 12,099,510 11,108,258 11,000,785
----------- ----------- -----------
Income before provision for income taxes 5,958,311 5,225,957 4,425,857
Provision for income taxes 1,955,447 1,643,116 1,278,064
----------- ----------- -----------
Net income $ 4,002,864 $ 3,582,841 $ 3,147,793
=========== =========== ===========
Earnings per share (Notes 3 and 11):
Basic net income per share $ 1.18 $ 1.06 $ 0.89
=========== =========== ===========
Diluted net income per share $ 1.17 $ 1.05 $ 0.89
=========== =========== ===========
Basic weighted average number of shares outstanding 3,387,433 3,387,388 3,523,514
=========== =========== ===========
Diluted weighted average number of shares outstanding 3,426,660 3,408,444 3,529,398
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
Common Additional Unrealized Retained
Stock Paid-In Capital Gains (Losses) Earnings Treasury Stock Total
----- --------------- -------------- -------- -------------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 89,073 $ 7,148,664 $(2,627,504) $23,500,041 $ (480,303) $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 7,059,591 (222,355) 25,786,339 (1,287,585) 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 7,059,591 (219,265) 28,454,585 (1,287,585) 34,185,472
Net Income 4,002,864 4,002,864
Change in unrealized gains
(losses) net of income taxes of
$48,638 94,415 94,415
Cash dividends declared ($.31
per share) (1,050,090) (1,050,090)
Options exercised (151,620) 151,620
Two-for-one stock split (Note 3) 169,369 (169,369)
-------- ------------ ------------ ------------ ------------ ------------
Balance, December 31, 1997 $347,515 $ 6,738,602 $ (124,850) $31,407,359 $(1,135,965) $37,232,661
======== ============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Operating activities:
Net income $ 4,002,864 $ 3,582,841 $ 3,147,793
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 1,732,000 1,834,811 848,001
Depreciation, amortization, and accretion 1,019,671 1,063,816 1,135,106
Decrease in unearned discount (1,146,941) (3,464,345) (1,481,468)
Deferred income taxes, net (357,447) (76,884) (439,439)
Gain on sale of securities (78,245) (51,454) (41,755)
Net gain on sale of other assets (107) (99,964)
Write down of other real estate 48,543 50,593
Decrease (increase) in assets:
Interest receivable 85,928 33,091 (489,332)
Other assets (1,402,121) 250,054 (57,662)
Increase (decrease) in liabilities:
Interest payable 210,253 (185,240) 474,827
Income taxes payable 593,162 (103,583) 735,551
Other liabilities 1,558,158 157,098 (249,663)
------------ ------------ ------------
Net cash provided by operating activities 6,217,282 3,088,641 3,532,588
------------ ------------ ------------
Investing activities:
Proceeds from sales of investment securities: held-to-maturity 241,717
Proceeds from maturities and calls of investment securities:
held-to-maturity 6,315,000
Purchases of investment securities: held-to-maturity (7,980,237)
Proceeds from sales of investment securities: available-for-sale 20,955,802 20,550,491 6,280,558
Proceeds from maturities and calls of investment securities:
available-for-sale 21,423,624 31,641,910 20,373,454
Purchases of investment securities: available-for-sale (29,252,680) (37,418,957) (16,483,310)
Net increase in loans (30,969,491) (35,254,649) (27,581,276)
Purchases of bank premises and equipment (2,058,494) (1,041,942) (1,870,992)
Proceeds from sale of other real estate and equipment 728,285 309,062 1,246,862
Investment in low income housing projects (675,852) (247,000) (553,000)
------------ ------------ ------------
Net cash used in investing activities (19,848,806) (21,461,085) (20,011,224)
------------ ------------ ------------
Financing activities:
Net increase in deposits 9,723,081 15,603,221 9,617,981
Increase in short-term borrowings 3,602,407 7,102,694 3,941,740
Dividends paid (1,047,329) (920,419) (854,510)
Purchase of treasury stock (807,282)
------------
Net cash provided by financing activities 12,278,159 21,785,496 11,897,929
------------ ------------ ------------
Increase (decrease) in cash and cash equivalents (1,353,365) 3,413,052 (4,580,707)
Cash and cash equivalents, beginning of year 22,014,821 18,601,769 23,182,476
------------ ------------ ------------
Cash and cash equivalents, end of year $ 20,661,456 $ 22,014,821 18,601,769
============ ============ ============
Supplemental disclosure of cash flow information: Cash paid during the year
for:
Interest $ 11,554,416 $ 11,405,549 $ 10,599,605
- -------- ============ ============ ============
Income taxes $ 1,729,000 $ 1,825,459 $ 1,145,007
- ------------ ============ ============ ============
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.
F-6
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC. AND SUBSIDIARY
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 sixteen offices in rural and
suburban communities in south-central Alabama. The Company's primary source
of revenue is providing loans to customers, who are predominately small and
middle-market businesses and middle-income individuals.
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Investment Securities - Investments are classified as either held-to-
maturity, trading, or available-for-sale securities.
Investment Securities: held-to-maturity are securities for which management
has the ability and intent to hold on a long-term basis or until maturity.
These securities are carried at amortized cost, adjusted for amortization
of premiums, and accretion of discounts to the earlier of the maturity or
call date.
Investment securities: available-for-sale represent those securities
intended to be held for an indefinite period of time, including securities
that management intends to use as part of its asset/liability strategy, or
that may be sold in response to changes in interest rates, changes in
prepayment risk, the need to increase regulatory capital or other similar
factors. Securities available-for-sale are recorded at market value with
unrealized gains and losses net of any tax effect, added or deducted
directly from stockholders' equity.
Securities carried in trading accounts are carried at market value with
unrealized gains and losses reflected in income.
At December 31, 1997 and 1996, the Company classified all securities as
available for sale as part of an asset and liability strategy to maximize
the flexibility of its investment portfolio.
Realized and unrealized gains and losses are based on the specific
identification method.
Loans - Loans are stated at face value, net of unearned discount and the
allowance for loan losses. Unearned discounts on installment loans are
recognized as income over the terms of the loans by the sum-of-the-months-
digits method, which approximates the interest method. Interest on other
loans is credited to operations based on the principal amount outstanding.
Nonrefundable fees and costs associated with originating or acquiring loans
are recognized by the interest method as a yield adjustment over the life
of the corresponding loan.
Allowance for Loan Losses - A loan is considered impaired, based on current
information and events, if it is probable that the Company will be unable
to collect the scheduled payments of principal or interest when due
according to the contractual terms of the loan agreement. Uncollateralized
loans are measured for impairment based on the present value of expected
future cash flows discounted at the historical effective interest rate,
while all collateral-dependent loans are measured for impairment based on
the fair value of the collateral.
F-7
<PAGE>
At December 31, 1997 and 1996, the recorded investment in loans for which
impairment has been recognized totaled $2,653,000 and $2,171,000,
respectively. These loans had a corresponding valuation allowance of
$572,000 at December 31, 1997 and $486,000 at December 31, 1996. The
impaired loans were measured for impairment using the fair value of the
collateral as approximately all of these loans were collateral dependent.
The average recorded investment in impaired loans during 1997 and 1996 was
approximately $2,412,000 and $2,450,000, respectively. The Company
recognized approximately $108,000 and $294,000 of interest on impaired
loans during the period that they were impaired during 1997 and 1996,
respectively.
The Company uses several factors in determining if a loan is impaired. The
internal asset classification procedures include a thorough review of
significant loans and lending relationships and include the accumulation of
related data. This data includes loan payment status, borrowers' financial
data, and borrowers' operating factors such as cash flows, operating income
or loss, etc.
The allowance for loan losses is established through charges to earnings in
the form of a provision for loan losses. Increases and decreases in the
allowance due to changes in the measurement of the impaired loans are
included in the provision for loan losses. Loans continue to be classified
as impaired unless they are brought fully current and the collection of
scheduled interest and principal is considered probable. When a loan or
portion of a loan is determined to be uncollectible, the portion deemed
uncollectible is charged against the allowance and subsequent recoveries,
if any, are credited to the allowance.
Management's periodic evaluation of the adequacy of the allowance is based
on the Bank's past loan loss experience, known and inherent risks in the
portfolio, adverse situations that may affect the borrowers' ability to
repay, estimated value of any underlying collateral, and current economic
conditions. While management believes that it has established the allowance
in accordance with generally accepted accounting principles and has taken
into account the views of its regulators and the current economic
environment, there can be no assurance that in the future the Bank's
regulators or its economic environment will not require further increases
in the allowance.
Income Recognition on Impaired and Nonaccrual Loans - Loans, including
impaired loans, are generally classified as nonaccrual if they are past due
as to maturity or payment of principal or interest for a period of more
than 90 days, unless such loans are well-collateralized and in the process
of collection. If a loan or a portion of a loan is classified as doubtful
or is partially charged off, the loan is generally classified as
nonaccrual. Loans that are on a current payment status or past due less
than 90 days may also be classified as nonaccrual if repayment in full of
principal and/or interest is in doubt.
Loans may be returned to accrual status when all principal and interest
amounts contractually due (including arrearages) are reasonably assured of
repayment within an acceptable period of time, and there is a sustained
period of repayment performance (generally a minimum of six months) by the
borrower, in accordance with the contractual terms of interest and
principal.
While a loan is classified as nonaccrual and the future collectibility of
the recorded loan balance is doubtful, collections of interest and
principal are generally applied as a reduction to principal outstanding,
except in the case of loans with scheduled amortizations where the payment
is generally applied to the oldest payment due. When the future
collectibility of the recorded loan balance is expected, interest income
may be recognized on a cash basis. In the case where a nonaccrual loan has
been partially charged off, recognition of interest on a cash basis is
limited to that which would have been recognized on the recorded loan
balance at the contractual interest rate. Receipts in excess of that amount
are recorded as recoveries to the allowance for loan losses until prior
charge-offs have been fully recovered.
Bank Premises and Equipment - Office equipment and buildings are stated at
cost less accumulated depreciation computed on the straight-line,
declining-balance and other accelerated methods over the estimated useful
lives of the assets. Gains or losses on disposition are recorded in other
operating income on the date of disposition, based upon the difference
between the net proceeds and the adjusted carrying value of the assets sold
or retired. Maintenance and repairs are charged to expense as incurred,
while renewals and betterments are capitalized. Estimated useful lives
range from seven to forty years for buildings and improvements and three to
five years for furniture and equipment.
F-8
<PAGE>
Other Real Estate - Other real estate is stated at the lower of the
appraised value or outstanding loan balance at the time of foreclosure. Any
subsequent write-downs are charged against operating expenses. Operating
expenses of such properties, net of related income, and gains and losses on
their disposition are included in other expenses.
Intangible Assets Acquired - Intangible assets acquired are stated at
original cost less accumulated amortization to date. Core deposits are
amortized using an accelerated method over a period of no more than ten
years; goodwill is amortized using the straight-line method over a period
of twenty 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 assets 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 - On December 31, 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, Earnings Per Share (SFAS 128),
which specifies the computation, presentation and disclosure requirements
for earnings per share (EPS). SFAS 128 replaces the presentation of primary
EPS with a presentation of basic EPS and requires dual presentation of
basic and diluted EPS on the face of the income statement for all entities
with complex capital structures. Diluted EPS is computed similarly to basic
EPS but considers the effect on the numerator and denominator of all
dilutive potential common shares that were outstanding during the year.
SFAS 128 also requires a reconciliation of the numerator and denominator of
the basic EPS computation to the numerator and denominator of the diluted
EPS computation. All prior year earnings per share data has been restated
to reflect the presentation required under SFAS 128.
Cash and Cash Equivalents - For purposes of reporting cash flows, cash and
cash equivalents include cash and due from banks, federal funds sold,
securities purchased under agreements to resell, and interest-bearing
deposits in banks.
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
December 31, 1997 and 1996.
3. Capital Stock
The Board of Directors declared two-for-one stock splits on May 20, 1997
and January 28, 1995, respectively. Each of these stock splits was effected
in the form of a 100 percent stock dividend to all shareholders of record
as of June 6, 1997 and February 25, 1995, the respective ex-dividend dates.
Common shares totaling 1,693,690 and 890,726 were distributed on June 16,
1997 and March 15, 1995, respectively, in connection with the splits. The
stated par value of each share was not changed from $0.10 in either case.
Amounts totaling $169,369 and $89,073, respectively, were 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 splits.
F-9
<PAGE>
4. Investment Securities
The amortized cost and approximate market values of investment securities:
available-for-sale at December 31, 1997 and 1996 are as follows:
1997
----
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Approximate
Type Amortized Cost Gains Losses Market Value
---- -------------- ----- ------ -------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 6,648,373 $ 3,013 $ (1,353) $ 6,650,033
Obligations of other U.S. Government 42,300,895 110,656 (25,691) 42,385,860
agencies and corporations
Obligations of state and political 1,894,974 11,662 (12,312) 1,894,324
subdivisions
Collateralized mortgage obligations 11,231,676 744 (79,771) 11,152,649
Mortgage-backed securities 157,276 (1,488) 155,788
Corporate and other securities 7,692,960 38 (194,664) 7,498,334
----------- -------- --------- -----------
$69,926,154 $126,113 $(315,279) $69,736,988
=========== ======== ========= ===========
</TABLE>
1996
----
<TABLE>
<CAPTION>
Gross Gross
Unrealized Unrealized Approximate
Type Amortized 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 41,477,832 120,694 (113,077) 41,485,449
agencies and corporations
Obligations of state and political 2,071,315 6,782 (28,430) 2,049,667
subdivisions
Collateralized mortgage obligations 16,932,128 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>
The amortized cost and approximate market value of investment securities:
available for sale at December 31, 1997, by contractual maturity, are shown
below. 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.
Securities Available for Sale
<TABLE>
<CAPTION>
Amortized Cost Market Value
---------------------------- ---------------------------
<S> <C> <C>
Due in one year or less $ 8,815,926 $ 8,821,751
Due after one year through five years 42,766,482 42,839,343
Due after five years through ten years 1,495,000 1,488,053
Due after ten years 111,422 112,412
--------------- --------------
53,188,830 53,261,559
Mortgage-backed securities 157,276 155,788
CMO's 11,231,676 11,152,649
Equity securities having no specified 5,348,372 5,166,992
due date --------------- --------------
Total $ 69,926,154 $ 69,736,988
=============== ==============
</TABLE>
F-10
<PAGE>
Included within corporate and other securities are $874,820 and $1,019,433 in
marketable equity securities at December 31, 1997 and 1996, respectively. Also
included within corporate and other securities are $2,585,200 and $1,442,300 of
Federal Home Loan Bank stock at December 31, 1997 and 1996, respectively, and
$240,550 of Federal Reserve Bank stock at December 31, 1997 and 1996,
respectively.
Proceeds from sales of debt securities during 1997, 1996, and 1995 were
$21,783,856, $20,962,585, and $12,595,558, respectively. Gross gains of
$116,416, $60,293, and $47,368, and gross losses of $38,171, $8,839, and $5,613
were realized on those sales for 1997, 1996, and 1995, respectively.
Securities with a par value of $47,278,748 and $44,893,013 were pledged as
collateral for public funds deposits and repurchase agreements at December 31,
1997 and 1996, respectively.
5. Loans
The major categories of loans at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Commercial and industrial $ 91,902,531 $ 82,001,008
Real estate mortgage 88,246,114 72,036,870
Personal 71,978,242 70,618,744
Overdrafts and credit line 7,035,756 5,245,424
-------------- --------------
259,162,643 229,902,046
-------------- --------------
Less:
Unearned discount 385,226 1,532,167
Allowance for loan losses 2,750,351 2,484,122
-------------- --------------
$ 256,027,066 $ 225,885,757
============== ==============
</TABLE>
The Bank's lending is concentrated throughout Dallas, Autauga, and Butler
counties in Alabama and repayment of these loans is, in part, dependent upon the
economic conditions in this region of the state. Management does 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 $16,481,000 and
$16,148,000 for 1997 and 1996, 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
extension of credit is based on management's credit evaluation of the customer.
Collateral held varies, but may include accounts receivable, inventory,
property, plant and equipment, residential real estate, and income-producing
commercial properties. No additional credit risk exposure relating to
outstanding loan balances exists beyond the amounts shown in the consolidated
balance sheets as of December 31, 1997.
Loans on which the accrual of interest has been discontinued or reduced amounted
to approximately $1,701,000 and $1,679,000 for 1997 and 1996, respectively. If
these loans had been current throughout their terms, interest income would have
increased approximately $54,000, $77,000, and $96,000 in 1997, 1996, and 1995,
respectively.
Changes in the allowance for possible loan losses were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $ 2,484,122 $ 2,004,891 $ 2,039,578
Provision charged to operations 1,732,000 1,834,811 848,001
Loans charged off (2,101,553) (1,939,221) (1,621,446)
Recoveries 635,782 583,641 738,758
---------- ---------- ----------
Balance, end of year $2,750,351 $2,484,122 $2,004,891
========== ========== ==========
</TABLE>
F-11
<PAGE>
6. Bank Premises and Equipment
Bank premises and equipment and accumulated depreciation at December 31,
1997 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Buildings $ 6,627,892 $ 6,248,375
Furniture and equipment 8,587,768 7,505,679
Land improvements 254,190 254,190
----------- -----------
15,469,850 14,008,244
Less accumulated depreciation 9,706,932 8,835,362
----------- -----------
5,762,918 5,172,882
Land 825,848 789,669
----------- -----------
$ 6,588,766 $ 5,962,551
=========== ===========
</TABLE>
7. Income Taxes
The Company and the Bank file a consolidated income tax return. The
consolidated provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
Federal State Total
------- ------ -----
<S> <C> <C> <C>
1997:
Current $ 1,895,679 $ 252,364 $ 2,148,043
Deferred (153,366) (39,230) (192,596)
-------------- ------------ --------------
$ 1,742,313 $ 213,134 $ 1,955,447
============== ============ ==============
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
============== ============ ==============
</TABLE>
Temporary differences and carryforwards which give rise to a significant
portion of deferred tax assets and liabilities at December 31 are as
follows:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Allowance for possible loan losses $ 546,370 $ 470,591
Other real estate owned writedowns 107,244 101,417
Other liabilities and reserves 134,914 208,947
Intangible assets 81,472 54,373
Bank premises and equipment (462,924) (455,198)
Investment securities (42,379) (64,235)
Other 96,226 (163,782)
---------- ----------
Deferred tax asset, net $ 460,923 $ 152,113
========== ==========
</TABLE>
F-12
<PAGE>
The provision for income taxes is different from the amount computed by
applying the federal income tax statutory rate to income before provision
for income taxes. The reasons for this difference, as a percentage of pre-
tax income, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal income tax statutory rate 34.0% 34.0% 34.0%
Nontaxable income on obligations of
state and political subdivisions (.6) (.9) (.6)
Amortization of intangible assets .4 .4 .5
State income taxes 2.0 2.1 1.8
Low income housing credit (5.1) (5.2) (3.7)
Other .4 1.0 (3.1)
---- ---- ----
Effective tax rate 31.1% 31.4% 28.9%
==== ==== ====
</TABLE>
8. Benefit Plans
The Company has a noncontributory defined benefit pension plan (the Plan)
covering substantially all of its employees. The Company's policy is to
contribute annually an amount that can be deducted for federal income tax
purposes using the projected unit credit method of actuarial computation.
Actuarial computations for financial reporting purposes are also based on
the projected unit credit method. Pension expense was $300,984, $238,216,
and $238,403 for 1997, 1996, and 1995, respectively.
The following schedule sets forth the Plan's funded status and amounts
recognized in the company's financial statements as of December 31, 1997
and 1996:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested benefits of $(3,598,973) and
$(4,273,614), respectively $(4,679,833) $(4,320,277)
============ ============
Projected benefit obligation for service rendered to date $(5,493,708) $(5,050,265)
Plan assets at fair value, primarily U.S. Treasury securities and common stocks 5,484,121 5,014,254
------------ ------------
Projected benefit obligation in excess of plan assets (9,587) (36,011)
Unrecognized net gain from past experience different from that assumed and effects
of changes in assumptions (55,356) (234,824)
Prior service cost not yet recognized in net periodic pension cost (333,777) 232,312
Unrecognized net asset at date of initial application (15.6 year life) (173,162) (232,375)
------------ ------------
Pension liability included in the consolidated balance sheets $ (571,882) $ (270,898)
============ ============
</TABLE>
Net pension cost for 1997, 1996, and 1995 includes the following components:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service costs of benefits earned during the period $ 331,059 $ 263,143 $ 232,876
Interest cost on projected benefit obligation 382,969 320,410 286,269
Actual return on plan assets (391,842) (324,135) (259,540)
Net amortization and deferral (21,202) (21,202) (21,202)
----------- ----------- -----------
$ 300,984 $ 238,216 $ 238,403
=========== =========== ===========
</TABLE>
F-13
<PAGE>
The weighted-average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7% for 1997, 1996,
and 1995. The rate of increase in future compensation levels used was 5%
for 1997 and 3.5% for 1996 and 1995. The expected long-term rate of return
was 8% for 1997 and 7% for 1996 and 1995.
During 1987, the Company established an Employee Stock Ownership Plan
(ESOP), a tax-qualified, defined contribution plan which covers
substantially all employees. Contributions are determined by the Board of
Directors of the Company. As of December 31, 1997 and 1996, the ESOP holds
62,344 and 55,158 shares (restated for stock split) of common stock in the
Company, respectively.
9. Commitments and Contingencies
The Bank leases certain buildings, equipment and land under noncancelable
operating leases which require various minimum annual rentals.
The total minimum rental commitment at December 31, 1997 under the leases
is as follows:
<TABLE>
<S> <C>
1998 $ 76,155
1999 57,765
2000 36,724
2001 9,600
2002 9,600
Thereafter 38,400
--------
$228,244
========
</TABLE>
The total rental expense was approximately $123,000, $93,000, and $76,000
in 1997, 1996, and 1995, 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, 1997 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 $6,584,366 and $8,578,373
at December 31, 1997 and 1996, respectively. A summary of the loan
activity with these related parties during 1997 is shown below:
<TABLE>
<S> <C>
Balance, beginning of year $ 8,578,373
Additions 4,223,171
Payments (6,217,178)
-----------
Balance, end of year $ 6,584,366
===========
</TABLE>
During 1997, 1996, and 1995, the Company paid legal fees of approximately
$143,000, $105,000, and $101,000, respectively, to a law firm in which a
partner of the firm serves on the board of directors of the Company.
F-14
<PAGE>
11. Earnings Per Share
The following table reflects the reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator
of the diluted EPS computation:
<TABLE>
<CAPTION>
For the year ended December 31, 1997
Income Shares Per-share
(Numerator) (Denominator) Amount
---------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $4,002,864 $3,387,433 $1.18
=====
Effect of dilutive securities
Stock options 39,227
---------- ----------
Diluted EPS $4,002,864 $3,426,660 $1.17
========== ========== =====
For the year ended December 31, 1996
Income Shares Per-share
(Numerator) (Denominator) Amount
--------------------- --------------------- ---------------------
Basic EPS
Income available to common stockholders $3,582,841 $3,387,388 $1.06
=====
Effect of dilutive securities
Stock options 21,056
---------- ----------
Diluted EPS $3,582,841 $3,408,444 $1.05
========== ========== =====
For the year ended December 31, 1995
Income Shares Per-share
(Numerator) (Denominator) Amount
--------------------- --------------------- ---------------------
Basic EPS
Income available to common stockholders $3,147,793 $3,523,514 $0.89
=====
Effect of dilutive securities
Stock options 5,884
---------- ----------
Diluted EPS $3,147,793 $3,529,398 $0.89
========== ========== =====
</TABLE>
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 two calendar years. The Bank obtained regulatory approval as
applicable for the payment of dividends in 1997, 1996, and 1995.
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 regulatory 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.
F-15
<PAGE>
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in
the table 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, 1997,
that the Company meets all capital adequacy requirements to which it is
subject.
As of December 31, 1997, 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 conditions 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
presented in the table.
<TABLE>
<CAPTION>
The Company
--------------------------------------------------------------------------
To Be Well Capitalized Under
For Capital Prompt
Actual Adequacy Purposes Correct Action Provisions
---------------- ------------------ ---------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ------ --------- ------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
Total Capital (to Risk $39,442 14.51% $21,237 8.00% $26,547 10.00%
Weighted Assets)
Tier 1 Capital (to Risk 36,692 13.50% 10,619 4.00% 15,928 6.00%
Weighted Assets)
Tier 1 Capital Ratio (to Average 36,692 10.91% 13,484 4.00% 16,855 5.00%
Assets)
As of December 31, 1996
Total Capital (to Risk 35,952 14.88% 19,324 8.00% 24,155 10.00%
Weighted Assets)
Tier 1 Capital (to Risk 33,468 13.86% 9,662 4.00% 14,493 6.00%
Weighted Assets)
Tier 1 Capital Ratio (to Average 33,468 10.42% 12,853 4.00% 16,067 5.00%
Assets)
</TABLE>
<TABLE>
<CAPTION>
The Bank
--------------------------------------------------------------------------
To Be Well Capitalized Under
For Capital Prompt
Actual Adequacy Purposes Correct Action Provisions
------ ----------------- -------------------------
Amount Ratio Amount Ratio Amount Ratio
-------- ----- --------- ------ ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997
Total Capital (to Risk $39,481 14.86% $21,261 8.00% $26,576 10.00%
Weighted Assets)
Tier 1 Capital (to Risk 36,731 13.82% 10,631 4.00% 15,946 6.00%
Weighted Assets)
Tier 1 Capital Ratio (to Average 36,731 10.50% 13,475 4.00% 16,644 5.00%
Assets)
As of December 31, 1996
Total Capital (to Risk 36,226 15.05% 19,263 8.00% 24,078 10.00%
Weighted Assets)
Tier 1 Capital (to Risk 33,742 14.01% 9,631 4.00% 14,447 6.00%
Weighted Assets)
Tier 1 Capital Ratio (to Average 33,742 10.51% 12,842 4.00% 16,052 5.00%
Assets)
</TABLE>
F-16
<PAGE>
13. Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock, par
value $0.10 per share, which have been designated as Non-cumulative Non-
voting Directors' Preferred Stock, Series A.
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 reflect the extent of involvement the
Bank has in particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts
do not necessarily represent future cash requirements. The Bank had
approximately $27,643,000 and $23,810,000 in commitments to extend credit
at December 31, 1997 and 1996, respectively. The Bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained if deemed necessary by the Bank upon extension of
credit is based on management's credit evaluation of the customer.
Collateral held varies, but may include accounts receivable, inventory,
property, plant and equipment, residential real estate and income-producing
commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing and similar transactions. The
credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers. The collateral
varies but may include accounts receivable, inventory, property, plant and
equipment and residential real estate for those commitments for which
collateral is deemed necessary. The Bank had approximately $2,378,000 and
$1,051,000 in irrevocable standby letters of credit at December 31, 1997
and 1996, 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
marketable equity securities, fair values are based on quoted market prices
or dealer quotes.
Loans - The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to
borrowers with similar credit ratings and for the same remaining
maturities.
Deposits - The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed-maturity certificates of deposit is estimated
using the rates currently offered for deposits of similar remaining
maturities.
Securities Sold Under Agreements to Repurchase and Other Borrowed Funds -
The carrying amount is a reasonable estimate of fair value.
F-17
<PAGE>
Commitments to Extend Credit and Standby Letters of Credit - The value of
these unrecognized financial instruments is estimated based on the fee
income associated with the commitments. Such fee income is not material to
the Company's financial statements at December 31, 1997 and 1996 and,
therefore, the fair value of these commitments is not presented.
The estimated fair values of the Company's financial instruments at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 20,661,456 $ 20,661,456 $ 22,014,821 $ 22,014,821
Investment securities: available for sale 69,736,988 69,736,988 82,692,696 82,692,696
Loans, net 256,027,066 259,176,991 225,885,757 225,283,808
------------ ------------ ------------ ------------
$346,425,510 $349,575,435 $330,593,274 $329,991,325
============ ============ ============ ============
Financial liabilities:
Deposits $298,108,243 $299,419,320 $288,385,162 $289,751,381
Securities sold under agreements to repurchase 4,642,411 4,642,411 4,924,708 4,924,708
Other borrowed funds 17,297,433 17,297,433 13,412,729 13,412,729
------------ ------------ ------------ ------------
$320,048,087 $321,359,164 $306,722,599 $308,088,818
============ ============ ============ ============
</TABLE>
16. Financial Accounting Developments
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENTS OF LIABILITIES - In June 1996, the Financial Accounting
Standards Board (FASB) issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities (SFAS
125). SFAS 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 allocating 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 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 FASB issued SFAS 127,
Deferral 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 125 relating to repurchase agreements, dollar-roll
transactions, deferred securities lending and similar transactions. The
effective date for all other transactions addressed by SFAS 125 is
unchanged. The Company adopted SFAS 125 as of January 1, 1997. The
adoption of SFAS 125 did not have a material impact on the Company's
financial statements.
REPORTING OF COMPREHENSIVE INCOME - In June 1997, the FASB issued SFAS No.
130, Reporting of Comprehensive Income (SFAS 130), which establishes
standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains, and losses) in a full set of
financial statements. This statement also 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.
This statement is effective for fiscal years beginning after December 15,
1997. Earlier application is permitted. Reclassification of financial
statements for earlier periods provided for comparative purposes is
required.
DISCLOSURE ABOUT SEGMENTS AND RELATED INFORMATION - In June 1997, the FASB
issued SFAS No. 131, Disclosures about Segments of an Enterprise and
Related Information (SFAS 131), which 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 stockholders. This statement also establishes standards
for
F-18
<PAGE>
related disclosures about products and services, geographic areas, and
major customers. This statement requires the reporting of financial and
descriptive information about an enterprise's reportable operating
segments.
This statement is effective for financial statements for periods beginning
after December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. 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. While the Company is segmented by geographic
divisions for managerial purposes, these segments are expected to meet the
aggregation criteria of SFAS 131.
PENSIONS AND OTHER POSTRETIREMENT BENEFITS - The FASB recently issued SFAS
No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits (SFAS 132) which changes current financial-statement disclosure
requirements from those that were required under SFAS 87, Employers'
Accounting for Pensions, SFAS 88, Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits,
and SFAS 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions.
Some of the more significant effects of SFAS 132 are that it:
i. Standardizes the disclosure requirements for pensions and other
postretirement benefits and presents them in one footnote.
ii. Requires that additional information be disclosed regarding changes
in the benefit obligation and fair values of plan assets.
iii. Eliminates certain disclosures that are no longer considered useful,
including general descriptions of the plans.
iv. Permits the aggregation of information about certain plans.
v. Provides reduced disclosure requirements for nonpublic entities.
SFAS 132 does not change the existing measurement or recognition provisions
of the above standards and is effective for fiscal years beginning after
December 15, 1997, though early application is permitted. The Company has
not yet adopted SFAS 132 but does not expect that adoption will have a
material impact on the Company's financial statements.
17. Stock Option Plan
As of December 31, 1997, the Company had one stock option plan (the Plan)
under which 200,000 shares of common stock have been reserved for issue to
certain employees and officers through incentive stock options. Options
granted under the Plan become exercisable after two years of continued
employment from the date of grant.
As permitted by SFAS 123, Accounting for Stock Based Compensation, the
Company applies APB Opinion 25, Accounting for Stock Issued to Employees,
and related Interpretations in accounting for the Plan. Accordingly no
compensation cost related to the Plan has been recognized. Had compensation
cost for the Plan been determined based on the fair value at the grant
dates for awards under the Plan consistent with the method of SFAS 123, the
Company's net income and earnings per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Net income
<S> <C> <C> <C>
As reported $4,002,864 $3,582,841 $3,147,793
Pro forma $3,960,330 $3,554,434 $3,136,196
</TABLE>
F-19
<PAGE>
<TABLE>
<S> <C> <C> <C>
Basic earnings per share
As reported $ 1.18 $ 1.06 $ 0.89
Pro forma $ 1.17 $ 1.05 $ 0.89
Diluted earnings per share
As reported $ 1.17 $ 1.05 $ 0.89
Pro forma $ 1.16 $ 1.04 $ 0.89
</TABLE>
The fair value of each option grant is estimated on the date of the grant
using the Black-Scholes option-pricing model. The following weighted-
average assumptions were used for options granted in 1997: dividend yield
of 0.97%; expected volatility of 40.33%; risk-free interest rate of 5.37%;
and expected life of 4.51 years. For options granted during both 1996 and
1995, the following weighted average assumptions were used: dividend yield
of 1.76%; expected volatility of 31.2%; risk-free interest rate of 5.02%;
and expected life of 8.76 years.
A summary of the status of the Company's plan as of December 31, 1997,
1996, and 1995, and changes during the years ending on those dates
(restated for stock split - see Note 3) is presented below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------- ----------------- ----------------------
Weighted Weighted
Average Average Weighted
Exercise Exercise Shares Average
Shares Price Shares Price Price Exercise
--------- -------- ------ ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 62,900 $ 8.05 46,700 $ 7.31 30,500 $7.11
Granted 16,200 15.88 16,200 10.18 16,200 7.69
Exercised (21,000) 7.48
-------- ------
Outstanding at end of year 58,100 10.44 62,900 8.05 46,700 7.31
======== ====== =======
Options exercisable at year-end 25,700 7.17 30,500 7.11 16,500 6.62
Weighted-average per share fair value of $5.03 $ 3.23 $ 2.31
options granted during the year
</TABLE>
The following table summarizes information about the Plan's stock options at
December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Weighted
Number Average Weighted Number Weighted
Outstanding at Remaining Average Exercisable at Average
Range of Exercise Prices 12/31/97 Contractual Life Exercise Price 12/31/97 Exercise Price
-------- ---------------- -------------- -------- --------------
<S> <C> <C> <C> <C> <C>
$6.39 7,500 7.70 years $ 6.39 7,500 $6.39
$7.69 18,200 9.53 years 7.50 18,200 7.50
$9.94 - $10.93 16,200 6.81 years 10.18
$15.50 - $17.05 16,200 6.82 years 15.88
------ ------
58,100 25,700
====== ======
</TABLE>
F-20
<PAGE>
18. Mergers
On March 6, 1998, the Company completed its acquisition of Merchants &
Planters Bancshares, Inc. (Merchants & Planters). In the acquisition,
shareholders of Merchants & Planters received $949.38 in cash for each
outstanding share of Merchants & Planters common stock (total consideration
of approximately $20,085,000). At December 31, 1997, Merchants & Planters
had assets of $66.3 million, deposits of $54.7 million and stockholders'
equity of $10.7 million. This merger will be accounted for as a purchase
method combination.
On December 11, 1997, the Company and Elmore County Bancshares, Inc.
(Elmore County), the holding company for The Bank of Tallassee, executed a
definitive agreement for the merger of Elmore County with and into the
Company. In the merger, the Company will issue shares of its common stock
in exchange for the outstanding common stock of Elmore County. Based on the
terms of the definitive agreement, it is currently estimated that the
Company will issue 1,719,990 shares of its common stock to the stockholders
of Elmore County. The actual number of shares to be issued in this
transaction are subject to an exchange ratio based on the audited book
value of Elmore County as of September 30, 1997. The acquisition is subject
to a number of conditions, including receipt of all regulatory and
shareholder approvals. At December 31, 1997, Elmore County had assets of
approximately $92.5 million, deposits of approximately $77 million and
stockholders' equity of approximately $14.8 million. This merger is
expected to be accounted for as a pooling of interests.
19. 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, 1997 and 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
---- ----
<S> <C> <C>
Cash* $ 128,705 $ 94,120
Investment in subsidiary bank, The Peoples Bank and Trust Company* 37,352,930 34,358,579
Other Assets 388,707 266,879
----------- -----------
Total assets $37,870,342 $34,719,578
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividends Payable $ 15,357 $ 12,596
Other Liabilities 622,324 521,510
----------- -----------
637,681 534,106
----------- -----------
Common stock, $.10 par value; 9,000,000 and 4,000,000 shares authorized, 347,515 178,146
respectively; 3,475,146 and 1,781,452 shares issued, respectively
Additional paid-in capital 6,738,602 7,059,591
Net unrealized loss on investments (net of tax benefits of $64,316 and (124,850) (219,265)
$112,954, respectively)
Retained Earnings 31,407,359 28,454,585
Treasury stock, 71,410 and 87,758 shares, respectively, at cost (1,135,965) (1,287,585)
----------- -----------
37,232,661 34,185,472
----------- -----------
Total liabilities and stockholders' equity $37,870,342 $34,719,578
=========== ===========
</TABLE>
*Eliminated in consolidation
F-21
<PAGE>
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Cash dividends received or receivable from subsidiary * $ 1,955,045 $ 1,716,000 $ 2,357,387
Equity in subsidiary's undistributed net income * 2,899,936 2,504,697 1,662,968
Other expense (852,117) (637,856) (872,562)
----------- ----------- -----------
Net Income 4,002,864 3,582,841 3,147,793
Retained earnings, beginning of period 28,454,585 25,786,339 23,500,041
Less: Cash Dividends declared 1,050,090 914,595 861,495
----------- ----------- -----------
Retained earnings, end of year $31,407,359 $28,454,585 $25,786,339
=========== =========== ===========
</TABLE>
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Operating activities
Net Income $ 4,002,864 $ 3,582,841 $ 3,147,793
Adjustments to reconcile net income to net cash provided by
operating activities: Undistributed income of subsidiary * (2,899,936) (2,504,697) (1,662,968)
Decrease (increase) in other assets (121,829) (208,229) 1,603
Increase in other liabilities 100,816 52,588 159,500
----------- ----------- -----------
Net cash provided by operating activities 1,081,915 922,503 1,645,928
----------- ----------- -----------
Financing activities:
Treasury stock purchased (807,282)
Dividends paid (1,047,330) (920,419) (854,510)
----------- ----------- -----------
Net cash used in financing activities (1,047,330) (920,419) (1,661,792)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 34,585 2,084 (15,864)
Cash and cash equivalents, beginning of year 94,120 92,036 107,900
----------- ----------- -----------
Cash and cash equivalents, end of year $ 128,705 $ 94,120 $ 92,036
=========== =========== ===========
</TABLE>
* Eliminated in consolidation.
F-22
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
In Thousands
(Unaudited)
March 31, 1998 December 31, 1997
----------------------- ------------------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 17,813 $ 13,984
Federal funds sold and securities purchased under
agreements to resell 37,585 6,677
-------- --------
Total cash and cash equivalents 55,398 20,661
Securities available-for-sale 94,954 69,737
Loans, net of unearned income 263,071 258,777
Allowance for loan losses (3,142) (2,750)
-------- --------
Net loans 259,929 256,027
Premises and equipment 8,635 6,589
Intangibles 10,283 666
other real estate, net 231 243
Other assets 8,409 7,439
-------- --------
Total assets $437,839 $361,362
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Noninterest-bearing deposits $ 55,826 $ 49,897
Interest-bearing deposits 308,899 248,211
-------- --------
Total deposits 364,725 298,108
Federal funds purchased and securities sold under
agreement to repurchase 4,159 13,642
Other borrowed funds 25,091 8,297
Other liabilities 5,546 4,082
-------- --------
Total liabilities 399,521 324,129
Common stock 348 348
Additional paid-in capital 6,521 6,739
Treasury stock (762) (1,136)
Retained earnings 32,152 31,407
Accumulated other comprehensive income,
net of tax 59 (125)
-------- --------
Total stockholders' equity 38,318 37,233
-------- --------
Total liabilities and stockholders' equity $437,839 $361,362
======== ========
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
F-23
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
In Thousands, except share and per share data
(Unaudited)
Three months ended March 31,
------------------------------------------------------
1998 1997
-------------------- --------------------
<S> <C> <C>
Interest and fees on loans $ 5,886 $ 5,212
Interest and dividends on investment securities 1,257 1,181
Other interest income 274 72
---------- ----------
Total interest income 7,417 6,465
Interest on deposits 3,069 2,662
Interest on borrowed funds 164 188
---------- ----------
Total interest expense 3,233 2,850
---------- ----------
Net interest income 4,184 3,615
Provision for loan losses 251 360
---------- ----------
Net interest income after provision for
loan losses 3,933 3,255
Net securities gains 14 12
Other income 1,081 947
Other expense 3,503 2,874
---------- ----------
Income before income taxes 1,525 1,340
Provision for income taxes 507 437
---------- ----------
Net income $ 1,018 $ 903
========== ==========
Basic weighted average number of
shares outstanding 3,418,062 3,387,388
========== ==========
Diluted weighted average number of shares
outstanding 3,439,206 3,418,414
========== ==========
Basic net income per share $ 0.30 $ 0.27
========== ==========
Diluted net income per share $ 0.30 $ 0.27
========== ==========
Dividends per share $ 0.08 $ 0.075
========== ==========
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
F-24
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
In Thousands
(Unaudited)
Three months ended March 31,
--------------------------------------------
1998 1997
------------------- --------------------
<S> <C> <C>
Net income $1,018 $ 903
Other comprehensive income:
Net unrealized gain (loss) on available-for-sale securities 275 (609)
Provision for (benefit of) income taxes related
to items of other comprehensive income 91 (201)
------ -----
Other comprehensive income (loss), net of tax 184 (408)
------ -----
Comprehensive income $1,202 $ 495
====== =====
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
THE PEOPLES BANCTRUST COMPANY, INC., AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
In Thousands
(Unaudited)
Three Months Ended March 31,
------------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Net cash provided by operating activities $ (1,699) $ 1,165
-------- --------
Cash flows from investing activities:
Proceeds from sales of securities available for sale 11,060 6,071
Proceeds from maturities and calls of securities
available for sale 12,175 7,657
Purchases of securities available for sale (18,992) (7,512)
Net decrease in loans 23,734 7,723
Purchases of bank premises and equipment (843) (371)
Investment in low income housing project (676) (338)
Investment in Merchants & Planters (net) (10,317) 0
-------- --------
Net cash provided by investing activities 16,141 13,230
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits 10,466 (8,981)
Net increase (decrease) in borrowed funds 6,705 (9,436)
Dividends paid (274) (254)
-------- --------
Net cash provided (used) by financing activities 16,897 (18,698)
-------- --------
Net increase (decrease) in cash and cash equivalents 34,737 (4,303)
Cash and cash equivalents at beginning of period 20,661 22,015
-------- --------
Cash and cash equivalents at March 31 $ 55,398 $ 17,712
======== ========
Supplemental disclosure of clash flow information:
Cash paid during the period for:
Interest $ 3,015 $ 2,673
Taxes $ 375 $ 370
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
F-25
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, 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.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial 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 $184,000 and
$(408,000) for the quarters ended March 31, 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 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, 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.
F-26
<PAGE>
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:
<TABLE>
<S> <C>
Cash and cash equivalents $ 9,768
Securities available-for-sale 29,435
Loans, net 27,703
Premises and equipment 1,733
Intangibles 9,502
Other assets 632
Deposits (56,151)
Other borrowed funds (606)
Other liabilities (1,931)
--------
Cash paid $ 20,085
========
</TABLE>
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:
<TABLE>
<CAPTION>
In Thousands, except per share data
Three Months Ended
-------------------------------------------------
March 31, 1998 March 31, 1997
---------------------- ----------------------
<S> <C> <C>
Net interest income $4,404 $3,922
Net income $ 861 $ 757
Diluted earnings per share $ 0.25 $ 0.22
</TABLE>
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
quarters ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
Per Share
Income Shares Amount
--------------- --------------- ---------------
<S> <C> <C> <C>
1998
- ----
Basic EPS net income $1,018 3,418 $0.30
=====
Effect of dilutive securities options 21
------ -----
Diluted EPS $1,018 3,439 $0.30
====== ===== =====
1997
- ----
Basic EPS net income $ 903 3,387 $0.27
Effect of dilutive securities options 31 =====
------ -----
Diluted EPS $ 903 3,418 $0.27
====== ===== =====
</TABLE>
F-27
<PAGE>
Donaldson, Holman & West, P.C.
Certified Public Accountants . Business and Financial Consultants
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Merchants & Planters Bancshares, Inc.
Montevallo, Alabama
We have audited the accompanying consolidated balance sheet of Merchants &
Planters Bancshares, Inc. and Subsidiary as of December 31, 1997, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Merchants & Planters
Bancshares, Inc. and Subsidiary as of December 31, 1997, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
/s/ Donaldson, Holman & West, P.C.
January 12, 1998
F-28
<PAGE>
MERCHANTS & PLANTERS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997
<TABLE>
<CAPTION>
Assets
------
<S> <C>
Cash and due from banks $ 1,933,987
Federal funds sold 3,405,000
------------
Total cash and cash equivalents 5,338,987
Investment securities
Available for sale 15,304,302
Held to maturity 16,505,923
Loans, less allowance for loan losses 27,980,377
Property and equipment, net 367,931
Accrued interest receivable 683,545
Other assets 162,823
------------
$ 66,343,888
============
Liabilities and Stockholders' Equity
------------------------------------
Deposits
Demand $ 5,800,282
Interest bearing demand 4,091,054
Now accounts 6,065,540
Savings 12,277,443
Time deposits $100,000 and over 2,342,665
Other time deposits 24,216,028
-----------
54,793,012
Accrued interest, taxes, and other liabilities 892,393
-----------
Total liabilities 55,685,405
-----------
Commitments and contingent liabilities (Note 7)
Stockholders' equity
Common stock, $1 par value, 24,000 shares
authorized, 23,165 shares issued and 21,156
outstanding 23,165
Preferred stock, $50 par value, 28 shares
authorized,issued, and outstanding 1,400
Additional paid-in capital 1,097,510
Retained earnings 9,796,403
Unrealized gain on securities available for sale 77,633
Treasury stock, 2,009 shares, at cost (337,628)
-----------
Total stockholders' equity 10,658,483
-----------
$66,343,888
===========
</TABLE>
F-29
<PAGE>
MERCHANTS & PLANTERS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Interest income
Interest and fees on loans $2,601,258
Interest on investment securities
U.S. treasury securities 591,195
Obligations of other U.S. government agencies 995,559
Obligations of state and political subsidiaries 466,534
Other securities 12,652
Interest on federal funds sold 141,118
----------
4,808,316
Interest expense
Interest on deposits 2,296,974
----------
Net interest income 2,511,342
Provision for loan losses 38,400
----------
Net interest income after provision for loan losses 2,472,942
Noninterest income
Net gain on sale of securities 5,978
Service fees 305,528
Other 63,519
----------
375,025
----------
Noninterest expense
Salaries and employee benefits 1,009,662
Occupancy and equipment 164,728
Other operating expense 473,604
----------
1,647,994
----------
Income before income taxes 1,199,973
Income taxes 343,396
----------
Net income $ 856,577
==========
Net income per share of common stock $ 40.48
==========
Weighted average shares outstanding 21,159
==========
</TABLE>
See accompanying notes.
F-30
<PAGE>
MERCHANTS & PLANTERS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON INVESTMENT
COMMON STOCK PREFERRED STOCK ADDITIONAL SECURITIES
--------------- ------------------
PAR PAR PAID-IN RETAINED AVAILABLE TREASURY
SHARES VALUE SHARES VALUE CAPITAL EARNINGS FOR SALE STOCK TOTAL
------ ------- ------ ------ ---------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance
Beginning of year 23,165 $23,165 28 $1,400 $1,097,510 $9,098,566 $21,685 $(325,694) $ 9,916,632
Net income - - - - - 856,577 - - 856,577
Dividends paid
Common stock - - - - - (158,670) - - (158,670)
Preferred Stock - - - - - (70) - - 70
Purchase of treasury stock - - - - - - - (11,934) (11,934)
Change in unrealized gain
on investments - - - - - - 55,948 - 55,948
------ ------- ------ ------ ---------- ---------- --------- --------- ------------
End of year 23,165 $23,165 28 $1,400 $1,097,510 $9,796,403 $77,633 $(337,628) $10,658,483
====== ======= ====== ====== ========== ========== ========= ========= ============
</TABLE>
F-31
<PAGE>
MERCHANTS & PLANTERS BANCSHARES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities
Net income $ 856,577
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization 71,948
Provision for loan losses 38,400
Deferred income taxes (10,397)
Gain on sale of securities (5,978)
Changes in operating assets and liabilities
Decrease in other assets 52,449
Increase in accrued interest receivable (13,387)
Increase in accrued interest, taxes and other liabilities 152,971
-------------
Net cash provided by operating activities 1,142,583
Cash flows from investing activities
Maturities and redemptions of securities available-for sale 5,026,007
Maturities and redemptions of securities held-to-maturity 3,484,064
Purchases of available-for-sale securities (4,896,281)
Purchases of securities held-to-maturity (1,540,674)
Net increase in loans (1,623,238)
Purchases of property and equipment (32,630)
-------------
Net cash provided by investing activities 417,248
Cash flows from financing activities
Net (decrease) in deposits (83,212)
Dividends paid (158,740)
Purchase of treasury stock (11,934)
-------------
Net cash used in financing activities (253,886)
-------------
Net increase in cash and cash equivalents 1,305,945
Cash and cash equivalents
Beginning of year 4,033,042
-------------
End of year $ 5,338,987
=============
Supplemental disclosure of cash flow information
Interest paid $ 2,287,027
=============
Income taxes paid $ 351,498
=============
</TABLE>
See accompanying notes.
F-32
<PAGE>
MERCHANTS & PLANTERS BANCSHARES, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is a one-bank holding company, which operates in Montevallo,
Alabama. The Company's primary source of revenue is providing loans to
individuals and business in the Shelby County area of Alabama.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of the Company and its
consolidated subsidiary, Merchants & Planters Bank. All significant intercompany
accounts and transactions have been eliminated.
CASH EQUIVALENTS
For purposes of reporting cash flows, the cash and cash equivalents include cash
on hand, amounts due from banks, and federal funds sold.
INVESTMENT SECURITIES
Investment securities are comprised of securities classified as available for
sale and held to maturity, in conjunction with the adoption of FASB 115,
resulting in investment securities available for sale being carried at market
value and investment securities held to maturity being carried at cost, adjusted
for amortization of premiums and accretion of discounts.
Gains or losses on disposition are based on the net proceeds and the adjusted
carrying amount of the securities sold, using the specific identification
method.
LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans are stated at the amount of unpaid principal, reduced by allowance for
loan losses. Loans are charged against the allowance for loan losses when
management believes that the
F-33
<PAGE>
collectibility of the principal is unlikely. The allowance is an amount that
management believes will be adequate to absorb possible losses on existing loans
that may become uncollectible, based on evaluations of the collectibility of
loans and prior loan loss experience. The evaluations take into consideration
such factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current economic
conditions that may affect the borrowers' ability to pay. Accrual of interest is
discontinued on a loan when management believes, after considering economic and
business conditions and collection efforts, that the borrowers' financial
condition is such that collection of interest is doubtful. Fees and related
costs on loans are amortized over the term of the loan as required by generally
accepted accounting principles.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation computed
principally on the straight-line and the declining balance method over the
estimated useful lives of the assets, which are 30 years for building, 3 to 20
years for furniture and equipment. Expenditures for maintenance and repairs are
expensed as incurred while renewals and betterments are capitalized.
Depreciation expense for 1997 was $71,948.
INCOME TAXES
The tax effect of transactions is recorded at current tax rates in the periods
the transactions are reported for financial statement purposes. Deferred income
taxes are established for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled. The Company files its federal income tax returns on a consolidated
basis and its state income tax returns on a separate basis.
NOTE 2 - PENDING MERGER
Merchants and Planters Bancshares, Inc. and The Peoples BancTrust Company, Inc.
entered into an agreement to merge the two companies. The agreement provides
that, upon consummation of the merger, each outstanding share of Merchants &
Planters Bancshares, Inc. common stock shall be automatically cancelled and
cease to be an issued and outstanding share of Bancshares common stock, and
converted into and represent only the right to receive from The Peoples
BancTrust Company, Inc. $949.38 per share. The merger will be accounted for as a
purchase. The merger is subject to regulatory and shareholder approval and is
anticipated to be consummated in March 1998.
F-34
<PAGE>
NOTE 3 - INVESTMENT SECURITIES
Amortized costs and approximate market values of investment securities are
summarized as follows at December 31, 1997.
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Held to maturity
Obligations of other U.S.
government agencies and
corporations $ 10,713,323 $ 97,519 $ (25,603) $ 10,785,239
Other securities 5,792,600 108,415 (5,977) 5,895,038
------------ ---------- ------------ ------------
16,505,923 205,934 (31,580) 16,680,277
------------ ---------- ------------ ------------
Available-for-sale-securities
U.S. Treasury Securities 7,739,694 46,530 (7,920) 7,778,304
Obligations of other U.S.
government agencies and
corporations 4,589,668 36,431 (4,124) 4,621,975
Other securities 2,849,726 85,723 (31,426) 2,904,023
------------ ---------- ------------ ------------
15,179,088 168,684 (43,470) 15,304,302
------------ ---------- ------------ ------------
$ 31,685,011 $ 374,618 $ (75,050) $ 31,984,579
============ ========== ============ ============
</TABLE>
The amortized costs and approximate market values of investment securities at
December 31, 1997, by expected maturity are shown below. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Held-to-maturity securities Available-for-sale securities
------------------------------------- -----------------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
----------------- ---------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Due in one year or less $ 2,960,443 $ 2,957,287 $ 2,398,531 $ 2,371,291
Due from one to five years 3,947,047 4,018,999 8,604,142 8,651,795
Due from five to ten years 2,598,669 2,622,108 2,177,532 2,237,595
Due after ten years 704,494 716,517 500,000 521,512
------------ ------------ ------------ ------------
10,210,653 10,314,911 13,680,205 13,782,193
Mortgage backed securities 6,295,270 6,365,366 1,498,884 1,522,109
------------ ------------ ------------ ------------
$ 16,505,923 $ 16,680,277 $ 15,179,089 $ 15,304,302
============ ============ ============ ============
</TABLE>
Securities carried at approximately $5,483,846 were pledged to secure deposits
and for other purposes.
F-35
<PAGE>
NOTE 4 LOANS AND ALLOWANCE FOR LOAN LOSSES
A summary of loan classification at December 31, 1997 as follows:
<TABLE>
<S> <C>
Commercial $ 4,593,062
Real estate 18,129,305
Installment 5,287,155
Credit card 396,599
-----------
28,406,121
Allowance for loan losses (425,744)
-----------
$27,980,377
===========
</TABLE>
Changes in the allowance for loan losses for the year ended December 31, 1997,
were as follows:
<TABLE>
<S> <C>
Balance
Beginning of year $ 384,680
Provision for loan losses 38,400
Recoveries on loans previously charged off 26,284
Loans charged off (23,620)
-----------
End of year $ 425,744
===========
</TABLE>
Most of the Company's business activity is with customers located within Shelby
County, Alabama. As of December 31, 1997, the Company had a concentration of
credit risk aggregating approximately $18,129,305 in loans secured by real
estate.
NOTE 5 - PROPERTY AND EQUIPMENT
A summary of property and equipment at December 31, 1997, follows:
<TABLE>
<S> <C>
Land $ 70,090
Building and improvements 801,742
Furniture and equipment 876,299
----------
Total cost 1,748,131
Less accumulated depreciation 1,380,200
----------
Net book value $ 367,931
==========
</TABLE>
Total depreciation expense for December 31, 1997, was $71,948.
F-36
<PAGE>
NOTE 6 - INCOME TAXES
The components of income tax expense for the year ended December 31, 1997, is as
follows:
<TABLE>
<S> <C>
Current tax provision
Federal $ 295,998
State 57,795
----------
353,793
Deferred tax provision
Federal (9,303)
State (1,094)
-----------
(10,397)
-----------
$ 343,396
===========
</TABLE>
The effects of temporary differences that give rise to significant portions of
the deferred tax assets and deferred tax liabilities at December 31, 1997, are
presented below:
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for loan losses $ 123,054
Fixed Assets 2,389
Market valuation reserve 11,070
Loss on foreclosures 45,600
----------
182,113
Deferred tax liabilities:
Market valuation reserve (58,651)
----------
$ 123,462
==========
</TABLE>
A reconciliation of income tax computed at the federal statutory income tax rate
to total income taxes is as follows for the year ended December 31, 1997:
<TABLE>
<S> <C>
Pre-tax income $ 1,199,973
===========
Income tax computed at federal statutory rate $ 407,991
Increase (decrease) resulting from:
Nondeductible expenses 35,287
State income taxes, net of federal benefit 54,408
Tax exempt interest (144,746)
Other, net (9,544)
-----------
$ 343,396
===========
</TABLE>
F-37
<PAGE>
NOTE 7 - OTHER FINANCIAL INSTRUMENTS, COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit, commercial
letters of credit and standby letters of credit. Such financial instruments are
recorded in the financial statements when they are funded or related fees are
incurred or received. At December 31, 1997, commitments under standby letters of
credit and guarantees aggregated $22,200.
The Company is not a defendant in legal actions arising from normal business
activities.
NOTE 8 - RELATED PARTY TRANSACTIONS
Certain officers, directors, and principal shareholders, were indebted to the
Company at December 31, 1997, in the aggregate amount of $1,707,445.
NOTE 9 - RESTRICTIONS ON RETAINED EARNINGS
The Company is subject to certain restrictions on the amount of dividends that
it may declare without prior regulatory approval. At December 31, 1997,
approximately $2,078,390 of retained earnings was available for dividend
declarations without prior regulatory approval.
NOTE 10 - PROFIT SHARING PLAN
The Company has a 401(k) profit sharing plan (the Plan) which it has offered to
employees who have met certain eligibility requirements. Contributions under the
Plan are discretionary and are determined annually by the Company's Board of
Directors. The Company's contributions to the Plan totaled $42,276 for the year
ended December 31, 1997.
NOTE 11 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair value and the related carrying
values of the Company's financial instruments at December 31, 1997. Items, which
are not financial instruments, are not included.
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
------------ -------------
<S> <C> <C>
Cash and due from banks $ 1,933,987 $ 1,933,987
Federal funds sold 3,405,000 3,405,000
Investment securities available for sale 15,179,089 15,304,302
Investment securities held to maturity 16,505,923 16,680,277
Loans, net of allowance for loan losses 27,980,377 28,309,020
Accrued interest receivable 683,545 683,545
Deposit liabilities 54,793,012 54,688,175
</TABLE>
F-38
<PAGE>
For purposes of the above disclosures of estimated fair value, the following
assumptions were used as of December 31, 1997. The estimated fair value for cash
and due from banks and federal funds sold is considered to approximate cost. The
estimated fair value for investment securities are based on quoted market values
for the individual securities or for equivalent securities. In the case of fixed
and annually adjustable rate loans, the prevailing market rates in effect as of
December 31, 1997, for similar loans with similar maturities, were used as
discount rates in calculating the present values of these loans. For financial
assets and liabilities whose interest rates are contractually precluded from
floating directly with market rates, market values are calculated in all cases
as the present value of anticipated future cash flows, discounted using an
appropriate rate. Market values for time deposits likewise represent the sum of
discounted future cash flows where the discount rates are market value
certificate of deposit rates for the various maturities then prevailing at
December 31, 1997.
While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Company to have
disposed of such items at December 31, 1997, the estimated fair values would
necessarily have been achieved at that date, since market values may differ
depending on various circumstances. The estimated fair values at December 31,
1997, should not necessarily be considered to apply at subsequent dates.
In addition, other assets and liabilities of the Company that are not defined as
financial instruments are not included in the above disclosures. Also, non-
financial instruments are typically not recognized in the financial statements
nevertheless may have value but are not included in the above disclosures. These
include the estimated earning power of core deposit accounts, the trained work
force, customer goodwill and similar items.
NOTE 12 - REGULATORY MATTERS
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
regulatory framework for prompt corrective action, the Company must meet
specific capital guidelines that involve quantitative measures of the Company's
assets and liabilities 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
require the Company to maintain minimum amounts and ratios (set forth in the
table below) and Tier 1 capital (as defined in the regulations) to risk weighted
assets (as defined). Management believes, as of December 31, 1997, that the
Company meets all capital adequacy requirements to which it is subject.
F-39
<PAGE>
<TABLE>
<CAPTION>
For Capital
Actual Adequacy Purposes:
------------------------- ----------------------------
Amount Ratio Amount Ratio
----------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets) $ 10,921,376 36.2% $ 2,416,080 greater than 8.0%
Tier I Capital
(to Risk Weighted Assets) $ 10,542,631 34.9% $ 1,208,040 greater than 4.0%
Tier I Capital
(to Average Assets) $ 10,542,631 15.9% $ 2,647,400 greater than 4.0%
<CAPTION>
To Be Well Capitalized
Under Prompt Corrective
Action Provisions:
-----------------------------------
Amount Ratio
------------- ---------------
<S> <C> <C>
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets) $ 3,020,100 greater than 10.0%
Tier I Capital
(to Risk Weighted Assets) $ 1,812,060 greater than 6.0%
Tier I Capital
(to Average Assets) $ 3,309,250 greater than 5.0%
</TABLE>
NOTE 13 - MERCHANTS & PLANTERS BANCSHARES, INC. (PARENT COMPANY ONLY)
Presented below and on the following pages are the financial statements of
Merchants & Planters Bancshares, Inc.:
Statement of Financial Condition
December 31, 1997
<TABLE>
Assets
<S> <C>
Cash* $ 9,089
Investment in subsidiary, net of valuation
reserve of $77,633* 10,647,994
-----------
$10,657,083
===========
Liabilities and Stockholders' Equity
Stockholders' equity
Common stock $1 par value, 24,000
shares authorized, 23,165 shares
issued and 21,156 shares outstanding $ 23,165
Additional paid-in capital 1,097,510
Retained earnings 9,796,403
Unrealized gain on investments 77,633
Treasury stock, 2,009 shares, at cost (337,628)
------------
$ 10,657,083
============
</TABLE>
____________________
*Eliminated during consolidation.
F-40
<PAGE>
Statement of Income
Year ended December 31, 1997
<TABLE>
<S> <C>
Cash dividends received from subsidiary* $ 213,950
Equity in undistributed earnings of subsidiary* 681,802
Expenses
Professional fees 37,884
Travel 1,109
Taxes 252
-------------
39,245
-------------
Net income $ 856,507
=============
Statement of Retained Earnings
Year ended December 31, 1997
Retained earnings
Beginning of year $ 9,098,566
Net income 856,507
Less dividends paid 158,670
-------------
End of year $ 9,796,403
=============
Statement of Cash Flows
Year ended December 31, 1997
Cash flows from operating activities
Net income $ 856,507
Adjustments to reconcile net income
provided by operating activities
Undistributed earnings of subsidiary* (681,802)
------------
Net cash provided by operating activities 174,705
Cash flows from investing activities
Purchase of treasury stock (11,934)
Cash flows from financing activities
Dividends paid (158,670)
------------
Net increase in cash 4,101
Cash
Beginning of year 4,988
------------
End of year $ 9,089
============
</TABLE>
____________________________
* Eliminated during consolidation.
F-41
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors and Stockholders
Elmore County Bancshares, Inc.
We have audited the accompanying consolidated statements of condition of Elmore
County Bancshares, Inc., and its subsidiary, as of December 31, 1997, and the
related consolidated statements of income, stockholders' equity, and cash flows
for the year then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Elmore County
Bancshares, Inc. and its subsidiary, as of December 31, 1997, and the results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
/s/ Wilson, Price, Barranco,
Blankenship & Billingsley, P.C.
March 6, 1998
F-42
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CONDITION
DECEMBER 31, 1997 AND 1996 (unaudited)
<TABLE>
<CAPTION>
1997 1996
(unaudited)
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks $ 2,337,671 $ 2,633,305
Federal funds sold 2,800,000 400,000
------------- -------------
Total cash and cash equivalents 5,137,671 3,033,305
------------- -------------
Available-for-sale securities 9,351,413 14,602,916
Held-to-maturity securities 27,920,893 26,204,610
Loans:
Loans, net of unearned income 46,955,827 40,931,457
Allowance for loan losses (695,188) (689,228)
------------- -------------
Loans, net 46,260,639 40,242,229
------------- -------------
Premises and equipment, net 1,434,000 1,503,848
Interest receivable 1,172,313 1,120,783
Other real estate 155,001 358,284
Cash value of life insurance 636,315 738,082
Deferred income tax asset 268,640 267,903
Prepaid income taxes 5,012 -
Intangible assets, net - 121,184
Other assets 122,935 245,938
------------- -------------
TOTAL ASSETS $ 92,464,832 $ 88,439,082
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand $ 14,388,557 $ 12,573,177
Interest-bearing demand 14,228,184 14,174,641
Savings 7,667,380 7,940,361
Time 40,488,973 39,193,204
------------- -------------
Total deposits 76,773,094 73,881,383
Deferred income tax liability 65,202 67,815
Dividends payable 139,142 139,095
Interest payable 369,745 392,432
Income taxes payable - 91,369
Other liabilities 343,116 399,908
------------- -------------
TOTAL LIABILITIES 77,690,299 74,972,002
------------- -------------
STOCKHOLDERS' EQUITY
Common stock - $.05 par value per share;
1,680,000 shares authorized; 840,000 shares
issued; 554,140 shares outstanding 42,000 42,000
Capital surplus 411,068 411,068
Net unrealized gain on securities available-for-sale,
net of tax of $44,540 and $47,905, respectively 82,717 88,966
Retained earnings 15,764,450 14,450,748
------------- -------------
16,300,235 14,992,782
Less treasury stock at cost, 285,860 shares (1,525,702) (1,525,702)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 14,774,533 13,467,080
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 92,464,832 $ 88,439,082
============= =============
</TABLE>
F-43
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 (unaudited) AND 1995 (unaudited)
<TABLE>
<CAPTION>
1997 1996 1995
(unaudited) (unaudited)
-------------- ------------- ----------------
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans $ 4,669,422 $ 4,490,581 $ 4,143,211
Interest and dividends on investment securities:
U.S. Treasury securities 762,286 953,696 1,034,991
Obligations of other U.S. Government agencies
and corporations 1,119,995 1,107,247 1,119,951
Obligations of state and political subdivisions
and industrial development bonds:
Nontaxable 532,819 490,698 436,140
Taxable 7,860 12,731 21,661
Other securities and interest-bearing deposits - 4,674 27,082
Federal funds sold 103,110 90,371 138,606
------------- ------------ -------------
Total interest income 7,195,492 7,149,998 6,921,642
------------- ------------ -------------
INTEREST EXPENSE
Deposits 2,819,914 2,842,714 2,735,313
------------- ------------ -------------
NET INTEREST INCOME 4,375,578 4,307,284 4,186,329
Provision for loan losses 134,761 279,379 72,512
------------- ------------ -------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,240,817 4,027,905 4,113,817
------------- ------------ -------------
NONINTEREST INCOME
Trust department income 759 - 630
Customer service fees 954,994 907,712 968,664
Net investment securities gains 10,643 954 8,329
Net gain on sale of assets - 1,373 -
Other income 191,003 59,818 24,254
------------- ------------ -------------
Total noninterest income 1,157,399 969,857 1,001,877
------------- ------------ -------------
NONINTEREST EXPENSE
Salaries and wages 1,221,291 1,245,542 1,308,443
Employee benefits 750,733 686,411 775,931
Net loss on sale of assets 120,545 - 15,237
Occupancy and furniture and equipment expense 380,163 380,981 392,942
Write-off of other real estate - - 14,600
Other operating expenses 846,667 864,918 961,099
------------- ------------ -------------
Total noninterest expenses 3,319,399 3,177,852 3,468,252
============= ============ =============
INCOME BEFORE PROVISION
FOR INCOME TAXES $ 2,078,817 $ 1,819,910 $ 1,647,442
Provision for income taxes 488,045 460,992 541,971
------------- ------------ -------------
NET INCOME $ 1,590,772 $ 1,358,918 $ 1,105,471
============= ============ =============
EARNINGS PER SHARE:
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - BASIC 554,140 554,140 554,140
============= ============ =============
NET INCOME PER SHARE - BASIC $ 2.87 $ 2.45 $ 1.99
============= ============ =============
NET INCOME PER SHARE - DILUTED $ 2.87 $ 2.45 $ 1.99
============= ============ =============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING - DILUTED $ 554,140 $ 554,140 $ 554,140
============= ============ ============
</TABLE>
F-44
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 (unaudited) AND 1995 (unaudited)
<TABLE>
<CAPTION>
Common Treasury Additional Unrealized
Stock Stock Paid-in-Capital Gains (Losses)
----------- ------------- --------------- --------------
UNAUDITED
<S> <C> <C> <C> <C>
Balance, December 31, 1994 $ 42,000 $ (1,525,702) $ 411,068 $ (260,741)
Net income - - - -
Change in unrealized gains (losses), net of
income taxes of $270,225 - - - 501,846
Cash dividends declared ($.25 per share) - - - -
----------- ------------ ------------ ------------
Balance, December 31, 1995 42,000 (1,525,702) 411,068 241,105
Net income
Change in unrealized gains (losses), net of
income taxes of $81,921 - - - (152,139)
Cash dividends declared ($.50 per share) - - - -
----------- ------------ ------------ ------------
Balance, December 31, 1996 42,000 (1,525,702) 411,068 88,966
Audited
Net income - - - -
Change in unrealized gains (losses), net of
income taxes of $3,365 - - - (6,249)
Cash dividends declared ($.50 per share)
----------- ------------ ------------ ------------
Balance, December 31, 1997 $ 42,000 $ (1,525,702) $ 411,068 $ 82,717
=========== ============ ============ ============
<CAPTION>
Retained
Earnings Total
UNAUDITED ------------- -------------
Balance, December 31, 1994 $ 12,401,964 $ 11,068,589
Net income 1,105,471 1,105,471
Change in unrealized gains (losses), net of
income taxes of $270,225 - 501,846
Cash dividends declared ($.25 per share) (138,535) (138,535)
------------- -------------
Balance, December 31, 1995 13,368,900 12,537,371
Net income 1,358,918 1,358,918
Change in unrealized gains (losses), net of
income taxes of $81,921 - (152,139)
Cash dividends declared ($.50 per share) (277,070) (277,070)
------------- -------------
Balance, December 31, 1996 14,450,748 13,467,080
Audited
Net income 1,590,772 1,590,772
Change in unrealized gains (losses), net of
income taxes of $3,365 - (6,249)
Cash dividends declared ($.50 per share) (277,070) (277,070)
------------- -------------
Balance, December 31, 1997 $ 15,764,450 $ 14,774,533
============= =============
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
F-45
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 (unaudited) AND 1995 (unaudited)
<TABLE>
<CAPTION>
1997 1996 1995
(unaudited) (unaudited)
------------------- --------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,590,772 $ 1,358,918 $ 1,105,471
ADJUSTMENTS TO RECONCILE NET INCOME TO
NET CASH PROVIDED BY OPERATING ACTIVITIES
Accretion, amortization and depreciation 130,048 152,780 150,728
Provision (benefit) for deferred income taxes, net 14 15,913 (16,620)
Provision for loan losses 134,761 279,379 72,512
Realized investment security gains (10,643) (954) (8,329)
Net loss (gain) on sale of other assets 120,545 (1,373) 15,237
Write-off of other real estate - - 14,600
Changes in assets and liabilities:
Interest receivable (51,530) (47,262) (63,090)
Other assets 12,153 (45,262) (110,566)
Interest payable (22,687) (22,273) 66,101
Income taxes payable (96,381) (42,669) 86,429
Accrued expenses and other liabilities (56,791) (72,977) 94,286
-------------- ------------- ------------
Net cash provided by operating activities 1,750,261 1,574,220 1,406,759
-------------- ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities and calls of investment securities
held-to-maturity 2,698,960 2,702,126 7,041,227
Purchase of investment securities held-to-maturity (4,389,768) (1,494,792) (10,424,949)
Proceeds from maturities, sales and calls of
investment securities available-for-sale 5,918,071 3,730,204 4,497,813
Purchase of investment securities available-for-sale (701,813) (5,293,038) (1,828,391)
Net increase in loans (6,257,306) (1,167,651) (3,662,745)
Increase in cash surrender value of life insurance (41,150) (27,385) (31,376)
Proceeds from life insurance policy 142,917 - -
Proceeds from sale of other real estate, and other assets 411,519 2,500 60,294
Fixed asset purchases (42,011) (53,718) (174,547)
-------------- --------------- ------------
Net cash used by investing activities (2,260,581) (1,601,754) (4,522,674)
-------------- --------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in deposits $ 2,891,756 $ (604,289) $ 3,746,491
Cash dividends paid (277,070) (277,070) (138,535)
-------------- ------------- ------------
Net cash provided (used) by financing activities 2,614,686 (881,359) 3,607,956
-------------- ------------- ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,104,366 (908,893) 492,041
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 3,033,305 3,942,198 3,450,157
-------------- ------------- ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,137,671 $ 3,033,305 $ 3,942,198
============== ============= ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 2,842,601 $ 2,864,986 $ 2,669,212
============= ============= ============
Income taxes $ 583,840 $ 487,725 $ 472,161
============= ============= ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Transfers from loans to other real estate owned $ 90,519 $ 228,283 $ -
============== ============= ============
Net loan charge offs $ 128,801 $ 286,242 $ 74,360
============== ============= ============
</TABLE>
See independent auditors' report and notes to consolidated financial statements.
F-46
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997,
1996 (unaudited) AND 1995 (unaudited)
1. SUMMARY OF ACCOUNTING POLICIES
Nature of Operations
Elmore County Bancshares, Inc. (Company) is a one-bank holding company
of The Bank of Tallassee (Bank). The Company, through the Bank,
provides a full range of banking and financial services to individual
and corporate customers in the Elmore County, Alabama area.
Basis of Financial Statement Presentation
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles and with general
practices within the banking industry.
Principles of Consolidation
The consolidated financial statements include the consolidated accounts
of Elmore County Bancshares, Inc., The Bank of Tallassee, Southeastern
Insurance Agency, Inc., Tallassee Financial Services, Inc., and
Eclectic Finance Company. All significant intercompany items have been
eliminated in consolidation.
Trust Assets
Assets of the Trust Department, other than cash on deposit, are not
assets of the Company and are not included in the financial statements.
Investment Securities
Investment securities are accounted for using Statement of Financial
Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities. These securities are classified in
categories and accounted for as follows:
Securities Held-to-Maturity. Bonds, notes and debentures for
which the Bank has the positive intent and ability to hold to
maturity are reported at cost, adjusted for amortization of
premiums and accretion of discounts.
Securities Available-for-Sale. Securities available-for-sale
consist of bonds, notes, debentures, and certain equity
securities not classified as trading securities nor as securities
to be held-to-maturity.
F-47
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997,
1996 (unaudited) AND 1995 (unaudited)
1. SUMMARY OF ACCOUNTING POLICIES (Continued)
Investment Securities (Continued)
A decline in the fair value of any security available-for-sale or held-
to-maturity below its amortized cost that is deemed other than
temporary results in a reduction in carrying amount to fair value. The
impairment is charged to earnings and a new cost basis for the security
is established. The Company did not have any securities for which the
fair value was below cost and deemed to be other than a temporary
decline.
Unrealized holding gains and losses, net of tax, on securities
available-for-sale are reported as a net amount in a separate component
of stockholders' equity until realized.
Realized gains and losses on the sale of securities available-for-sale
are determined using the specific identification method.
Loans
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or pay-off are reported at their
outstanding principal adjusted for any charge-offs, the allowance for
loan losses, and any deferred fees or costs on originated loans.
Interest income on loans is accrued at the applicable interest rate on
the principal amount outstanding.
The accrual of interest on impaired loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as
they become due. When interest accrual is discontinued, all unpaid
accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received.
The allowance for loan losses is increased by charges to income and
decreased by charge-offs (net of recoveries). Management's periodic
evaluation of the adequacy of the allowance is based on the Company's
loan loss experience, known inherent risks in the portfolio, adverse
situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral, and current economic
conditions.
For impairment recognized in accordance with Statement of Financial
Accounting Standards (SFAS) No. 114, Accounting by Creditors for
Impairment of a Loan, as amended by SFAS No. 118, Accounting by
Creditors Impairment of a Loan - Income Recognition and Disclosures, a
loan is impaired when, based on current information and events, it is
probable that all amounts due according to the contractual terms of the
loan will not be collected. Impaired loans are measured based on the
present value of expected future cash flows, discounted at the loan's
effective interest rate, or at the loan's observable market price, or
the fair value of the collateral if the loan is collateral dependent.
F-48
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997,
1996 (unaudited) AND 1995 (unaudited)
1. SUMMARY OF ACCOUNTING POLICIES (Continued)
Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, loan
foreclosure are to be sold and are initially recorded at fair value at
the date of foreclosure establishing a new cost basis. After
foreclosure, valuations are periodically performed by management and
the real estate is carried at the lower of carrying amount or fair
value less costs to sell. Gains and losses on the sale of foreclosed
real estate and writedowns resulting from periodic revaluation of this
property are charged to other noninterest expenses.
Premises and Equipment
Premises and equipment are carried at cost, less accumulated
depreciation. Buildings and improvements are depreciated over periods
ranging from 5 to 40 years, using either the straight-line or
accelerated methods. Equipment and furniture are depreciated over
periods ranging from 3 to 20 years, using the straight-line or
accelerated methods. Repairs and maintenance expenditures are charged
to income when incurred.
Retirement Plan
The Company has a noncontributory profit sharing plan covering
substantially all eligible employees. Profit sharing contributions are
determined solely by management of the Company.
Income Taxes
Provisions for income taxes are based on taxes payable or refundable
for the current year (after exclusion of nontaxable income such as
interest on state and municipal securities) and deferred taxes on
temporary differences between the tax bases of assets and liabilities
and their reported amounts in the financial statements. Deferred tax
assets and liabilities are included in the financial statements at
currently enacted income tax rates applicable to the period in which
the deferred tax assets and 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.
Cash and Cash Equivalents
For the purposes of presentation in the consolidated statements of cash
flows, cash and cash equivalents are defined as those amounts included
in the statements of condition caption, "Cash and cash equivalents."
Earnings Per Share
Earnings per share is based on the weighted average outstanding shares
of common stock during the period.
F-49
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997,
1996 (unaudited) AND 1995 (unaudited)
1. SUMMARY OF ACCOUNTING POLICIES (Continued)
Financial Instruments
Statement of Financial Accounting Standards No. 107, Disclosures about
Fair Value of Financial Instruments, requires disclosure of the
estimated fair values of financial instruments.
All derivative financial instruments held or issued by the Company are
held or issued for purposes other than trading.
Structured Notes. Structured notes are used to decrease the potential
impact of decreases in interest rates on floating rate investments.
Other Off-Balance-Sheet Instruments. In the ordinary course of
business, the Company has entered into off-balance-sheet financial
instruments consisting of commitments to extend credit, commitments
under credit-card arrangements, commercial letters of credit, and
standby letters of credit. Such financial instruments are recorded in
the financial statements when they are funded or related fees are
incurred or received.
Fair Values of Financial Instruments
The following methods and assumptions were used by the Company in
estimating fair values of financial instruments as disclosed herein:
Cash and Short-Term Instruments. The carrying amounts of cash and
short-term instruments approximate their fair value.
Available-For-Sale And Held-To-Maturity Securities. Fair values for
securities are based on quoted market prices.
Loans. For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. Fair values for certain mortgage loans (for example,
one-to-four family residential), credit-card loans, and other consumer
loans are based on quoted market prices of similar loans sold in
conjunction with securitization transactions, adjusted for differences
in loan characteristics. Fair value for commercial real estate and
commercial loans is estimated using discounted cash flow analyses,
using interest rates currently being offered for loans with similar
terms to borrowers of similar credit quality. Fair values for impaired
loans are estimated using discounted cash flow analyses or underlying
collateral values, where applicable. Since the applicable interest rate
for the Company's commitments to extend credit and standby letters of
credit is the prevailing market rate, the Company has determined that
the contract amount of the commitments approximates fair value.
F-50
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997,
1996 (unaudited) AND 1995 (unaudited)
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
Deposit liabilities. The fair values disclosed for demand deposits,
savings accounts and certain money market deposits are, by definition,
equal to the amount payable on demand at the reporting date (that is, their
carrying amounts). The carrying amounts of variable rate, fixed-term, and
certificates of deposit (CDs) approximate their fair values at the
reporting date. Fair values for fixed-rate CDs are estimated using a
discounted cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregated expected monthly
maturities on time deposits.
Accrued interest. The carrying amounts of accrued interest approximate
their fair values.
Off-balance-sheet instruments. Fair values for off-balance-sheet lending
commitments are based on fees currently charged to interest into similar
agreements, taking into account the remaining terms of the agreements and
the counterparties' credit standings.
USE OF ESTIMATES IN THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingencies at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could
differ from those estimates.
UNAUDITED FINANCIAL STATEMENTS
In the opinion of management, the unaudited consolidated statements of
condition as of December 31, 1996, and the unaudited consolidated
statements of income and cash flows for the years ended December 31, 1996
and 1995, reflect all adjustments (which included only normal recurring
adjustments) necessary to present fairly the information set forth therein.
2. MERGER
On December 11, 1997, Elmore County Bancshares, Inc. (Company) executed a
definitive agreement for the merger of Elmore County Bancshares, Inc. with
and into Peoples Banctrust Company, Selma, Alabama (PBC). According to the
terms of the merger, PBC will issue shares of its common stock in exchange
for the outstanding common stock of the Company. The merger is subject to a
number of conditions, including receipt of all regulatory and shareholder
approval. The merger is expected to close the second quarter of 1998.
F-51
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997,
1996 (unaudited) AND 1995 (unaudited)
3. INVESTMENT SECURITIES
Debt and equity securities have been classified in the consolidated
statements of condition according to management's intent. The amortized cost of
securities and their approximate fair values were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1997
-----------------
AVAILABLE-FOR-SALE SECURITIES:
U.S. Treasury securities $ 9,224,156 $ 129,400 $ 2,143 $ 9,351,413
=========== ========== ======= ===========
HELD-TO-MATURITY SECURITIES:
Other U.S. government and agency securities $13,648,323 $ 179,802 $21,940 $13,806,185
State and municipal securities 10,681,040 312,880 3,666 10,990,254
Collateralized mortgage obligations 1,783,007 6,141 5,914 1,783,234
Mortgage-backed securities 1,808,523 21,409 5,421 1,824,511
----------- ---------- ------- -----------
$27,920,893 $ 520,232 $36,941 $28,404,184
=========== ========== ======= -----------
December 31, 1996 (unaudited)
-----------------------------
AVAILABLE-FOR-SALE SECURITIES:
U.S. Treasury securities $14,466,046 $ 159,067 $22,197 $14,602,916
=========== ========== ======= ===========
HELD-TO-MATURITY SECURITIES:
Other U.S. government and agency securities $11,794,398 $ 144,092 $55,642 $11,882,848
State and municipal securities 10,262,150 251,599 10,587 10,503,162
Collateralized mortgage obligations 2,382,557 9,815 18,086 2,374,286
Mortgage-backed securities 1,765,505 19,889 13,450 1,771,944
----------- ---------- ------- -----------
$26,204,610 $ 425,395 $97,765 $26,532,240
=========== ========== ======= ===========
</TABLE>
Investment securities with book values aggregating $7,140,569 as of
December 31, 1997 and unaudited book values aggregating $6,917,120 as of
December 31, 1996, were pledged to secure public deposits and for other purposes
required or permitted by law.
F-52
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997,
1996 (unaudited) AND 1995 (unaudited)
3. INVESTMENT SECURITIES (CONTINUED)
Gross realized gains and gross realized losses on sales, maturities and
calls of securities were as follows:
<TABLE>
<CAPTION>
1997 1996
(unaudited)
------- -----------
<S> <C> <C>
Gross realized gains
- --------------------
Other U.S. government and agency securities $12,281 $ 204
State and municipal securities 3,565 -
U.S. Treasury securities 184 750
------- -----
16,030 954
======= =====
Gross realized losses
- ---------------------
U.S. Treasury securities $ 5,387 $ -
======= =====
</TABLE>
The scheduled maturities of held-to-maturity and available-for-sale
securities as of December 31, 1997, were as follows:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
------------ -----------
<S> <C> <C>
Held-to-maturity securities:
Due in one year or less $ 884,886 $ 884,745
Due after one year through five years 15,859,487 16,088,720
Due after five years through ten years 7,385,778 7,615,322
Due after ten years 199,212 207,652
Collateralized mortgage obligations
and mortgage-backed securities 3,591,530 3,607,745
------------ -----------
27,920,893 28,404,184
------------ -----------
Available-for-sale securities:
Due in one year or less 2,202,338 2,218,472
Due after one year through five years 6,822,395 6,928,440
Due after five years through ten years 199,423 204,501
------------ -----------
9,224,156 9,351,413
------------ -----------
Total $ 37,145,049 $37,755,597
============ ===========
</TABLE>
F-53
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997,
1996 (unaudited) AND 1995 (unaudited)
3. INVESTMENT SECURITIES (CONTINUED)
Certain investments are used to decrease the potential impact of decreases
in interest rates on floating rate investments. As of December 31, 1997,
the Company held two structured notes which are debt issues whose coupon,
redemption amounts and stated maturity adjusts depending on movements in
interest rates. These notes have maturities ranging from one to five years.
The Company also held seven collateralized mortgage obligations (CMOs) with
maturity ranging from two to twenty-five years. These investments are
reported at amortized cost in the held-to-maturity category. As of December
31, 1997, the structured notes had an aggregate amortized cost and fair
value of $549,868 and $534,940, respectively. The CMOs had an aggregate
amortized cost and fair value of $1,783,007 and $1,783,234, respectively.
As of December 31, 1996, the unaudited amortized cost and fair values of
the structured notes were $549,573 and $528,670, respectively, and the
unaudited amortized cost and fair values of the CMOs were $2,382,557 and
$2,374,286, respectively.
4. LOANS
The components of loans in the consolidated statements of condition were as
follows:
<TABLE>
<CAPTION>
1997 1996
(unaudited)
----------- -----------
<S> <C> <C>
Real estate $17,263,150 $15,460,191
Commercial and industrial 10,605,122 9,430,096
Individuals 17,829,052 15,872,271
Construction and land development 712,898 592,619
Farm land and agricultural 582,753 377,125
Other 330,802 15,922
----------- -----------
47,323,777 41,748,224
Less:
Unearned income 367,950 816,767
Allowance for possible loan losses 695,188 689,228
----------- -----------
Net loans $46,260,639 $40,242,229
=========== ===========
</TABLE>
Nonaccrual loans at December 31, 1997 were $31,872. Unaudited nonaccrual
loans at December 31, 1996 were $368,780.
The Company is not committed to lend additional funds to debtors whose
loans have been modified.
In 1997, interest income of $4,572 was recorded on nonaccrual and
restructured loans. Had income on these loans been recorded under original
terms, $7,552 of interest on nonaccrual and restructured loans would have
been recorded.
F-54
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996
(unaudited) AND 1995 (unaudited)
4. LOANS (CONTINUED)
An analysis of the changes in the allowance for loan losses follows:
<TABLE>
<CAPTION>
1997 1996 1995
(unaudited) (unaudited)
--------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year $ 689,228 $ 696,091 $ 697,939
Provision charged to operations 134,761 279,379 72,512
Loans charged off (315,446) (439,651) (218,886)
Recoveries 186,645 153,409 144,526
--------- --------- ---------
Balance, end of year $ 695,188 $ 689,228 $ 696,091
========= ========= =========
</TABLE>
Impairment of loans having recorded investments of $249,384 as of December
31, 1997, has been recognized in conformity with SFAS No. 114 as amended by
SFAS No. 118. The average recorded investment in impaired loans during 1997
was $249,297. The total allowance for loan losses related to these loans
was $37,408. There were no material impaired loans at December 31, 1996.
Because of uncertainties associated with regional economic conditions,
collateral values, and future cash flows on impaired loans, it is
reasonably possible that management's estimate of credit losses inherent in
the loan portfolio and the related allowance may change materially in the
near term. However, the amount of change that is reasonably possible cannot
be estimated.
5. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
1997 1996
(unaudited)
----------- -----------
<S> <C> <C>
Cost:
Land $ 202,534 $ 202,534
Buildings and improvements 1,610,276 1,610,276
Furniture and equipment 1,679,782 1,635,771
----------- -----------
Total cost 3,492,592 3,448,581
Less accumulated depreciation (2,058,592) (1,944,733)
----------- -----------
Net book value $ 1,434,000 $ 1,503,848
=========== ===========
</TABLE>
Depreciation expense included in the consolidated statements of income was
$111,859 for the year ended December 31, 1997. Unaudited depreciation expense
for the years ended December 31, 1996 and 1995 was $114,842 and $108,348,
respectively.
F-55
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997,
1996 (unaudited) AND 1995 (unaudited)
5. PREMISES AND EQUIPMENT, NET (CONTINUED)
The Company's rental expense for annual operating leases was $7,213 for the
year ended December 31, 1997. The unaudited rental expense was 4,728 and
$4,954 for the years ended December 31, 1996 and 1995, respectively. The
Company has no long-term lease commitments.
6. EXCESS COST OVER NET ASSETS OF SUBSIDIARIES ACQUIRED
The excess of purchase cost over net assets of the Company's insurance
subsidiary, acquired in November 1988, was being amortized on a straight-
line basis over a period of 15 years.
<TABLE>
<CAPTION>
1997 1996 1995
(unaudited) (unaudited)
---------- ----------- -----------
<S> <C> <C> <C>
Excess cost $ 243,708 $ 243,708 $ 243,708
Accumulated amortization (129,913) (122,524) (104,788)
Write-off of remaining balance (113,795) - -
--------- --------- ---------
Unamortized balance $ - $ 121,184 $ 138,920
========= ========= =========
</TABLE>
Amortization expense was $7,389 for the year ended December 31, 1997.
Unaudited amortization expense was $17,735 for each of the years ended
December 31, 1996 and 1995.
In May 1997, Southeastern Insurance Agency sold its "book" of insurance
business for $50,000. The remaining balance in the unamortized excess
acquisition cost was written off.
7. DEPOSITS
The following is a maturity distribution of time certificates of deposit in
denominations of $100,000 or more as of December 31, 1997:
<TABLE>
<S> <C>
Three months or less $4,361,129
Over three months through twelve months 2,477,246
Over twelve months 2,356,345
----------
$9,194,720
==========
</TABLE>
F-56
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997,
1996 (unaudited) AND 1995 (unaudited)
8. INCOME TAXES
The provisions for income taxes in the consolidated statements of income
are summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
(unaudited) (unaudited)
-------- ----------- -----------
<S> <C> <C> <C>
Current:
Federal $443,670 $377,276 $485,729
State 44,361 67,802 72,862
-------- -------- --------
Total current provision 488,031 445,078 558,591
-------- -------- --------
Deferred:
Federal 8 13,490 (14,452)
State 6 2,424 (2,168)
-------- -------- --------
Total deferred 14 15,914 (16,620)
-------- -------- --------
Total provision for income taxes $488,045 $460,992 $541,971
======== ======== ========
</TABLE>
The components of the net deferred income tax asset included in other
assets are as follows:
<TABLE>
<CAPTION>
1997 1996
(unaudited)
--------- -----------
<S> <C> <C>
Deferred tax liability:
Accretion $(20,662) $(19,910)
Unrealized gain on market value of securities
available-for-sale (44,540) (47,905)
-------- --------
(65,202) (67,815)
-------- --------
Deferred tax asset:
Allowance for loan losses 140,180 125,813
Deferred compensation 128,460 142,090
-------- --------
268,640 267,903
-------- --------
Net deferred tax asset $203,438 $200,088
======== ========
</TABLE>
F-57
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997,
1996 (unaudited) AND 1995 (unaudited)
8. INCOME TAXES (CONTINUED)
The significant differences between income tax expense and the amount
computed by applying the statutory federal income tax rate of 34% to income
before income taxes as a percentage of pre-tax income were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(unaudited) (unaudited)
---- ----------- ------------
<S> <C> <C> <C>
Expected tax at statutory federal income tax rate 34.0% 34.0% 34.0%
Increases (decreases) in tax resulting from:
State income taxes, net of federal tax benefit 2.8 3.0 2.9
Tax-exempt income (9.1) (8.8) (8.3)
Other (4.0) (3.2) 3.9
Life insurance proceeds (2.1) - -
Write-off of excess acquisition cost 1.9 0.3 0.4
---- ---- ----
Total provision for income taxes 23.5% 25.3% 32.9%
==== ==== ====
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
In the ordinary course of business, the Company has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying consolidated financial statements. In addition, the Bank may,
from time to time, be named as a defendant in certain claims and legal
actions. In the opinion of management, after consultation with legal
counsel, there are no claims presently pending against the Bank; therefore,
they are not aware of any matters whose ultimate disposition would have a
material adverse effect on the consolidated financial condition of the
Company.
10. RELATED PARTIES
The Company has, and expects to have in the future, banking transactions
with directors, officers, principal stockholders, and their associates and
employees. Loans and deposits were made in the ordinary course of business
at normal credit terms, including interest rates and collateral, and do
not, in the opinion of management, involve more than a normal credit risk.
Total loans outstanding to these persons as of December 31, 1997, were
$1,890,497. During 1997, $1,404,850 of new loans were made and repayments
totaled $411,435. Unaudited loans outstanding to these persons at December
31, 1996 were $897,082.
F-58
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997,
1996 (unaudited) AND 1995 (unaudited)
11. RESTRICTIONS ON RETAINED EARNINGS
Banking regulations limit the amount of dividends that may be paid in any
year to the net retained earnings of the current year and in the preceding
two years, subject to certain minimum capital ratio requirements.
12. DEFERRED COMPENSATION PLAN
The Company has entered into deferred compensation agreements with certain
key officers of the Company. The agreements are funded through life
insurance policies on the participants. The Company has an accrued
liability of $341,794 as of December 31, 1997 and charged $27,188 to
expense during 1997. The unaudited accrued liability was $380,876 as of
December 31, 1996. The unaudited charge to expense during 1996 and 1995
was $24,048 and $48,436, respectively.
13. FINANCIAL INSTRUMENTS
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments included 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 statements of condition. The contract or notional
amounts of those instruments reflect the extent of the Bank's involvement
in particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit,
standby letters of credit, and financial guarantees written is represented
by the contractual notional amount of those instruments. The Company uses
the same credit policies in extending commitments and conditional
obligations as it does for on-balance-sheet instruments.
Unless noted otherwise, the Company does not require collateral or other
security to support financial instruments with credit risk.
Commitments to Extend Credit. Commitments to extend credit are agreements
to lend to a customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed expiration
dates or other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Company evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if it is deemed
necessary by the Company upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies but may
include accounts receivable; inventory, property, plant, and equipment; and
income-producing commercial properties.
F-59
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997,
1996 (unaudited) AND 1995 (unaudited)
13. FINANCIAL INSTRUMENTS (CONTINUED)
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and similar
transactions. The credit risk involved in issuing letters of credit is
essentially the same as that involved in extending loan facilities to
customers. The Company holds various items as collateral supporting those
commitments for which collateral is deemed necessary.
The Company has not incurred any losses on its commitments as of December
31, 1997.
The estimated fair values of the Company's financial instruments were as
follows as of December 31, 1997:
<TABLE>
<CAPTION>
1997 1996
(unaudited)
--------------------------------- ----------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------------- -------------- --------------- --------------
Financial assets:
<S> <C> <C> <C> <C> <C>
Cash and due from banks $ 2,337,671 $ 2,337,671 $ 2,633,305 $ 2,633,305
Federal funds sold 2,800,000 2,800,000 400,000 400,000
Available-for-sale 9,351,413 9,351,413 14,602,916 14,602,916
securities
Held-to-maturity securities 27,920,893 28,404,184 26,204,610 26,532,240
Loans 47,323,777 46,850,000 41,748,224 41,482,000
Interest receivable 1,172,313 1,172,313 1,120,783 1,120,783
Financial liabilities:
Deposit liabilities 76,773,094 76,673,000 73,881,383 73,626,414
</TABLE>
A summary of the notional amounts of the Company's financial instruments with
off-balance-sheet risk as of December 31, 1997, follows:
<TABLE>
<CAPTION>
CONTRACT
AMOUNT
---------------
<S> <C>
Commitments to extend credit $1,799,110
Credit card arrangements 396,802
Letters of credit 12,500
</TABLE>
F-60
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997,
1996 (unaudited) AND 1995 (unaudited)
14. REGULATORY MATTERS
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 regulatory 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
practice. 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
require the Company to maintain minimum amounts and ratios (set forth in
the table below) to total Tier I capital (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, 1997,
that the Company meets all capital adequacy requirements to which it is
subject.
As of December 31, 1997, 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 adequately capitalized, the Company must maintain minimum
total risk-based, Tier I risk-based, and Tier I leverage ratios as set
forth in the table. There are no conditions or events since that
notification that management believes have changed the institution's
category.
The Company's actual capital amounts and ratios as of December 31 are also
presented in the table (in thousands).
<TABLE>
<CAPTION>
To be Well Captalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ----------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
----------- --------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
The Company
As of December 31, 1997:
Total Capital (to Risk $15,470 29.9% $4,138 8.0% $5,173 10.0%
Weighted Assets)
Tier I Capital (to Risk 14,775 28.6 2,069 4.0 3,104 6.0
Weighted Assets)
Tier I Capital Ratio (to 14,775 16.2 3,638 4.0 4,548 5.0
Average Assets)
As of December 31, 1996:
Total Capital (to Risk 14,035 31.0 3,621 8.0 4,526 10.0
Weighted Assets)
Tier I Capital (to Risk 13,346 29.5 1,810 4.0 2,715 6.0
Weighted Assets)
Tier I Capital Ratio (to 13,346 14.9 3,588 4.0 4,484 5.0
Average Assets)
</TABLE>
F-61
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997,
1996 (unaudited) AND 1995 (unaudited)
14. REGULATORY MATTERS (Continued)
<TABLE>
<CAPTION>
To be Well Captalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- ----------------------- ------------------------
Amount Ratio Amount Ratio Amount Ratio
----------- --------- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
The Bank
As of December 31, 1997:
Total Capital (to Risk $14,675 28.8% $4,082 8.0% $5,102 10.0%
Weighted Assets)
Tier I Capital (to Risk 13,993 27.4 2,041 4.0 3,061 6.0
Weighted Assets)
Tier I Capital Ratio (to 13,993 15.4 3,624 4.0 4,530 5.0
Average Assets)
As of December 31, 1996:
Total Capital (to Risk 13,178 29.6 3,560 8.0 4,450 10.0
Weighted Assets)
Tier I Capital (to Risk 12,496 28.1 1,780 4.0 2,670 6.0
Weighted Assets)
Tier I Capital Ratio (to 12,496 14.0 3,582 4.0 4,477 5.0
Average Assets)
</TABLE>
15. SIGNIFICANT GROUP CONCENTRATIONS OF CREDIT RISK
Most of the Company's business activity is with customers located within
Elmore County region. The Company's loan portfolio is generally well
diversified, consisting of loans to several industries and numerous
individuals. Decisions involving collateral associated with these loans
vary depending on the creditworthiness of each customer and type of loan.
Generally, collateral consists of mortgages on real property, inventory,
accounts receivable, certificates of deposit and securities.
The distribution of commitments to extend credit approximates the
distribution of loans outstanding. Commercial and standby letters of
credit were granted primarily to commercial borrowers. The Company, as a
matter of policy, does not extend credit in excess of the legal lending
limit to any single borrower or group of related borrowers.
The contractual amounts of credit-related financial instruments such as
commitments to extend credit and letters of credit represent the amounts of
potential accounting loss should the contract be fully drawn upon, the
customer default and the value of any existing collateral become worthless.
16. PROFIT SHARING PLAN
The Company has a noncontributory profit sharing plan covering
substantially all employees. The cost of the plan is charged to operating
expense in the period in which it is incurred. Profit sharing expense for
the year ended December 31, 1997 was $426,200. Unaudited profit sharing
expense for the years ended December 31, 1996 and 1995 was $346,546 and
$377,000, respectively.
17. STOCK REPURCHASE AGREEMENT
In August 1990, the Company entered into a stock repurchase agreement with
the Robert and Mildred Blount Educational and Charitable Foundation, Inc.,
an Alabama non-profit corporation (hereafter, the Foundation). Under the
terms of the agreement, the Company purchased 7,680 shares of stock that
was currently held by the Foundation, at book value. Further, the
agreement obligates the Company to repurchase, at book value and subject to
regulatory approval, an additional 149,400 shares from the Foundation after
these shares are acquired by the Foundation from the Robert Blount Trust.
The agreement to repurchase the 149,400 shares expires eight years from the
date the Foundation acquires the said stock from the Trust and is
contingent upon the ability of the Company to obtain financing for the
repurchase at a reasonable interest rate.
F-62
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997,
1996 (unaudited) AND 1995 (unaudited)
18. ELMORE COUNTY BANCSHARES, INC. (PARENT COMPANY ONLY)
Presented below and on the following page are the financial statements of
Elmore County Bancshares, Inc.
BALANCE SHEETS
December 31, 1997 and 1996 (unaudited)
<TABLE>
<CAPTION>
1996
1997 (Unaudited)
-------------- --------------
<S> <C> <C>
ASSETS
Cash* 161,710 $ 204,321
Investment in subsidiary bank, The Bank of Tallassee * 13,993,360 12,625,856
Premises and equipment, net 787,651 812,350
----------- -----------
TOTAL ASSETS $14,942,721 $13,642,527
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividends payable $ 139,142 $ 139,095
Other liabilities 29,046 36,352
----------- -----------
TOTAL LIABILITIES 168,188 175,447
----------- -----------
Common stock, $.05 par value; 1,680,000 shares authorized,
840,000 shares issued, 554,140 shares outstanding 42,000 42,00
Capital surplus 411,068 411,068
Net unrealized gain on securities available-for-sale, net of
tax of $44,540 and $47,905, respectively 82,717 88,966
Retained earnings 15,764,450 14,450,748
----------- ----------
16,300,235 14,992,782
Less treasury tock at cost, 285,860 shares (1,525,702) (1,525,702)
----------- ----------
TOTAL STOCKHOLDERS' EQUITY 14,774,533 13,467,080
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $14,942,721 $13,642,527
=========== ===========
</TABLE>
Eliminated in consolidation
STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 (UNAUDITED) AND 1995 (UNAUDITED)
<TABLE>
<CAPTION>
1997 1996 1995
(unaudited) (unaudited)
------------------ ------------------ ------------------
<S> <C> <C> <C>
Cash dividends received or receivable from subsidiary * $ 225,000 $ 200,000 $ 100,000
Equity in subsidiary's undistributed net income * 1,373,753 1,145,089 1,010,951
Rental income * 55,613 58,616 55,620
Other income 14 28 -
Occupancy and equipment expense (30,508) (32,615) (28,149)
Other expense (33,100) (12,200) (32,951)
----------- ----------- -----------
Net income 1,590,772 1,358,918 1,105,471
Retained earnings, beginning of period 14,450,748 13,368,900 12,401,964
Less: Cash dividends declared 277,070 277,070 138,535
----------- ----------- -----------
Retained earnings, end of year $15,764,450 $14,450,748 $13,368,900
=========== =========== ===========
</TABLE>
* Eliminated in consolidation
F-63
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1997,
1996 (unaudited) AND 1995 (unaudited)
18. ELMORE COUNTY BANCSHARES, INC. (PARENT COMPANY ONLY) (CONTINUED)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 (UNAUDITED) AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1997 1996 1995
(unaudited) (unaudited)
------------- -------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 1,590,772 $ 1,358,918 $ 1,105,471
Adjustments to reconcile net income net cash
provided by operating activities:
Depreciation 24,699 26,303 23,156
Write-off of other real estate - - 14,600
Undistributed income of subsidiary * (1,373,753) (1,145,089) (1,010,951)
Decrease in other assets - 1,000 -
(Decrease) increase in other liabilities (7,306) 16,264 30,043
----------- ----------- -----------
Net cash provided by operating activities 234,412 257,396 162,319
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of premises and equipment - - (69,735)
----------- ----------- -----------
Net cash used by investing activities - - (69,735)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid (277,023) (276,583) (103,926)
----------- ----------- -----------
Net cash used by financing activities (277,023) (276,583) (103,926)
----------- ----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (42,611) (19,187) (11,342)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 204,321 223,508 234,850
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 161,710 $ 204,321 $ 223,508
=========== =========== ===========
</TABLE>
* Eliminated in consolidation
F-64
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
In Thousands
---------------------------------------
March, 31, December 31,
1998 1997
(unaudited)
----------------- -----------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 2,097 $ 2,338
Federal funds sold and securities purchased
under agreement to resell 2,175 2,800
------------ -----------
Total cash and cash equivalents 4,272 5,138
------------ -----------
Securities available for sale 8,753 9,351
Securities held to maturity 29,785 27,921
------------ -----------
Total investment securities 38,538 37,272
------------ -----------
Loans, net of unearned income 46,756 46,956
Allowance for loan losses (700) (695)
------------ -----------
Net loans 46,056 46,261
------------ -----------
Premise and equipment 1,459 1,434
Other assets 2,192 2,360
------------ -----------
Total assets $ 92,517 $ 92,465
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 12,927 $ 14,389
Interest-bearing deposits 63,527 62,384
------------ -----------
Total deposits 76,454 76,773
Other liabilities 938 917
------------ -----------
Total liabilities 77,392 77,690
------------ -----------
Common stock 42 42
Additional paid-in capital 411 411
Treasury stock (1,526) (1,526)
Retained earnings 16,112 15,765
Net unrealized loss on securities available for sale 86 83
------------ -----------
Total stockholders' equity 15,125 14,775
------------ -----------
Total liabilities and stockholders' equity $ 92,517 $ 92,465
============ ===========
</TABLE>
See notes to the unaudited condensed consolidated financial statements.
F-65
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
In Thousands, except share and per share
Data (unaudited)
----------------------------------------------
Three months ended March 31,
1998 1997
-------------------- --------------------
<S> <C> <C>
Interest and fees on loans $ 1,174 $ 1,141
Interest on investment securities 569 627
Other interest income 45 26
------------ ------------
Total interest income 1,788 1,794
------------ ------------
Interest on deposits 710 695
------------ ------------
Total interest expense 710 695
------------ ------------
Net interest income 1,078 1,099
Provision for loan losses 25 75
------------ ------------
Net interest income after provision for loan losses 1,053 1,024
Net securities (loss) gains - (2)
Other income 267 259
Other expense 746 790
------------ ------------
Income before income taxes 574 491
Provision for income taxes 154 128
------------ ------------
Net income $ 420 $ 363
============ ============
Weighted average number of shares outstanding 554,140 554,140
============ ============
Net income per share $ 0.76 $ 0.66
============ ============
Dividends per share $ 0.13 $ 0.00
============ ============
</TABLE>
See notes to the unaudited condensed consolidated financial statements.
ELMORE COUNTY BANCSHARES, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
In Thousands
(Unaudited)
Three months ended March 31,
----------------------------------------------
1998 1997
-------------------- --------------------
<S> <C> <C>
Net income $ 420 $ 363
Other comprehensive income:
Net unrealized gain (loss) on available-for-sale securities 4 (125)
Provision for (benefit of) income taxes related
to items of other comprehensive income 1 (42)
-------- --------
Other comprehensive income (loss), net of tax 3 (83)
-------- --------
Comprehensive income $ 423 $ 280
======== ========
</TABLE>
F-66
<PAGE>
ELMORE COUNTY BANCSHARES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
In Thousands (unaudited)
----------------------------------------
Three months ended March 31,
1998 1997
----------------- -------------------
<S> <C> <C>
Net cash provided by operating activities $ 914 $ 643
------- -------
Cash flows from investing activities
Proceeds from maturities and calls of securities
held to maturity 2,175 615
Proceeds from sales, maturities and calls of securities
available for sales 600 1,802
Purchase of securities held to maturity (4,037) (1,463)
Purchase of securities available for sale -- (199)
Net decrease (increase) in loans 179 (1,665)
Proceeds from sale or other real estate 24 107
Purchase of bank premises and equipment (51) --
------- -------
Net cash used by investing activities (1,110) (803)
------- -------
Cash flows from financing activities
Net (decrease) increase in deposits (531) 2,000
Cash dividends paid (139) --
------- -------
Net cash provided by financing activities (670) 2,000
------- -------
Net (decrease) increase in cash and cash equivalents (866) 1,840
Cash and cash equivalents at beginning of period 5,138 3,033
------- -------
Cash and cash equivalents at March 31 $ 4,272 $ 4,873
======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 734 $ 718
Income taxes -- --
</TABLE>
See notes to the unaudited condensed consolidated financial statements.
F-67
<PAGE>
ELMORE COUNTY BANCSHARES, INC., TALLASSEE, ALABAMA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
GENERAL
Elmore County Bancshares, Inc. (Company) is a one-bank holding company of
The Bank of Tallassee (Bank). The Company, through the Bank, provides a
full range of banking and financial services to individual and corporate
customers in the Elmore County, Alabama area. The consolidated financial
statements include the consolidated accounts of Elmore County Bancshares,
Inc., The Bank of Tallassee, Southeastern Insurance Agency, Inc., Tallassee
Financial Services, Inc., and Eclectic Finance Company. All significant
intercompany items have been eliminated in consolidation. In the opinion of
management of the Company, the accompanying condensed consolidated
financial statements contain all adjustments (consisting principally of
normal recurring accruals) necessary to present fairly the financial
position as of March 31, 1998, the results of operations and cash flows for
the three-month period ended March 31, 1998 and 1997. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results to be expected for the full year.
LOAN IMPAIRMENT AND LOSSES
The Company has identified loans totaling $249,000 as being impaired as of
March 31, 1998. There were no impaired loans as of March 31, 1997. The
activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
(In thousands)
For the Three Months
Ended March 31,
----------------------------------------
1998 1997
----------------- ------------------
<S> <C> <C>
Balance beginning of the period $ 695 $ 689
Provision (credit) charged to earnings 25 75
Charge offs, net of recoveries (20) (73)
-------- --------
Balance end of the period $ 700 $ 691
======== ========
</TABLE>
EARNINGS PER COMMON SHARE
Earnings per common share were computed by dividing the net earnings for
the period by the weighted-average number of shares outstanding. The
Company has no outstanding options.
PENDING MERGER TRANSACTION
On December 11, 1997, the Company entered into an agreement with The
Peoples BancTrust Company, Inc. (Peoples) wherein Peoples would acquire all
the outstanding shares of the Company in exchange for shares of common
stock of Peoples. The exchange ratio is estimated to be 3.1075 shares of
Peoples for each share of Elmore County Bancshares, Inc. common stock. The
merger is subject to a number of conditions, including regulatory and
stockholder approvals. The merger is expected to be accounted for as a
pooling of interest.
F-68
<PAGE>
APPENDIX I
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION ("Agreement") dated as of
December 11, 1997, by and among THE PEOPLES BANCTRUST COMPANY, INC. an Alabama
business corporation ("BancTrust"), THE PEOPLES BANK AND TRUST COMPANY, an
Alabama commercial bank ("Peoples"), ELMORE COUNTY BANCSHARES, INC., an Alabama
business corporation ("Bancshares"), and THE BANK OF TALLASSEE, an Alabama
commercial bank ("Tallassee").
WITNESSETH
WHEREAS, the respective Boards of Directors of BancTrust, Peoples,
Bancshares and Tallassee are of the opinion that the merger of Bancshares with
and into BancTrust, under the terms and conditions set forth in this Agreement
(the "Merger"), is in the best interests of the parties and their respective
shareholders, and such Boards of Directors have adopted resolutions approving
this Agreement; and
WHEREAS, upon consummation of the Merger, Bancshares' wholly owned
subsidiary, Tallassee, will become the wholly owned subsidiary of BancTrust; and
WHEREAS, simultaneously with the execution of this Agreement, BancTrust and
Bancshares are entering into a Stock Option Agreement (the "Stock Option
Agreement") dated as of the date hereof; and
WHEREAS, the parties desire to provide for certain undertakings,
conditions, representations, warranties and covenants in connection with the
transactions contemplated hereby;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the parties hereto do hereby agree as
follows:
ARTICLE I
DEFINITIONS
"ABCA" shall mean the Alabama Business Corporation Act, as amended.
"BHCA" shall mean the Bank Holding Company Act of 1956, as amended.
"Bancshares Common Stock" shall mean the shares of common stock, par value
$.05 per share, of Bancshares.
"BancTrust Common Stock" shall mean the shares of common stock, par value
$.10 per share, of BancTrust.
"Bancshares Subsidiaries" shall mean any corporation, partnership, joint
venture or other organization other than Tallassee more than 10% of the stock or
ownership interest of which is owned, directly or indirectly, by Bancshares.
"BancTrust Subsidiaries" shall mean any corporation, partnership, joint
venture or other organization other than Peoples more than 10% of the stock or
ownership interest of which is owned, directly or indirectly, by BancTrust.
I-1
<PAGE>
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission.
"Effective Time" shall mean the time and date specified pursuant to Section
2.7 of this Agreement as the effective time of the Merger.
"Environmental Claim" shall mean any written notice from any governmental
authority or third party alleging potential liability (including, without
limitation, potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resources damages, property damages,
personal injuries of penalties) arising out of, based on, or resulting from the
presence, or release into the environment, of any Materials of Environmental
Concern.
"Environmental Laws" shall mean all applicable federal, state and local
laws and regulations dealing with the management, use, treatment and/or disposal
of Hazardous Substances, as defined by the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. (S) 9601 et seq., and Hazardous Waste,
as defined by the Resource, Conservation and Recovery Act, as amended, 42 U.S.C
(S) 6901 et seq.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"FDIA" shall mean the Federal Deposit Insurance Act, as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"FRB" shall mean the Board of Governors of the Federal Reserve System, and
shall also include the Federal Reserve Bank of Atlanta.
"Financial Statements" shall mean (a) with respect to Bancshares, (i) the
consolidated balance sheets (including related notes and schedules, if any) of
Bancshares as of December 31, 1996 and 1995 and the related consolidated
statements of income, shareholders' equity and cash flows (including related
notes and schedules, if any) for each of the fiscal years ended December 31,
1996 and 1995 and (ii) the consolidated balance sheets of Bancshares (including
related notes and schedules, if any) and the related consolidated statements of
income, shareholders' equity, and cash flows (including related notes and
schedules, if any) with respect to the quarterly periods ended subsequent to
December 31, 1996; and (b) with respect to BancTrust (i) the consolidated
balance sheets (including related notes and schedules, if any) of BancTrust as
of December 31, 1996 and 1995 and the related consolidated statements of income,
shareholders' equity and cash flows (including related notes and schedules, if
any) for each of the last three fiscal years ended December 31, 1996 as filed by
BancTrust in its Securities Documents and (ii) the balance sheets of BancTrust
(including related notes and schedules, if any) and related statements of
income, shareholders' equity and cash flows (including related notes and
schedules, if any) including in the Securities Documents filed by BancTrust with
respect to the quarterly periods ended subsequent to the last reported fiscal
year-end.
"Materials of Environmental Concern" shall mean pollutants, contaminants,
wastes, toxic substances, petroleum and petroleum products and any other
materials regulated under Environmental Laws.
"Joint Proxy Statement" shall mean the proxy statement together with any
supplements thereto sent to shareholders of Bancshares and BancTrust to solicit
their votes in connection with the approval of this Agreement.
"Registration Statement" shall mean the registration statement with respect
to the BancTrust Common Stock as declared effective by the Commission under the
Securities Act.
"Rights" shall mean warrants, options, rights, convertible securities and
other arrangements or commitments which obligate an entity to issue or dispose
of any of its capital stock or other ownership interests.
I-2
<PAGE>
"Secretary of State" shall mean the Secretary of State of the State of
Alabama
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Documents" shall mean all reports, offering circulars, proxy
statements, registration statements and all similar documents filed, or required
to be filed, pursuant to the Securities Laws.
"Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of 1940,
as amended; the Trust Indenture Act of 1939, as amended, and the rules and
regulations promulgated thereunder.
"Superintendent" shall mean the Superintendent of Banks of the State of
Alabama.
"Tallassee Common Stock" shall mean the shares of common stock, par value
$1.00 per share, of Tallassee.
Other terms used herein are defined in the preamble and elsewhere in this
Agreement.
ARTICLE II
MERGER
2.1 The Merger
----------
Subject to the satisfaction of the terms and conditions of this Agreement
and pursuant to the applicable provisions of the ABCA and the BHCA, at the
Effective Time, Bancshares shall be merged with and into BancTrust pursuant to
the terms and conditions set forth herein, with BancTrust to be the surviving
corporation, and each share of Bancshares Common Stock issued and outstanding
immediately prior to the Effective Time shall thereupon and without further
action be converted into the right to receive shares of BancTrust Common Stock
and cash for fractional share interests (if any) in compliance with the
provisions of Section 2.6 below.
2.2 Closing and Closing Date
------------------------
The Merger shall be consummated at a closing (the "Closing") to be held at
a location to be determined by mutual consent of the parties to this Agreement,
on the first business day following satisfaction of the conditions to
consummation of the Merger set forth in Article VI hereof, or on such date
within 30 days thereafter as the parties may mutually agree (the "Closing
Date").
2.3 Effect of Merger
----------------
(a) At the Effective Time, the separate existence of Bancshares shall
cease and BancTrust, as the surviving corporation, shall continue unaffected and
unimpaired by the Merger. BancTrust as existing on and after the Effective Time
is hereinafter sometimes referred to as the "Surviving Corporation."
(b) The Surviving Corporation shall have all the rights, privileges,
immunities and powers and shall be subject to all the duties and liabilities of
a corporation organized under the ABCA law and shall thereupon and thereafter
possess all other privileges, immunities, and franchises of a private, as well
as of a public nature, of each of the constituent corporations. All property
(real, personal and mixed) and all debts on whatever account, including
subscriptions to shares, and all other choses in action, all and every other
interest, of or belonging to or due to each of the constituent corporations so
merged, shall be taken and deemed to be transferred to and vested in the
Surviving Corporation without further act or deed. The title to any real estate,
or any interest therein, vested in any of the constituent corporations shall not
revert or be in any way impaired by reason of the Merger. The Surviving
Corporation shall thenceforth be responsible and liable for all the liabilities
and obligations of each of the constituent corporations so merged; and any claim
existing or action or proceeding pending by or against either of the constituent
corporations may be prosecuted as if the Merger had not taken place or the
Surviving Corporation may
I-3
<PAGE>
be substituted in its place. Neither the rights of creditors nor any liens upon
the property of any constituent corporation shall be impaired by the Merger.
(c) The names of the corporations proposing to merge are "Elmore County
Bancshares, Inc." and "The Peoples BancTrust Company, Inc." At and after the
Effective Time, the name of the Surviving Corporation shall be "The Peoples
BancTrust Company, Inc."
(d) The Articles of Incorporation and Bylaws of BancTrust in effect
immediately prior to the Effective Time shall be the Articles of Incorporation
and Bylaws of the Surviving Corporation, in each case until amended in
accordance with applicable law.
2.4 Directors and Officers
----------------------
(a) At and after the Effective Time, the directors of the Surviving
Corporation, who shall hold office until their resignation or removal or until
their successors have been elected and qualified in accordance with the ABCA and
the Surviving Corporation's Articles of Incorporation and Bylaws of the
Surviving Corporation, shall be those persons who are serving as directors of
BancTrust as of the Effective Time, with the addition of Mr. Arnold B. Dopson
and Dr. D.P. Wilbanks.
(b) At and after the Effective Time, the officers of the Surviving
Corporation shall be those persons who are serving as officers of BancTrust as
of the Effective Time.
2.5 Capital Stock of BancTrust
--------------------------
Each share of capital stock of BancTrust issued and outstanding immediately
prior to the Effective Time shall, at and after the Effective Time, continue to
be issued and outstanding, and shall be an identical outstanding share of the
Surviving Corporation.
2.6 Conversion and Exchange of Bancshares Common Stock; Fractional Share
--------------------------------------------------------------------
Interests
---------
(a) At the Effective Time, except as provided in Sections 2.6(b) and (h)
below, each share of Bancshares Common Stock issued and outstanding immediately
prior to the Effective Time shall thereupon and thereafter, by virtue of the
Merger becoming effective and without any action on the part of the holder
thereof or any other person, be converted into the right of the registered
holder thereof immediately prior to the Effective Time (such registered holder
being hereinafter referred to as a "Record Holder") to receive the number of
shares of BancTrust Common Stock that is equal to the product of one multiplied
by the Exchange Ratio, as defined herein. Cash will be paid in lieu of
fractional shares pursuant to Section 2.6(g) hereof.
As used in this Section 2.6:
(i) "Exchange Ratio" shall mean the quotient of (A) the product
of 2.35 times the Net Book Value Per Share (as defined herein) divided by
(B) the Fair Market Value Per BancTrust Share (as defined herein);
(ii) "Net Book Value Per Share" shall mean (A) the net book value
of Bancshares as reasonably determined by BancTrust as of September 30, 1997,
through due diligence investigation and certified through reasonable audits and
audit tests of Wilson, Price, Barranco, divided by (B) the total number of
shares of Bancshares Common Stock issued and outstanding as of September 30,
1997, provided that, if Bancshares' aggregate out-of-pocket fees and expenses
associated with the Merger exceed $25,000 (the "Approved Amount"), then the net
book value of Bancshares (clause (A) of this paragraph) shall be reduced by the
difference between such out-of-pocket fees and expenses and the Approved Amount;
and
(iii) "Fair Market Value Per BancTrust Share" shall mean $20.00.
I-4
<PAGE>
(b) At the Effective Time, all shares of Bancshares Common Stock (i) held
as treasury stock by Bancshares, (ii) owned beneficially by Bancshares,
Tallassee or any Bancshares Subsidiary other than in a fiduciary capacity or in
connection with a debt previously contracted or (iii) owned beneficially by
BancTrust or any subsidiary of BancTrust other than in a fiduciary capacity or
in connection with a debt previously contracted shall be cancelled and no cash,
stock or other property shall be delivered in exchange therefor.
(c) After the Effective Time, each Record Holder shall surrender the
certificate(s) that immediately prior to the Effective Time evidenced and
represented Bancshares Common Stock ("Certificate(s)") to the exchange agent to
be selected by BancTrust and which may be Peoples (the "Exchange Agent"), and
each Record Holder shall be entitled upon such surrender to receive in exchange
therefor certificate(s) representing the number of whole shares of BancTrust
Common Stock to which such Record Holder is entitled as provided herein and to
check in an amount equal to the amount of cash, without interest, to which such
Record Holder is entitled for any fraction of a share under Section 2.6(g)
hereof. Within five (5) business days after the Effective Time, the Exchange
Agent shall transmit by U.S. Mail a notice and appropriate transmittal materials
to each Record Holder whose shares of Bancshares Common Stock shall have been
converted into BancTrust Common Stock advising such holder of the properly
completed transmittal materials, together with the Certificates that formerly
evidenced and represented the Record Holders' shares of Bancshares Common
Stock, the Exchange Agent shall deliver the consideration to which such Record
Holders are entitled pursuant to Sections 2.6(a) and (g) hereof, and the
surrendered Certificates shall forthwith be cancelled. The Exchange Agent shall
not be obligated to deliver the consideration to which any Record Holder is
entitled as a result of the Merger until such Record Holder shall have
surrendered the Certificate(s) that formerly evidenced and represented shares
of Bancshares Common Stock outstanding immediately prior to the Effective Time
for exchange as provided in this Section 2.6(c), and no interest shall accrue or
be paid on such amounts. In the case of lost or stolen certificates, the
Exchange Agent may require such Record Holder to execute a bond of the kind and
amount it deems necessary or appropriate to indemnify the Exchange Agent in a
manner reasonably satisfactory to it against all such claims, expenses and
liabilities as may arise out of its payment to such registered holder in the
absence of the surrender of a certificate. After the Effective Time, each
Certificate that evidenced and represented shares of Bancshares Common Stock
outstanding immediately prior to the Effective Time shall be deemed for all
corporate purposes to evidence and represent only the right of the registered
holder thereof to receive the consideration provided in Section 2.6(a) hereof,
upon compliance with the provisions of this Section 2.6(c), and shall evidence
and represent no further interest of any kind or nature whatsoever in
Bancshares.
(d) Until surrendered as provided in Section 2.6(c) hereof, each
Certificate shall be deemed for all purposes to evidence ownership of the number
of shares of BancTrust Common Stock into which the shares represented by such
Certificate have been converted; however, no dividend or other distribution
payable with respect to the shares of BancTrust Common Stock shall be paid to an
entitled former shareholder of Bancshares until such shareholder surrenders his
or her Certificate(s) for exchange as provided in Section 2.6(c), at which time,
subject to Section 2.6(i) below, such shareholder shall receive all dividends
and distributions, without interest thereon, previously payable but withheld
from such shareholder pursuant to this Section 2.6(d). Certificates surrendered
for exchange by any person constituting an "affiliate" of Bancshares for
purposes of Rule 145(c) under the Securities Act shall not be exchanged for
certificates representing whole shares of BancTrust Common Stock until BancTrust
has received from such person the written agreement contemplated by Section 5.11
hereof and shall contain any legends required by applicable law.
(e) As of the Effective Time, the stock transfer books of Bancshares shall
be closed, and no transfers of Bancshares Common Stock by such holder shall
thereafter be made or recognized. On the Closing Date, Bancshares shall deliver
to BancTrust a certified copy of its list of shareholders as of such date.
(f) In the event that prior to the Effective Time the outstanding shares
of Bancshares Common Stock shall have been increased, decreased, or changed into
or exchanged for a different number or kind of shares or securities by
reorganization, recapitalization, reclassification, stock dividend, stock split,
or other like change in capitalization, then an appropriate and proportionate
adjustment shall be made in the number and kind of shares of BancTrust Common
Stock to be thereafter delivered pursuant to this Agreement.
I-5
<PAGE>
(g) Notwithstanding any other provision hereof, each holder of Bancshares
Common Stock who would otherwise have been entitled to receive a fraction of a
share of BancTrust Common Stock (after taking into account all Certificates
delivered by such shareholder) shall receive, in lieu thereof, cash in an
amount equal to such fractional part of a share of BancTrust Common Stock
multiplied by the BancTrust shareholder's equity per share of outstanding
BancTrust Common Stock as of September 30, 1997, or such other date as shall be
mutually agreed upon by the parties. No such holder shall be entitled to
dividends, voting rights or any other shareholder right in respect of any
fractional share. All fractional share interests of each such holder shall be
aggregated.
(h) Any holder of shares of Bancshares Common Stock shall be entitled to
exercise dissenters' rights of appraisal as specified in the ABCA if such
shareholder complies in all respects with the procedures set forth in Sections
13.20-13.28 of the ABCA. Shares of Bancshares Common Stock that have not been
voted for adoption of the Agreement and with respect to which appraisal shall
have been properly demanded in accordance with the foregoing provisions of the
ABCA ("Dissenting Shares") shall not be converted into the right to receive
shares of BancTrust Common Stock pursuant to Section 2.6(a) hereof at and after
the Effective Time unless and until the holder of Dissenting Shares withdraws
his or her demand or becomes ineligible for such appraisal.
(i) Any other provision of this Agreement notwithstanding, no party
hereto or agent thereof shall be liable to a holder of Bancshares Common Stock
for any amount paid or property delivered in good faith to a public official
pursuant to any applicable abandoned property, escheat, or similar law.
2.7 Effective Time of the Merger
----------------------------
Immediately following and contingent upon the occurrence of the Closing,
the Merger shall become effective at the time, and on the date, specified in the
Articles of Merger as filed with the Secretary of State of Alabama in accordance
with the applicable provisions of the ABCA. Such time and date shall be referred
to in this Agreement as the "Effective Time."
2.8 Further Assurances
------------------
If at any time the Surviving Corporation shall consider or be advised that
any further assignments, conveyances or assurances are necessary or desirable to
vest, perfect or conform in the Surviving Corporation title to any property or
rights of Bancshares, or otherwise carry out the provisions hereof, the proper
officers and directors of Bancshares, as of the Effective Time, and thereafter
the officers of the Surviving Corporation, acting on behalf of Bancshares, shall
execute and deliver any and all property or assignments, conveyances and
assurances, and do all things necessary or desirable to vest, perfect or confirm
title to such property or rights in the Surviving Corporation and otherwise
carry out the provisions hereof.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BANCSHARES AND TALLASSEE
Bancshares and Tallassee represent and warrant to BancTrust and Peoples as
follows:
3.1 Capital Structure of Bancshares
-------------------------------
The authorized capital stock of Bancshares consists of 1,680,000 shares
of Bancshares Common Stock. As of the date hereof, there are 554,140 shares of
Bancshares Common Stock issued and outstanding and an additional 285,860 shares
of Bancshares Common Stock issued and held as treasury stock. All outstanding
shares of Bancshares Common Stock have been duly issued and are validly
outstanding, fully paid and nonassessable. Except for options described on
Schedule 3.1 and the option referred to in Section 5.15 hereof, there
are no Rights authorized, issued or outstanding with respect to the capital
stock of Bancshares. None of the shares of Bancshares Common Stock has been
issued in violation of the preemptive rights of any person. No shares of
preferred stock are authorized under the Articles of Incorporation of
Bancshares.
I-6
<PAGE>
3.2 Capital Structure of Tallassee
------------------------------
The authorized capital stock of Tallassee consists of 42,000 shares of
Tallassee Common Stock. As of the date hereof, there are 42,000 shares of
Tallassee Common Stock issued and outstanding, all of which are held of record
and beneficially by Bancshares. All outstanding shares of Tallassee Common Stock
have been duly issued and are validly outstanding, fully paid and nonassessable.
There are no Rights authorized, issued or outstanding with respect to the
capital stock of Tallassee. None of the shares of Tallassee Common Stock has
been issued in violation of the preemptive rights of any person.
3.3 Organization, Standing and Authority of Bancshares and Tallassee
----------------------------------------------------------------
Bancshares is a business corporation and Tallassee is a commercial bank,
each of which is duly organized, validly existing and in good standing under the
laws of the State of Alabama with full corporate power and authority to carry on
its business as now conducted and is duly qualified to do business in each
jurisdiction in which its ownership or leasing of property or the conduct of its
business requires such qualification and where the failure to so qualify would
have a material adverse effect on the financial condition, results of operation,
business or prospects of Bancshares or Tallassee. Bancshares is registered as a
bank holding company under the BHCA. Bancshares and Tallassee have previously
delivered to BancTrust and Peoples true and complete copies of the Articles of
Incorporation and Bylaws of Bancshares and Tallassee as of the date hereof.
3.4 Bancshares Subsidiaries
-----------------------
Set forth on Schedule 3.4 hereto, which is incorporated herein by
reference, is the name and state of incorporation of each of the Bancshares
Subsidiaries. Each of the Bancshares Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation and has all requisite corporate power and authority to own,
operate and lease its properties and to carry on its business. Each of the
Brancshares Subsidiaries is duly qualified and in good standing to do business
as a foreign corporation in each jurisdiction where the nature or location of
such subsidiary's assets or its business makes such qualification necessary,
except where the failure to be so qualified or in good standing does not and
will not have a material adverse effect on Bancshares and its subsidiaries taken
as a whole. All the outstanding shares of capital stock of each of the
Bancshares Subsidiaries is duly authorized, validly issued, fully paid, and non-
assessable, have been issued in compliance with all applicable federal and state
securities laws, and are owned directly or indirectly by Bancshares or Tallassee
free and clear of all liens, claims or encumbrances. There are no outstanding
options, warrants, calls, rights, commitments, or other agreements of any
character obligating any of the Bancshares Subsidiaries to issue any shares of
its capital stockor any securities convertible into or evidenceing the right
topurchase or acquire any shares of such capital stock. Except for shares of the
Bancshares Subsidiaries and securities or other interests taken in consideration
of debts previously contracted, neither Bancshares Subsidiaries and securities
or other interests taken in consideration of debts previously contracted,
neither Bancshares nor Tallassee owns or has the right to acquire, directly or
indirectly, any outstanding capital stock or other voting securities or
ownership interest of any corporation, bank, savings association, partnership,
joint venture, or other organization.
3.5 Authorized and Effective Agreement
----------------------------------
(a) Each of Bancshares and Tallassee has all requisite corporate power and
authority to enter into this Agreement and (subject to receipt of all necessary
governmental approvals and the approval of this Agreement by Bancshares'
shareholders) to perform all of its obligations under this Agreement. The
execution and deliver of this Agreement and consummation of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action in respect thereof on the part of Bancshares, except the
approval of this Agreement by Bancshares' shareholders. This Agreement
constitutes a legal, valid and binding obligation of Bancshares and Tallassee,
enforceable against each of them in accordance with its terms, subject, as to
enforceability, to bankruptcy, insolvency and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
(b) Neither the execution and delivery of this Agreement, nor consummation
of the transactions contemplated hereby, nor compliance by Brancshares or
Tallassee with any of the provisions hereof shall (i) conflict with or result in
a breach of any provision of the Articles of Incorporation or Bylaws of either
of Bancshares or
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Tallassee, (ii) constitute or result in a breach of any term, condition or
provision of, or constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon any material property or asset
of Bancshares or Tallassee pursuant to, any note, bond, mortgage, indenture,
license, agreement or other instrument or obligation, or (iii) subject to
receipt of all required governmental approvals, violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Bancshares or
Tallassee.
3.6 Regulatory Reports
-------------------
For the five years preceding the date hereof, Bancshares has duly filed
with the FRB and Tallassee has duly filed with the Superintendent and the FDIC
in correct form in all material respects the monthly, quarterly and annual
reports and other documents required to be filed with all applicable
governmental authorities, and such reports and other documents comply in all
material respects with applicable law and regulations. Bancshares and Tallassee
have previously delivered, or will deliver, to BancTrust and Peoples complete
and accurate copies of all such reports. In connection with the most recent
examinations of Bancshares and Tallassee by the FRB, the FDIC and the
Superintendent, and except as disclosed on Schedule 3.6 hereto, neither
Bancshares nor Tallassee was required to correct or change any action, procedure
or proceeding that Bancshares or Tallassee believes has not been corrected or
changed as required as of the date hereof.
3.7 Financial Statements
--------------------
(a) The Financial Statements of Bancshares fairly present or will fairly
present, as the case may be, the consolidated financial position of Bancshares,
Tallassee and the Bancshares Subsidiaries as of the dates indicated and the
results of operations, changes in shareholders' equity and statements of cash
flows for the periods then ended in conformity with generally accepted
accounting principles applied on a consistent basis (except as stated therein).
(b) The books and record of Bancshares and Tallassee are being
maintained in material compliance with applicable legal and accounting
requirements.
3.8 Material Adverse Change
-----------------------
Except as disclosed on Schedule 3.8 hereto, Bancshares has not suffered
any material adverse change in its business, financial condition, results of
operations or prospects since the date of its most recent audited Financial
Statements, nor are there any circumstances that, to the knowledge of
Bancshares, could reasonably be expected to result in any such material adverse
change.
3.9 Absence of Undisclosed Liabilities
----------------------------------
Except as disclosed on Schedule 3.9 hereto, neither Bancshares nor
Tallassee has any liability (contingent or otherwise) that is material to
Bancshares or Tallassee or that, when combined with all similar liabilities,
would be material to Bancshares or Tallassee, except for liabilities incurred in
the ordinary course of business since the date of the most recent audited
Financial Statements, nor are there any circumstances that, to the knowledge of
Bancshares and Tallassee, are reasonably expected to result in any such
liability.
3.10 Environmental Matters
---------------------
(a) Schedule 3.10 hereto lists all facts, circumstances and events known
to Bancshares or Tallassee that relate to any material noncompliance, alleged
noncompliance or potential noncompliance by Bancshares, Tallassee or any
Bancshares Subsidiary with any Environmental Law or any material liability or
potential liability by Bancshares, Tallassee or any Bancshares Subsidiary under
any such law.
(b) Except as contained in Schedule 3.10, Bancshares, Tallassee and the
Bancshares Subsidiaries are in compliance in all material respects with all
Environmental Laws, except for any violations of any Environmental Law that
would not, singly or in the aggregate, have a material adverse effect on the
business, financial condition,
I-8
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results of operations or prospects of Banchshares, Tallassee and the Bancshares
Subsidiaries taken as a whole. Neither Bancshares, Tallassee, nor any
Bancshares Subsidiary has received any communication alleging that it is not in
such compliance and, to the best knowledge of Bancshares, there are no present
circumstances that would prevent or interfere with the continuation of such
compliance.
(c) Except as contained in Schedule 3.10, neither Bancshares,
Tallassee, nor any of the Bancshares Subsidiaries is in violation or liable
under any Environmental Law, and none of the properties owned, leased, managed,
controlled or operated by Bancshares, Tallassee or any of the Bancshares
subsidiaries, and to the best knowledge of Bancshares, any property in which any
of such companies holds a security interest is in violation of or liable under
any Environmental Law, except any such violations or liabilities that would not
singly or in the aggregate have a material adverse effect on the financial
condition, results of operations, business or prospects of Bancshares, Tallassee
and the Bancshares Subsidiaries taken as a whole.
(d) Except as contained in Schedule 3.10, to the best knowledge of
Bancshares, there are no past or present actions, activities, circumstances,
conditions, events or incidents that could reasonably form the basis of any
Environmental Claim or other claim or action or governmental investigation that
could result in the imposition of any liability arising under any Environmental
Law against Bancshares, Tallassee or any of the Bancshares Subsidiaries or
against any person or entity whose liability for any Environmental Claim
Bancshares, Tallassee or any of the Bancshares Subsidiaries has or may have
retained or assumed either contractually or by operation of law, except any such
that would not have a material adverse effect on the financial condition,
results or operations, business or prospectus of Bancshares, Tallassee and the
Bancshares Subsidiaries taken as a whole.
3.11 Allowance for Loan Losses
-------------------------
The allowance for loan losses reflected on the statements of financial
condition included in Tallassee's most recently filed Consolidated Reports of
Condition and Income ("Call Report") is, in the opinion of the management of
Bancshares and Tallassee, adequate in all material respects as of the date of
the Call Report under applicable regulatory requirements and the requirements of
generally accepted accounting principles, to provide for reasonably anticipated
losses on outstanding loans net of recoveries.
3.12 Tax Matters
-----------
(a) For the past five years, Bancshares and Tallassee have timely
filed all federal, state and local (and, if applicable, foreign) tax returns
required by applicable law to be filed by them (including, without limitation,
estimated tax returns, income tax returns, information returns, and withholding
and employment tax returns) and have paid, or where payment is not required to
have been made, have set up an adequate reserve or accrual for the payment of
all taxes required to be paid in respect of the periods covered by such returns
and, as of the Effective Time, will have paid, or where payment is not required
to have been made, will have set up an adequate reserve or accrual for the
payment of, all taxes for any subsequent periods ending on or prior to the
Effective Time. At the Effective Time, neither Bancshares nor Tallassee will
have any material liability for any such taxes in excess of the amounts so paid
or reserves or accruals so established.
(b) For the past five years, all federal, state and local (and, if
applicable, foreign) tax returns filed by Bancshares and Tallassee have been
complete and accurate in all material respects. Neither Bancshares nor
Tallassee is delinquent in the payment of any material tax, assessment or tax
obligation, and neither Bancshares nor Tallassee has requested any extension of
time within which to file any tax returns in respect of any fiscal year or
portion thereof that have not since been filed. No deficiencies for the tax,
assessment or governmental charge have been proposed, asserted or assessed
(tentatively or otherwise) against Bancshares or Tallassee that have not been
settled and paid. There are currently no agreements in effect with respect to
Bancshares or Tallassee to extend the period of limitations for the assessment
or collection of any tax. Except as disclosed on Schedule 3.12 hereto, as of
the date hereof, no audit, examination or deficiency or refund litigation with
respect to such return is pending.
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3.13 Legal Proceedings; Regulatory Approvals
---------------------------------------
Except as disclosed on Schedule 3.13 hereto, there are no actions,
suits, claims, governmental investigations or proceedings instituted, pending
or, to the best knowledge of Bancshares and Tallassee, threatened (or unasserted
but considered by Bancshares or Tallassee probable of assertion and, if
asserted, would have at least a reasonable probability of a material adverse
effect) against Bancshares or Tallassee or against any asset, interest, or right
of Bancshares or Tallassee or against any officer, director or employee of
either of them that in any such case, if decided adversely, would have a
material adverse effect on the financial condition, results of operations,
business or prospects of Bancshares or Tallassee. To the best knowledge of
Bancshares and Tallassee, there are no actual or threatened actions, suits or
proceedings that present a claim to restrain or prohibit the transactions
contemplated herein. No fact or condition (including but not limited to
Community Reinvestment Act compliance) relating to Bancshares or Tallassee,
known to Bancshares or Tallassee, exists that would prevent BancTrust and
Peoples from obtaining all of the federal and state regulatory approvals and
consents contemplated herein without the imposition of any condition that
BancTrust determines to be materially burdensome to BancTrust or the Surviving
Corporation.
3.14 Compliance with Laws
--------------------
Bancshares and Tallassee are in compliance in all material respects with
all statutes and regulations applicable and material to the conduct of their
respective business (except for any violations not material to the financial
condition, results of operations, business or prospects of Bancshares and
Tallassee, respectively). Neither Bancshares nor Tallassee has received
notification from any agency or department of federal, state or local government
(i) asserting a violation or possible violation of any such statute or
regulation that would have a material adverse effect on the financial condition,
results of operations, business or prospects of Bancshares or Tallassee, (ii)
threatening to revoke any license, franchise, permit or government authorization
or (iii) restricting or in any way limiting the operations of Bancshares or
Tallassee. Neither Bancshares nor Tallassee is subject to any regulatory or
supervisory cease and desist order, agreement, written directive, memorandum of
understanding or written commitment, nor has received any written communication
requesting that either enter into any of the foregoing.
3.15 Deposit Insurance and Other Regulatory Matters
----------------------------------------------
The deposit accounts of Tallassee are insured by the Bank Insurance Fund
of the FDIC to the maximum extent permitted by law, and Tallassee has paid all
premiums and assessments and filed all reports required under the FDIA,
Tallassee has no brokered deposits.
3.16 Certain Information
-------------------
When the Registration Statement or any post-effective amendment thereto
shall become effective, and at all times subsequent to such effectiveness up to
and including the time of the meeting of the shareholders of Bancshares to vote
upon the Merger, such Registration Statement and all amendments or supplements
thereto, with respect to all information set forth therein furnished by
Bancshares relating to Bancshares and Tallassee, (i) shall comply in all
material respects with the applicable provisions of the Securities Laws, and
(ii) shall not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
3.17 Employee Benefit Plans
----------------------
(a) Appended as Schedule 3.17 hereto is a complete list of all stock
option, employee stock purchase and stock bonus plans, qualified pension or
profit-sharing plans, any deferred compensation, consultant, bonus or group
insurance contract and any other incentive, welfare and employee benefit plans
and agreements maintained for the benefit of employees or former employees of
Bancshares and/or Tallassee. Bancshares and Tallassee shall make available to
BancTrust full and complete copies of all such plans and agreements, together
with (i) the most recent actuarial and financial reports prepared with respect
to any qualified plans, (ii) the most recent annual reports filed with any
governmental agency, and (iii) all rulings and determination letters and any
open requests for rulings or letters that pertain to any qualified plan.
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(b) Neither Bancshares (or Tallassee) nor any pension plan maintained by
Bancshares (or Tallassee) and qualified under Section 401 of the Code has
incurred any material liability to the Pension Benefit Guaranty Corporation or
the Internal Revenue Service with respect to any pension plan that Bancshares or
Tallassee maintains for or with respect to any of its employees and that is
qualified under Section 401 of the Code except liabilities to the Pension
Benefit Guaranty Corporation pursuant to Section 4007 of ERISA, all of which
have been fully paid. To the best of the knowledge of Bancshares and Tallassee,
no reportable event under Section 4043(b) of ERISA has occurred with respect
to any such pension plan.
(c) Neither Bancshares nor Tallassee participates in or has incurred any
liability under Section 4201 of ERISA for a complete or partial withdrawal from,
a multiemployer plan (as such term is defined in ERISA).
(d) A favorable determination letter has been issued by the Internal
Revenue Service with respect to each "employee pension plan" (as defined in
Section 3(2) of ERISA) of Bancshares and/or Tallassee that is intended to
qualify under Section 401 of the Code to the effect that such plan is qualified
under Section 401 of the Code and the trust associated with such employee
pension plan is tax exempt under Section 501 of the Code. To the best of the
knowledge of Bancshares and Tallassee, no such letter has been revoked or
threatened to be revoked, and neither Bancshares nor Tallassee knows of any
ground on which such revocation may be based. Neither Bancshares nor Tallassee
has any material liability under any such plan that is not reflected on the
balance sheet included in the Financial Statements as of December 31, 1996.
(e) To the best knowledge of Bancshares and Tallassee, no prohibited
transaction (which shall mean any transaction prohibited by Section 406 of ERISA
and not exempt under Section 408 of ERISA of Section 4975 of the Code) has
occurred with respect to any employee benefit plan maintained by Bancshares of
Tallassee (i) that would result in the imposition, directly or indirectly, of a
material excise tax under Section 4975 of the Code, or (ii) the correction of
which would have a material adverse effect on the financial condition, results
of operations, business or prospects of Bancshares or Tallassee.
(f) Neither Bancshares nor Tallassee maintains any defined benefit plan.
3.18 Certain Contracts
-----------------
(a) Except as disclosed on Schedule 3.18 hereto, at the date hereof,
neither Bancshares nor Tallassee is a party to, is bound or affected by,
receives, or is obligated to pay, benefits under (i) any material agreement,
arrangement or commitment not made in the ordinary course of business,
including, without limitation, agreements or memoranda of understanding with
regulatory authorities, (ii) any agreement, indenture or other instrument not
made in the ordinary course of business relating to the borrowing of money by
Bancshares or Tallassee or the guarantee by Bancshares or Tallassee of any such
obligation, (iii) any agreement, arrangement or commitment relating to the
employment of a consultant or the employment, election or retention in office of
any present or former director or officer, or (iv) any contract, agreement or
understanding with a labor union, in each case whether written or oral.
(b) Neither Bancshares nor Tallassee is in default, which default would
have a material adverse effect on Bancshares or Tallassee or the transactions
contemplated herein, under any agreement, commitment, arrangement, lease,
insurance policy, or other instrument whether entered into the ordinary course
of business or otherwise and whether written or oral, and there has not occurred
any event that, with the lapse of time or giving of notice or both, would
constitute such a default.
3.19 Brokers and Finders
-------------------
Except for the retention of T. Stephen Johnson and Associates as its
financial advisor in connection with the Merger, neither Bancshares nor
Tallassee nor any of their respective officers, directors or employees has (a)
entered into any agreement with any broker, finder, financial advisor or
attorney relating to services rendered or to be rendered to Bancshares or
Tallassee in connection with the Merger or (b) incurred any liability for any
fees, commissions or other transaction-based compensation in connection with the
Merger (other than fees to attorneys, auditors and similar professionals).
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3.20 Insurance
---------
Set forth on Schedule 3.20 is an accurate and complete list and a brief
description of all policies of insurance, including fidelity and bond insurance,
of Bancshares and Tallassee. Neither Bancshares nor Tallassee is in default with
respect to the provisions of any such policy or has failed to give notice or to
present any claim thereunder in a due and timely fashion. All such policies (a)
are sufficient for compliance by Bancshares and Tallassee with all requirements
of law and all agreements to which Bancshares or Tallassee is a party, (b) are
valid, outstanding and enforceable and (c) will not terminate or lapse prior to
the Effective Time without similar policies being obtained that would continue
until the Effective Time.
3.21 No Repurchase Agreements
------------------------
Except for the Agreement for Sale of Stock dated August 14, 1990 and
further described in Section 5.17 hereof, neither Bancshares nor Tallassee is a
party to any agreement pursuant to which Bancshares or Tallassee has purchased
securities subject to an agreement to resell, any agreements pursuant to which
Bancshares or Tallassee has sold securities subject to an agreement to
repurchase, or any interest rate swap or other similar agreement.
3.22 Loans
-----
Each of the loans on the books and records of Bancshares and Tallassee,
including unfunded portions of outstanding lines of credit and loan commitments,
was made in all material respects in accordance with customary lending standards
in the ordinary course of business, is evidenced in all material respects by
appropriate and sufficient documentation and, to the best knowledge of
Bancshares and Tallassee, constitutes the legal, valid and binding obligation of
the obligator named therein, subject to bankruptcy, insolvency, fraudulent
conveyance and other laws of general applicability relating to or affecting
creditors' rights and to general equity principles. To the best knowledge of
Bancshares and Tallassee, neither the terms of any such loans nor any of the
loan documentation, nor the manner in which such loans have been administered
and serviced, violates, in a any material respect, any federal, state or local
statute, regulation or ordinance, including but not limited to Regulation O of
the FRB, the regulations of the FDIC and the Alabama State Banking Department,
the Truth in Lending Act, the Equal Credit Opportunity Act, Regulations Z and B
of the FRB, and state laws, rules and regulations relating consumer protection,
instalment sales and usury.
3.23 Properties
----------
All real personal property owned by Bancshares and Tallassee or presently
used by either of them in their respective business is in an adequate condition
(ordinary wear and tear expected) and is sufficient to carry on the business of
Bancshares and Tallassee in the ordinary course of business consistent with
their past practices. Bancshares and Tallassee have good and marketable title
free and clear of all liens, encumbrances, charges, defaults or equities (other
than equities of redemption under applicable foreclosure laws) to all of the
material properties and assets, real and personal, reflected on the statements
of financial condition included in the most recent audited Financial Statements
of Bancshares and Tallassee or acquired after such date, except (i) liens for
current taxes not yet due and payable, (ii) pledges to secure deposits and other
liens incurred in the ordinary course of its banking business, (iii) such
imperfections of title, easements and encumbrances, if any, as are not material
in character, amount or extent, (iv) dispositions and encumbrances for business
and (v) as disclosed in the Financial Statements of Bancshares and Tallassee.
All material leases pursuant to which Bancshares or Tallassee, as lessee, leases
real or personal property, are valid and enforceable in accordance with their
respective terms.
3.24 Minute Books
------------
The minute books of Bancshares and Tallassee contain complete and accurate
records of all meetings and other corporate actions held or taken by their
respective Boards of Directors (including committees of their respective Boards
of Directors) and shareholders.
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3.25 Disclosures
-----------
None of the representations and warranties of Bancshares and Tallassee, or
any of the information or documents furnished or to be furnished by Bancshares
or Tallassee to BancTrust and Peoples in connection with the execution and
delivery of this Agreement and the consummation of the merger, is or will be
false or misleading in any material respect or contains or will contain any
untrue statement of a material fact. Except as set forth on Schedule 3.25
hereto, there is no fact known to Bancshares or Tallassee that could materially
adversely affect the financial condition, results of operation, business or
prospects of Bancshares on a consolidated basis. To the best knowledge of
Bancshares and Tallassee, copies of all documents referred to in, and/or
provided to BancTrust pursuant to this Article III are true, correct and
complete copies thereof and include all amendments, supplements, and
modifications thereto and all waivers thereunder.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
BANCTRUST AND PEOPLES
BancTrust and Peoples each represent and warrant to Bancshares as follows:
4.1 Capital Structure
-----------------
The authorized capital stock of BancTrust consists of (i) 9,000,000 shares
of BancTrust Common Stock, of which 3,387,388 shares are issued and outstanding
as of the date hereof, and (ii) 1,000,000 shares of preferred stock, par value
$.10 per share, of which no shares are issued or outstanding as of the date
hereof. All outstanding shares of BancTrust of Common Stock have been duly
issued and are validly outstanding, fully paid and nonassessable. As the date
hereof, BancTrust had reserved 200,000 shares of BancTrust Common Stock for
issuance under its stock option plan. Except for stock options under BancTrust's
stock option plan, there are no Rights authorized, issued or outstanding with
respect to the capital stock of BancTrust. None of the shares of BancTrust
Common Stock has been issued in violation of the preemptive rights of any
person. Each share of BancTrust Common Stock that the holders of Bancshares
Common Stock will have the right to receive in respect of their shares of
Bancshares Common Stock after the Effective Time has been duly authorized and,
when issued in accordance with this Agreement, will be validly issued, fully
paid and nonassessable and will have the same rights as each share of the
BancTrust Common Stock currently outstanding.
4.2 Organization, Standing and Authority
------------------------------------
BancTrust is a corporation, and Peoples is a commercial bank, both duly
organized, validly existing and in good standing under the laws of the State of
Alabama. Each has full corporate power and authority to carry on its business as
now conducted and is duly qualified to do business in each jurisdiction in which
its ownership or leasing of property or the conduct of its business requires
such qualification and where the failure to so qualify would have a material
adverse effect on the financial condition, results of operations, business or
prospects of BancTrust or Peoples. BancTrust is registered as a bank holding
company under the BHCA.
4.3 Ownership of Peoples and BancTrust Subsidiaries
-----------------------------------------------
The outstanding shares of capital stock or other ownership interests of
Peoples and the BancTrust Subsidiaries are validly issued and outstanding, fully
paid and nonassessable, and all such shares are directly or indirectly owned by
BancTrust free and clear of all liens, claims and encumbrances or preemptive
rights of any person. No Rights are authorized, issued or outstanding with
respect to the capital stock or other ownership interests of Peoples or any
BancTrust Subsidiary, and there are no agreements, understanding or commitments
relating to the right of BancTrust to vote or to dispose of said shares or other
ownership interest.
4.4 Authorized and Effective Agreement
----------------------------------
(a) Each of BancTrust and Peoples has all requisite corporate power and
authority to enter into this Agreement, and (subject to receipt of all necessary
governmental approvals and the approval of this Agreement by
I-13
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BancTrust's shareholders) to perform all of its obligations under this
Agreement. The execution and delivery of this Agreement, and the consummation of
the transactions contemplated hereby, have been duly and validly authorized by
all necessary corporate action in respect thereof on the part of BancTrust and
Peoples except the approval of this Agreement by BancTrust's shareholders. This
Agreement constitutes a legal, valid and binding obligation of BancTrust and
Peoples, enforceable against each of them in accordance with its terms subject,
as to enforceability, to bankruptcy, insolvency and other laws of general
applicability relating to or affecting creditors' rights and to general equity
principles.
(b) Neither the execution and delivery of this Agreement, nor consummation
of the transactions contemplated hereby, nor compliance by BancTrust and
Peoples with any of the provisions hereof shall (i) conflict with or result in a
breach of any provision of the Articles of Incorporation or Bylaws of BancTrust
or Peoples, (ii) constitute or result in a breach of any term, condition or
provision of, or constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon any property or asset of
BancTrust or Peoples pursuant to, any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation, or (iii) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to BancTrust or
Peoples.
4.5 Securities Documents; Regulatory Reports
----------------------------------------
BancTrust has previously delivered to Bancshares complete and accurate
copies of its Annual Report on Form 10-K and Annual Report to Shareholders for
the fiscal year ended December 31, 1996 and its Quarterly Reports on Form 10-Q
for the fiscal quarters ended March 31, June 30 and September 30, 1997.
BancTrust has timely filed all Securities Documents required by the Securities
Laws for the past three years. Peoples has previously delivered to Bancshares
complete and accurate copies of its Call Reports for the quarters ended June 30
and September 30, 1997, as filed with the FRB.
4.6 Financial Statements
--------------------
The Financial Statements of BancTrust fairly present or will fairly
present, as the case may be, the consolidated financial position of BancTrust as
of the dates indicated and the results of operations, changes in shareholders'
equity and changes in cash flows for the periods then ended in conformity with
generally accepted accounting principles applied on a consistent basis (except
as stated therein).
4.7 Material Adverse Change
-----------------------
Neither BancTrust nor Peoples has suffered any material adverse change in
its financial condition, results of operations, business or prospects since the
date of the most recent audited Financial Statements of BancTrust, nor are there
any circumstances that, to the knowledge of BancTrust or Peoples, could
reasonably be expected to result in any such material adverse change.
4.8 Absence of Undisclosed Liabilities
----------------------------------
Except (a) as disclosed on Schedule 4.8 hereto and (b) for the obligations
of BancTrust under the Agreement and Plan of Reorganization dated as of December
2, 1997 by and among BancTrust, Peoples, Merchants & Planters Bancshares, Inc.
and Merchants & Planters Bank, neither BancTrust nor Peoples has any liability
(contingent or otherwise) that is material to BancTrust or Peoples that, when
combined with all similar liabilities, would be material to BancTrust or
Peoples, except as disclosed in the Financial Statements of BancTrust and except
for liabilities incurred in the ordinary course of their respective business
since the date of the most recent Financial Statements of BancTrust, nor are
there any such circumstances, that, to the knowledge of BancTrust and Peoples,
are reasonably expected to result in any such liability.
4.9 Allowance for Loan Losses
-------------------------
The allowance for loan losses reflected on the statements of financial
condition included in the Financial Statements of BancTrust is, in the opinion
of the management of BancTrust and Peoples, adequate in all material
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respects as of the date of the most recent Financial Statements of BancTrust
under the requirements of generally accepted accounting principles, to provide
for reasonably anticipated losses on outstanding loans net of recoveries.
4.10 Legal Proceedings; Regulatory Approvals
---------------------------------------
Except as disclosed on Schedule 4.10 hereto, on the date hereof, there are
no actions, suits, claims, governmental investigations or proceedings
instituted, pending or, to the best knowledge of BancTrust and Peoples,
threatened (or unasserted but considered by BancTrust and Peoples probable of
assertion and that, if asserted, would have a reasonable probability of a
material adverse effect) against BancTrust or Peoples or against any asset,
interest or right of BancTrust or Peoples, or against any officer, director or
employee of any of them that, if decided adversely, might have a material
adverse effect on the financial condition, results of operations, business or
prospects of BancTrust or Peoples. To the knowledge of BancTrust and Peoples,
there are no actual or threatened actions, suits or proceedings that present a
claim to restrain or prohibit the Merger or that would prevent BancTrust and
Peoples from obtaining all of the federal and state regulatory approvals
contemplated herein.
4.11 Tax Matters
-----------
(a) For the past five years, BancTrust and Peoples have timely filed all
federal, state and local (and, if applicable, foreign) tax returns required by
applicable law to be filed by them (including, without limitation, estimated tax
returns, income tax returns, information returns, and withholding and employment
tax returns) and have paid, or where payment is not required to have been made,
have set up an adequate reserve or accrual for the payment of, all taxes
required to be paid in respect of the periods covered by such returns and, as of
the Effective Time, will have paid, or where payment is not required to have
been made, will have set up an adequate reserve or accrual for the payment of,
all taxes for any subsequent periods ending on or prior to the Effective Time.
Neither BancTrust nor Peoples will have any material liability for any such
taxes in excess of the amounts so paid or reserves or accruals so established.
(b) For the past five years, all federal, state and local (and, if
applicable, foreign) tax returns filed by Banctrust and Peoples have been
complete and accurate in all material respects. Neither Bancshares nor Peoples
is delinquent in the payment of any material tax, assessment or tax obligation,
and neither BancTrust nor Peoples has requested any extension of time within
which to file any tax returns in respect of any fiscal year or portion thereof
that have not since been filed. No deficiencies for the tax, assessment or
governmental charge have been proposed, asserted or assessed (tentatively or
otherwise) against BancTrust or Peoples that have not been settled and paid.
There are currently no agreements in effect with respect to BancTrust or Peoples
to extend the period of limitations for the assessment or collection of any tax.
4.12 Deposit Insurance
-----------------
The deposit accounts of Peoples are insured by the FDIC to the maximum
extent permitted by law, and Peoples has paid all premiums and assessments and
filed all reports required under the FDIA.
4.13 Obstacles to Tax Treatment
--------------------------
To the best knowledge and belief of the management of BancTrust and
Peoples, no fact or condition (including Peoples' record of compliance with the
Community Reinvestment Act) exists that may reasonably be expected to prevent or
materially impede or delay BancTrust or Peoples from (i) obtaining the
regulatory approvals and consents required in order to consummate the Merger or
(ii) based on consultation with qualified tax advisors, obtaining the tax
treatment contemplated by Section 6.1(e) of this Agreement, and, if any such
fact or condition becomes known to the executive officers of BancTrust and/or
Peoples, BancTrust promptly (and in any event within 10 business days after
obtaining such knowledge) shall communicate such fact or condition to the Chief
Executive Officer of Bancshares.
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4.14 Compliance with Laws
--------------------
BancTrust and Peoples are in compliance in all material respects with
all statutes and regulations applicable and material to the conduct of their
respective businesses (except for any violations not material to the financial
condition, results of operations, business or prospects of BancTrust and
Peoples, respectively). Neither BancTrust nor Peoples has received notification
from any agency or department of federal, state or local government (i)
asserting a violation or possible violation of any such statute or regulation
that would have a material adverse effect on the financial condition, results of
operations, business or prospects of BancTrust or Peoples, (ii) threatening to
revoke any license, franchise, permit or government authorization or (iii)
restricting or in any way limiting the operations of Bancshares or Peoples.
Neither Bancshares nor Peoples is subject to any regulatory or supervisory cease
and desist order, agreement, written directive, memorandum of understanding or
written commitment, nor has received any written communication requesting that
either enter into any of the foregoing.
4.15 Certain Information
-------------------
When the Registration Statement or any post-effective amendment
thereto shall become effective, and at all times subsequent to such
effectiveness up to and including the time of the meeting of shareholders of
BancTrust to vote upon the Merger, such Registration Statement and all
amendments or supplements thereto, with respect to all information set forth
therein furnished by BancTrust relating to BancTrust and Peoples, (i) shall
comply in all material respects with the applicable provisions of the Securities
Laws, and (ii) shall not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements contained therein, in light of the circumstances under which they
were made, not misleading.
4.16 Brokers and Finders
-------------------
Except for the retention of Baxter Fentriss and Company as its
financial advisor in connection with the Merger, neither BancTrust nor Peoples
nor any of their respective officers, directors or employees has (a) entered
into any agreement with any broker, finder or financial advisor relating to
services rendered or to be rendered to BancTrust or Peoples in connection with
the Merger or (b) incurred any liability for any fees, commissions or other
transaction-based compensation in connection with the Merger (other than fees to
attorneys, auditors and similar professionals).
ARTICLE V
COVENANTS
5.1 Stockholder Meeting(s)
----------------------
Bancshares and BancTrust shall take all action necessary to properly
call and convene meetings of their shareholders as soon as reasonably
practicable, including without limitation the preparation of proxy materials for
such meetings of shareholders. At such meetings, this Agreement shall be
submitted for shareholder approval. Subject to compliance with the legal and
fiduciary duties of such directors, and subject further to the receipt by
Bancshares of an opinion of Bancshares' Financial Advisor (as defined in Section
5.2 hereof), dated on or immediately prior to the date of mailing of the Joint
Proxy Statement for the meeting of Bancshares shareholders at which this
Agreement will be considered and voted upon and not subsequently withdrawn prior
to such meeting of shareholders, to the effect that the terms of this Agreement,
including the Exchange Ratio, are fair to such shareholders from a financial
point of view, the Board of Directors of Bancshares shall recommend that its
shareholders approve this Agreement.
5.2 Financial Advisory Firm
-----------------------
Bancshares has selected, and will retain, the firm of T. Stephen
Johnson and Associates, Roswell, Georgia, as a financial advisor (the "Financial
Advisor") to provide a fairness opinion addressing the fairness of the Exchange
Ratio to the shareholders of Bancshares, for a fee of $10,000, plus expenses.
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5.3 Joint Proxy Statement; Registration Statement
---------------------------------------------
BancTrust and Bancshares shall cooperate in the timely preparation and
filing of the Registration Statement with the Commission, and BancTrust shall
use its best efforts to cause such Registration Statement to be declared
effective under the Securities Act, which Registration Statement, at the time it
becomes effective, and at the Effective Time, shall in all material respect
conform to the requirements of the Securities Act and the general rules and
regulations of the Commission thereunder. The Registration Statement shall
include the form of Joint Proxy Statement for the meetings of shareholders of
each of BancTrust and Bancshares to be held for the purpose of having such
shareholders vote upon approval of this Agreement. BancTrust and Bancshares
shall cause the Joint Proxy Statement to be mailed to their shareholders.
Bancshares will furnish to BancTrust the information required to be included in
the Registration Statement and any amendments thereto with respect to its
business and affairs before it is filed with the Commission and again before any
amendment is filed, and shall have the right to review and comment on the form
of Joint Proxy Statement included in the Registration Statement and any
amendments thereto prior to the filing with the Commission. BancTrust shall take
all actions required to qualify or obtain exemptions from such qualification for
the BancTrust Common Stock to be issued in connection with the Merger, under
applicable state "Blue Sky" laws, as appropriate.
5.4 Applications
------------
(a) As promptly as practicable after the date hereof, BancTrust shall
submit applications for prior approval of the transactions contemplated herein
to each federal, state or local government agency, department or body the
approval of which is required for consummation of the Merger. Bancshares shall
have the right to review and comment on the portions of such applications and
amendments that relate directly to it prior to their filing with any regulatory
agencies, and BancTrust promptly shall furnish Bancshares with copies after
filing of applications with these or any other regulatory agencies. The parties
to this Agreement represent and warrant to each other that all information
concerning them and their directors, officers and shareholders included (or
submitted for inclusion) in any such application shall be true, correct and
complete in all material respects.
(b) BancTrust shall use all reasonable efforts to cause the shares of
BancTrust Common Stock to be issued in the Merger to be approved for listing on
the NASDAQ SmallCap Market.
5.5 Best Efforts
------------
BancTrust and Bancshares shall each use its best efforts in good faith to
(i) furnish such information as may be required in connection with and otherwise
cooperate in the preparation and filing of the documents referred to in Section
5.3 and 5.4 above, and (ii) take or cause to be taken all action necessary or
desirable on its part so as to permit consummation of the Merger at the earliest
practicable date. Neither BancTrust or Peoples on the one hand nor Bancshares or
Tallassee on the other hand shall take, or cause or to the best of its ability
permit to be taken, any action that would substantially delay or impair the
prospects of completing the Merger pursuant to this Agreement.
5.6 Investigation and Confidentiality
---------------------------------
(a) Bancshares and Tallassee will keep BancTrust and Peoples advised of
all material developments relevant to their respective business and to
consummation of the Merger. BancTrust and Peoples will advise Bancshares and
Tallassee of any material adverse change or material development that is likely
adversely to affect consummation of the Merger. BancTrust and Bancshares each
may make or cause to be made such investigation of the financial and legal
condition of the other as such party reasonably deems necessary or advisable in
connection with the Merger; provided, however, that such investigations shall be
reasonably related to the Merger, shall not interfere unnecessarily with normal
operations, and shall be conducted and completed on as prompt a basis as shall
be reasonably possible under the circumstances and, in any event, shall be
completed no later than 45 days after the date of this Agreement. BancTrust and
Bancshares agree to furnish the other and the other's representatives with such
financial data and other information with respect to its business and properties
as such other party or its representatives shall from time to time reasonably
request. No investigation pursuant to this Section 5.6(a) shall affect or be
deemed to modify any representation or warranty made by, or the conditions to
the obligations
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hereunder of, either party hereto. Each party hereto shall, and shall cause its
directors, officers, attorneys, and advisors to, maintain the confidentiality of
all information obtained in such investigation which is not otherwise publicly
disclosed by the other party, said undertaking with respect to confidentiality
to survive any termination of this Agreement pursuant to Section 7.1 hereof. In
the event that the Merger is not consummated, each party, and its officers and
representatives, shall return to the other party all such non-public information
and all copies thereof whether in written or other tangible form.
(b) In the event BancTrust or Bancshares becomes aware, as a result of an
investigation pursuant to Section 5.6(a) above, of a breach of any
representation or warranty made by the other party, BancTrust or Bancshares
shall give the party committing the breach written notice of such breach not
later than 30 days after discovery thereof. The party committing the breach
shall cure such breach within 30 days after it receives written notice of such
breach.
5.7 Disclosure Supplements
----------------------
From time to time prior to the Effective Time, Bancshares and Tallassee
shall promptly supplement or amend any materials disclosed and delivered to
BancTrust and Peoples pursuant to this Agreement with respect to any matter
hereafter arising that, if existing, occurring or known at the date of this
Agreement, would have been required to be set forth or described in materials
disclosed herein or on schedules hereto or that is necessary to correct any
untrue representation or warranty or information in such materials that has been
rendered materially inaccurate thereby. No supplement or amendment to such
materials shall have any effect for the purpose of determining satisfaction of
the conditions set forth in Article VI or compliance by Bancshares and Tallassee
with the covenants set forth in Section 5.9 hereof.
5.8 Press Releases
--------------
BancTrust and Bancshares shall agree with each other as to the form and
substance of any press release related to this Agreement or the transactions
contemplated hereby and thereby, and consult with each other as to the form and
substance of other public disclosures related thereto; provided, however, that
nothing contained herein shall prohibit either party, following notification to
the other party, from making any disclosure that its counsel deems necessary.
5.9 Forbearance of Bancshares and Tallassee
---------------------------------------
Except with the prior written consent of BancTrust, which consent shall not
be unreasonably withheld, or as expressly contemplated herein, between the date
hereof and the Effective Time, neither Bancshares nor Tallassee shall:
(a) carry on its business other than in the usual, regular and
ordinary course in substantially the same manner as heretofore conducted or
established (including the acquisition of capital assets exceeding
$25,000.00 in amount, either individually or in the aggregate, or in the
case of related acquisitions, except in connection with realizing on
collateral), or acquire any new subsidiary or cause to permit any
subsidiary to engage in any new activity or materially expand and existing
activities;
(b) declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock except for the payment of its
regular semi-annual dividend of $0.25 per share, payable in June and
December;
(c) issue, sell or otherwise dispose of any shares of its capital
stock;
(d) purchase, redeem, retire or otherwise acquire or hypothecate,
pledge or otherwise encumber any shares of its capital stock;
(e) issue, grant or authorize any Rights or effect any
recapitalization, reclassification, stock dividend, stock split or like
change in capitalization;
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<PAGE>
(f) except as set forth on Schedule 5.9(f) hereto, purchase or
otherwise acquire, or sell, encumber, or otherwise dispose of, any assets
or incur any liabilities other than in the ordinary course of business
consistent with past practices and policies, provided, however, that in no
event shall Bancshares or Tallassee purchase or otherwise acquire, or sell,
encumber or otherwise dispose of, any investment securities in excess of
$100,000.00;
(g) except as set forth on Schedule 5.9(g) hereto, engage in any
transaction or agreement with any officer, director or greater than 5%
shareholder of Bancshares or Tallassee or any affiliate of any such
officer, director or shareholder;
(h) amend its Articles of Incorporation or Bylaws or equivalent
documents; impose, or suffer the imposition, on any share of stock held by
Bancshares of any material lien, charge or encumbrance or permit any such
lien to exist; or waive or release any material right or cancel or comprise
any material debt or claim other than in the ordinary course of its
business;
(i) fail to comply in any material respect with any laws,
regulations, ordinances, or governmental actions applicable to it and to
the conduct of its business except where Bancshares or Tallassee is in good
faith contesting the validity of any of the foregoing; or where the failure
to so comply will not have a material adverse effect on the financial
condition, result of operations, business or prospects of Bancshares or
Tallassee;
(j) except as set forth on Schedule 5.9(j) hereto, elect any
additional officers or directors; increase the rate of compensation of any
of its directors, officers or employees; pay or agree to pay any bonus to,
or provide any other employee benefit or incentive to, any of its
directors, officers or employees; or effect any change in retirement
benefits to any class of directors, officers or employees;
(k) enter into or substantially modify (except as may be required by
applicable law) any pension, retirement, stock option, stock purchase,
stock appreciation right, savings, profit sharing, deferred compensation,
consulting, bonus, group insurance or other employee benefit, incentive or
welfare contract, plan or arrangement, or any trust agreement related
thereto, in respect of any of its directors, officers or other employees,
or, except as required by applicable law or regulation, renew, amend or
modify any such arrangement or plan now in existence, except that
Bancshares and/or Tallassee shall purchase tail coverage under their
directors' and officers' liability insurance for a period of three years
after the Effective Time;
(l) solicit or encourage inquiries or proposals with respect to,
furnish any information relating to, or participate in any negotiations or
discussions concerning, any acquisition or purchase of all or a substantial
portion of the assets of, or a substantial equity interest in, Bancshares
or Tallassee or any business combination with Bancshares or Tallassee other
than as contemplated by this Agreement (except as may be required if the
directors of Bancshares receive reasoned advice of their legal counsel
based on which such directors conclude that the failure to furnish such
information or participate in such negotiations or discussions would
constitute a breach of the directors' fiduciary or legal obligations); or
authorize or permit any officer, director, agent or affiliate of it to do
any of the above; or fail to notify BancTrust immediately if any such
inquiries or proposals are received by, any such information is required
from, or any such negotiations or discussions are sought to be initiated
with, Bancshares (Bancshares shall provide BancTrust with reasonable detail
as to the identify of any person or entity from whom such inquiries or
proposals are received and the terms of the transaction discussed or
proposed);
(m) enter into (i) any material agreement, arrangement or
commitment not made in the ordinary course of business, other than
agreements or memoranda of understanding with regulatory authorities, (ii)
any agreement, indenture or other instrument relating to the borrowing of
money by Bancshares of Tallassee or guarantee by Bancshares or Tallassee of
any such obligation, except in the ordinary course of business consistent
with past practice and except for drawing on currently existing lines of
credit, (iii) any agreement, arrangement or commitment relating to the
employment of, or severance of, a consultant or the employment, severance,
election or retention in office of any present or former director, officer
or employee, or (iv) any contract, agreement or understanding with a labor
union;
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<PAGE>
(n) change its lending, investment or asset liability management
policies in any material respect except as may be required by applicable
law;
(o) change its method of accounting in effect at December 31, 1996,
except as required by changes in regulation or generally accepted
accounting principles concurred in by its independent certified public
accountants, or change any of its methods of reporting income and
deductions for federal income tax purposes from those employed in the
preparation of its federal income tax returns for the year ended December
31, 1996, except as required by changes in law or regulation; or
(p) agree to do any of the foregoing.
5.10 Forbearance of BancTrust
------------------------
Except with the prior written consent of Bancshares, which consent shall
not be unreasonably withheld, or as expressly contemplated herein, between the
date hereof and the Effective Time, BancTrust shall not:
(a) authorize or create: (i) any class of capital stock that ranks
prior to the BancTrust Common Stock in respect of dividend payments or of
distributions or payments upon any liquidation of BancTrust or that has per
share voting rights greater than BancTrust Common Stock; (ii) any shares of
capital stock other than shares of BancTrust Common Stock reserved for
issuance as reflected under Section 4.1 hereof or in connection with
subsequent negotiations in respect of mergers or other business
combinations wherein, if concluded and consummated, BancTrust would be the
surviving corporation, or shares to be issued with respect to stock splits
or stock dividends subsequently declared and distributed on a basis
consistent with past practices and its current policy subject to the
antidilutive adjustments to be made as contemplated under Section 2.6(f)
hereof; or (iii) amend its Articles of Incorporation or Bylaws or issue
securities on terms or with voting rights so as to adversely affect the
rights of the Bancshares shareholders as if they had been holders of
BancTrust Common Stock as of the date hereof;
(b) enter into any agreement, understanding or commitment, written or
oral, with any other party that would impede in any material respect the
ability of BancTrust to perform the undertakings, commitments and
obligations arising under this Agreement;
(c) enter into a merger or other business combination transaction
with any other corporation or person in which BancTrust or Peoples, as the
case may be, would not be the surviving or continuing entity after the
consummation thereof; or
(d) sell or lease any material portion of the assets and business of
BancTrust of Peoples, except where any such sale or lease will not
materially and adversely affect their respective businesses and operations.
5.11 Affiliates
----------
Bancshares and BancTrust shall cooperate and use their best efforts to
identify those persons who may be deemed to be "affiliates" of Bancshares under
the meaning of Rule 145 promulgated by the Commission under the Securities Act.
Bancshares shall use its best efforts to cause each person so identified to
deliver to BancTrust on or prior to the Closing Date a written "affiliate"
agreement, in form and substance satisfactory to BancTrust and its counsel,
restricting the disposition by such person of the BancTrust Common Stock to be
received by such person in the Merger.
5.12 Employment Arrangements
-----------------------
(a) Bancshares and BancTrust agree that appropriate steps shall be taken
to terminate all employee benefit plans of Bancshares and Tallassee as of the
Effective Time or as promptly as practicable thereafter.
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<PAGE>
(b) Bancshares and BancTrust agree that the existing employment
agreement between Tallassee and David W. Baggett, Jr. ("Baggett") will be
terminated by Bancshares and Tallassee prior to or at the Effective Time
and shall be replaced with an employment agreement among BancTrust, Tallassee
and Baggett in substantially the form annexed hereto as Exhibit A, to be entered
---------
into on the Closing Date and to become effective as of the Effective Time. In
addition, on the Closing Date, BancTrust and Tallassee shall enter into an
employment agreement with Arnold B. Dopson in substantially the form annexed
hereto as Exhibit B, to become effective as of the Effective Time.
---------
(c) Except as provided for in this Section 5.12(c), each employee of
Bancshares or Tallassee who continues as an employee of Tallassee or who becomes
an employee of Peoples subsequent to the Merger shall be immediately entitled to
participate in all employee benefit plans sponsored by Peoples or BancTrust on
the same terms and to the same extent as employees of Peoples, and such
employees shall receive credit for their period of service to Bancshares and/or
Tallassee for purposes of determining accrued vacation, sick leave and short-
term disability, and for eligibility, participation and vesting in all Peoples'
plans qualifying under Section 401 of the Code. Such employees shall not,
however, be given credit for prior service to Bancshares or Tallassee for the
purpose of determining benefit accrual with respect to any plans of Peoples
qualifying under Section 401 of the Code.
5.13 BancTrust Board of Directors
----------------------------
BancTrust agrees to take all necessary action to elect Mr. Arnold B.
Dopson and Dr. D. P. Wilbanks as directors of BancTrust for initial terms
commencing at the Effective Time and ending at the next annual meeting of
shareholders of BancTrust thereafter.
5.14 Tallassee Board of Directors
----------------------------
At the Effective Time, certain nominees of BancTrust's Board of Directors
shall be appointed members of the Board of Directors of Tallassee.
5.15 Stock Option Agreement
----------------------
As of the date hereof, Bancshares has executed and delivered to BancTrust
the Stock Option Agreement annexed hereto as Exhibit C.
---------
5.16 Accruals and Reserves
---------------------
Prior to the Effective Time, at the request of BancTrust, Bancshares and
Tallassee shall adjust their loan loss and other reserves as may be appropriate
and consistent with generally accepted accounting principles and applicable
federal and state regulation. Notwithstanding the foregoing, Bancshares and
Tallassee shall not be obligated to take any such action pursuant to this
Section 5.16 unless and until Bancshares acknowledges that all conditions to its
obligation to consummate the Merger have been satisfied.
5.17 Foundation and Trust Shares
---------------------------
The Agreement for Sale of Stock by and between Bancshares and The Roberts
and Mildred Blount Educational and Charitable Foundation, Inc., an Alabama
nonprofit corporation (the "Blount Foundation"), dated August 14, 1990 (the
"Blount Foundation Agreement"), provides that the Blount Foundation may at its
option and under certain conditions sell its shares of Bancshares Common Stock
to Bancshares, and Bancshares has agreed to purchase such shares, subject to
certain conditions set forth in the Blount Foundation Agreement. Further, the
Roberts Blount Trust (the "Blount Trust") currently holds the shares subject to
the Blount Foundation Agreement, and such shares constitute in excess of 10% of
the outstanding shares of Bancshares Common Stock. Bancshares agrees to use
reasonable efforts to obtain the consent of the Blount Foundation and the Blount
Trust to the Merger as well as their consent to execute such documents as
BancTrust may reasonably request to effect the Merger and ensure qualification
of the Merger for accounting treatment as a pooling of interests.
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<PAGE>
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions Precedent -- All Parties
-----------------------------------
The respective obligations of the parties to this Agreement to effect the
Merger shall be subject to satisfaction or waiver of the following conditions at
or prior to the Closing Date:
(a) All corporate action necessary to authorize the execution and
delivery of this Agreement and consummation of the transactions
contemplated herby, including without limitation the approval of this
Agreement by the requisite vote by the shareholders of Bancshares and
BancTrust, shall have been duly and validly taken;
(b) All approvals of the transactions contemplated hereby from any
state or federal governmental agency, department or body, the approval of
which is required for the consummation of the Merger, shall have been
received (subject to no conditions that in the reasonable judgment of
BancTrust would have a material adverse on effect the condition (financial
or other), business operations, assets or prospects of, or would materially
impair the value of, BancTrust, Peoples, Bancshares or Tallassee), all
notice periods and waiting periods required after the granting of any such
approvals shall have passed and all such approvals shall be in effect, and
at the Closing Date neither Bancshares nor Tallassee shall be subject to
any regulatory or supervisory cease and desist order, agreement written
directive, memorandum of understanding or written commitment;
(c) The Registration Statement (including any post-effective
amendments thereto) shall be effective under the Securities Act, and
BancTrust shall have received all state securities or "Blue Sky" permits or
other authorizations, or confirmations as to the availability of an
exemption from registration requirements as may be necessary for
consummation of the Merger, and no proceedings shall be pending or to the
knowledge of BancTrust threatened by the Commission or any state "Blue Sky"
securities administration to suspend the effectiveness of such Registration
Statement or any state permit or authorization;
(d) Neither BancTrust or Peoples nor Bancshares or Tallassee shall be
subject to any order, decree or injunction of a court or agency of
competent jurisdiction that enjoins or prohibits consummation of the
Merger; and
(e) BancTrust and Bancshares shall have received an opinion of Kutak
Rock, dated as of the Closing Date, to the effect that, for federal income
tax purposes:
(i) The Merger will qualify as one or more
"reorganizations" under Section 368(a) of the Internal Revenue Code;
(ii) No gain or loss will be recognized by BancTrust or
Bancshares by reason of the Merger;
(iii) No gain or loss will be recognized by any shareholder
of Bancshares to the extent that such shareholder exchanges his or her
shares of Bancshares Common Stock solely for shares of BancTrust
Common Stock in the Merger;
(iv) The basis of the BancTrust Common Stock received by a
shareholder of Bancshares who exchanges Bancshares Common Stock solely
for BancTrust Common Stock in the Merger will be the same as the basis
of the Bancshares Common Stock surrendered in exchange therefor
(subject to any adjustments required as the result of receipt of cash
in lieu of a fractional share of BancTrust Common Stock);
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<PAGE>
(v) The holding period of the BancTrust Common Stock received
by a shareholder of Bancshares in the Merger will include the holding
period of the Bancshares Common Stock surrendered in exchange therefor
(provided that such shares of Bancshares Common Stock were held as a
capital asset by such shareholder at the Effective Time); and
(vi) Cash received by a Bancshares shareholder in lieu of a
fractional share interest of BancTrust Common Stock as part of the
Merger will be treated as having been received as a distribution in
full payment in exchange for the fractional share interest of
BancTrust Common Stock that such shareholder would otherwise be
entitled to receive.
6.2 Conditions Precedent -- Bancshares
----------------------------------
The obligations of Bancshares to effect the Merger shall be subject to
satisfaction of the following additional conditions at or prior to the Closing
Date, unless waived by Bancshares and Tallassee pursuant to Section 7.4 hereof:
(a) Bancshares shall have completed to its satisfaction its due
diligence investigations of BancTrust and Peoples pursuant to Section
5.6(a) hereof, and the Board of Directors of Bancshares shall not have made
a formal determination with 45 days of the date hereof that, in its best
judgment, based on the results of such due diligence review, consummation
of the Merger pursuant to the terms of this Agreement would be materially
adverse to the economic interest of Bancshares' shareholders.
(b) The representations and warranties of BancTrust and Peoples set
forth in Article IV hereof shall be true and correct in all material
respects as of the Closing Date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date (or on the date when made
in the case of any representation and warranty that specifically relates to
an earlier date), except as otherwise contemplated by this Agreement or
consented to in writing by Bancshares (which consent shall not be
unreasonably withheld) and except for changes, none of which individually
or in the aggregate has materially and adversely affected the condition
(financial or other), business operations, assets or prospects of BancTrust
and Peoples.
(c) BancTrust and Peoples shall have in all material respects
performed all material obligations and complied with all material covenants
required to be performed by them on or prior to the Closing Date.
(d) BancTrust and Peoples shall have delivered to Bancshares
certificates, dated as of the Closing Date and signed by their respective
Chairmen or Presidents, to the effect that the conditions set forth in
Section 6.1(a), 6.1(d), 6.2(b), 6.2(c) and 6.2(e), to the extent applicable
to BancTrust and Peoples, respectively, have been satisfied.
(e) Between the date of this Agreement and the Effective Time, there
shall not have been any material adverse change in the financial condition,
results of operations, assets, properties, business or operations of
BancTrust, Peoples and the BancTrust Subsidiaries taken as a whole, other
than any such change attributable to or resulting from any change in
general economic conditions, law, regulation or generally accepted
accounting principles that impair both BancTrust and Bancshares in a
substantially similar manner.
(f) Bancshares shall have received opinions, dated as of the Closing
Date, from Gamble, Gamble, Calame & Wilson, L.L.C., Selma, Alabama, and
Kutak Rock, Washington, D.C., which opinions, taken together, shall cover
the matters set forth in Exhibit D hereto. Such opinions may be governed
---------
by, and interpreted in accordance with, the Legal Opinion Accord of the
Section of Business Law, American Bar Association (1991)(the "Legal Opinion
Accord").
(g) Bancshares shall have received an opinion from its Financial
Advisor, dated on or immediately prior to the date of the mailing of the
Joint Proxy Statement contemplated by Section 5.3
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<PAGE>
hereof, and not subsequently withdrawn at or prior to the meeting of
Bancshares' shareholders contemplated thereby, to the effect that the terms
of this Agreement, including the Exchange Ratio, are fair to Bancshares'
shareholders from a financial point of view.
(h) The shares of BancTrust Common Stock to be issued in the Merger
shall have been approved for listing on the NASDAQ SmallCap Market, subject
to official notice of issuance.
6.3 Conditions Precedent -- BancTrust
---------------------------------
The obligations of BancTrust to effect the Merger shall be subject to
satisfaction of the following additional conditions at or prior to the Closing
Date, unless waived by BancTrust and Peoples pursuant to Section 7.4 hereof:
(a) BancTrust shall have completed to its satisfaction its due
diligence investigation of Bancshares and Tallassee pursuant to Section
5.6(a) hereof, and the Board of Directors of BancTrust shall not have made
a formal determination within 45 days of the date hereof that, in its best
judgment, based on the results of such due diligence review, consummation
of the Merger pursuant to the terms of this Agreement would be materially
adverse to the economic interests of BancTrust and its shareholders.
(b) The representations and warranties of Bancshares and Tallassee
set forth in Article III hereof shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date (or on the date when made in the
case of any representation and warranty which specifically relates to an
earlier date), except as otherwise contemplated by this Agreement or
consented to in writing by BancTrust and Peoples (which consent shall not
be unreasonably withheld) and except for changes, none of which
individually or in the aggregate has materially and adversely affected the
condition (financial or other), business operations, assets or prospects of
Bancshares or Tallassee.
(c) Bancshares and Tallassee shall have in all material respects
performed all material obligations and complied with all material covenants
required to be performed by it on or prior to the Closing Date.
(d) Except as set forth on Schedule 6.3(d) hereto, all employment
agreements between current and former directors, executive officers and
other employees of Bancshares shall have been terminated, and to the extent
that any other material contract, arrangement or lease to which Bancshares
is a party shall require the consent of any other person to the Merger,
such consent shall be obtained.
(e) Bancshares and Tallassee shall have delivered to BancTrust a
certificate, dated as of the Closing Date and signed by their respective
Chairmen or Presidents, to the effect that the conditions set forth in
Sections 6.1(a), 6.1(c), 6.3(b), 6.3(c) and 6.3(f), to the extent
applicable to Bancshares and Tallassee, respectively, have been satisfied.
(f) Between the date of this Agreement and the Effective Time, there
shall not have been any material adverse change in the financial condition,
results of operations, assets, properties, businesses or operations of
Bancshares, Tallassee and the Bancshares Subsidiaries taken as a whole,
other than any such change attributable to or resulting from any change in
general economic conditions, law, regulation or generally accepted
accounting principles that impair both BancTrust and Bancshares in a
substantially similar manner.
(g) BancTrust shall have received an opinion from Bowles & Cottle,
Tallassee, Alabama, dated as of the Closing Date, covering the matters set
forth in Exhibit E hereto. Such opinion may be governed by, and interpreted
---------
in accordance with, the Legal Opinion Accord.
(h) BancTrust shall have received an opinion from its financial
advisor, Baxter Fentriss and Company, dated within 10 business days prior
to the Closing Date, to the effect that the terms of this Agreement are
fair to BancTrust's shareholders from a financial point of view.
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<PAGE>
(i) BancTrust shall have received the written agreements from
"affiliates" of Bancshares as specified in Section 5.11 hereof.
(j) BancTrust shall have received documents executed by the Blount
Foundation and the Blount Trust as specified in Section 5.17 hereof.
(k) BancTrust shall received an opinion from Coopers & Lybrand
L.L.P. to the effect that the Merger shall qualify for accounting treatment
as a pooling of interests.
(l) The holders of not more than 10% of the Bancshares Common Stock
outstanding immediately prior to the Closing Date shall not have filed with
Bancshares proper demand for appraisal of and payment for their shares
pursuant to applicable law, unless such demands have been duly withdrawn.
(m) BancTrust shall have received an environmental report on
Tallassee's offices and underlying land located at Tallassee, East
Tallassee and Eclectic, Alabama and any other real estate owned by
Bancshares or Tallassee, such report or other reports derived therefrom to
be satisfactory to BancTrust (it being understood that such report or
reports shall be deemed satisfactory to BancTrust unless such report or
reports evidence potential environmental liabilities or costs which, if
incurred, would have a material adverse affect on Bancshares' or Tallassee'
consolidated financial condition, results of operations, business or
prospects).
ARTICLE VII
TERMINATION, WAIVER AND AMENDMENT
7.1 Termination
-----------
This Agreement may be terminated:
(a) at any time within 45 days after the date hereof, by BancTrust or
Bancshares in writing, if the respective Board of Directors has made a
formal determination that, in its best judgment, based on the results of
(i) BancTrust's due diligence review of Bancshares and Tallassee or (ii)
Bancshares' due diligence review of BancTrust and Peoples pursuant to
Section 5.6(a) hereof, consummation of the Merger pursuant to the terms of
this Agreement would be materially adverse to the economic interests of
BancTrust and its shareholders on the one hand or the economic interests of
Bancshares' shareholders on the other hand;
(b) at any time on or prior to the Closing Date, by the mutual
consent in writing of the parties hereto;
(c) at any time on or prior to the Closing Date, by BancTrust in
writing if Bancshares or Tallassee has, or by Bancshares in writing if
BancTrust or Peoples has, in any material respect, breached (i) any
covenant or undertaking contained herein, or (ii) any representation or
warranty contained herein, which breach materially and adversely affects
the financial condition, results of operations, business or prospects of
Bancshares or Tallassee on the one hand or BancTrust or Peoples on the
other hand, in any case if such breach has not been cured by the earlier of
30 days after the date on which written notice of such breach is given to
the party committing such breach (which notice must be given not later than
30 days after discovery of such breach) or the Closing Date;
(d) on the Closing Date, by either BancTrust or Bancshares in
writing, if any of the conditions precedent to the obligations of such
party to consummate the transactions contemplated hereby have not been
satisfied or fulfilled;
(e) at any time, by BancTrust in writing, if any of the applications
for prior approval referred to in Section 5.4 hereof are denied or are
approved contingent upon the satisfaction of any condition or requirement
that, in the reasonable opinion of BancTrust, would so materially adversely
affect the business
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<PAGE>
or economic benefits of the Merger as to render consummation of the Merger
inadvisable or unduly burdensome, and the time period for appeals and
requests for reconsideration has run;
(f) at any time, by either BancTrust or Bancshares in writing, if the
shareholders of Bancshares or BancTrust do not approve this Agreement by a
vote taken thereon at a meeting duly called for such purpose;
(g) by either BancTrust or Bancshares in writing, if the Closing Date
has not occurred within nine (9) months from the date of this Agreement;
provided that this right to terminate shall not be available to any party
whose failure to perform an obligation under this Agreement has been the
cause of, or resulted in, the failure of the Merger to be consummated
within such nine-month period;
(h) at any time, by either BancTrust or Bancshares in writing, if it
determines in good faith that it is reasonably probable that the Blount
Foundation or the Blount Trust will not both (i) consent to the Merger and
(ii) execute the documents referred to in Section 5.17 hereof; and
(i) at any time, by either BancTrust or Bancshares in writing, if it
determines in good faith that any condition precedent to its obligations to
consummate the transactions contemplated hereby are or would be impossible
to satisfy.
7.2 Effect of Termination
---------------------
In the event this Agreement is terminated pursuant to Section 7.1 hereof,
this Agreement shall become void and have no effect, except that (a) the
provisions relating to confidentiality and expenses set forth in Sections 5.6
and 8.1, respectively, shall survive any such termination and (b) a termination
pursuant to Section 7.1(c) shall not relieve the breaching party from liability
for an uncured willful breach of the covenant, undertaking, representation or
warranty giving rise to such termination.
7.3 Survival of Representations, Warranties and Covenants
-----------------------------------------------------
All representations, warranties and covenants in this Agreement or in any
instrument delivered pursuant hereto or thereto shall expire on, and be
terminated and extinguished at, the Effective Time other than covenants that by
their terms are to be performed after the Effective Time, provided that no such
representations, warranties or covenants shall be deemed to be terminated or
extinguished so as to deprive BancTrust or Peoples on the one hand or Bancshares
or Tallassee on the other hand (or any director, officer or controlling person
thereof) of any defense at law or in equity which otherwise would be available
against the claims of any person, including, without limitation, any stockholder
or former stockholder of either BancTrust or Bancshares, the aforesaid
representations, warranties and covenants being material inducements to
consummation by the parties hereto of the transactions contemplated herein.
7.4 Waiver
------
Each party hereto, by written instrument signed by an executive officer of
such party, may at any time (whether before or after approval of this Agreement
by the shareholders of Bancshares and BancTrust) extend the time for the
performance of any of the obligations or other acts of the other party hereto
and may waive (i) any inaccuracies of the other party in the representations or
warranties contained in this Agreement or any other document delivered pursuant
hereto, (ii) compliance with any of the covenants, undertakings or agreements of
the other party, or satisfaction of any of the conditions precedent to its
obligations or (iii) the performance by the other party of any of its
obligations set out herein or therein; provided, however, that no such waiver or
amendment or supplement pursuant to Section 7.5 hereof executed after approval
of this Agreement by the shareholders of Bancshares shall reduce, without the
requisite approval of the shareholders of Bancshares, either the number of
shares of BancTrust Common Stock into which each share of Bancshares Common
Stock shall be converted in the Merger or the payment terms for fractional
interests. Nothing in this Section 7.4 will permit any party to waive any
required regulatory approvals or other conditions that, if not satisfied, would
result in the violation of any law or applicable governmental regulation.
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<PAGE>
7.5 Amendment or Supplement
-----------------------
This Agreement may be amended or supplemented at any time by mutual
agreement of the parties hereto, subject to the proviso to Section 7.4 hereof.
Any such amendment or supplement must be in writing and approved by the
respective Boards of Directors of the parties hereto.
ARTICLE VIII
MISCELLANEOUS
8.1 Expenses
--------
Each party hereto shall be responsible for its own costs and expenses;
provided, however, if either BancTrust or Peoples on the one hand or Bancshares
or Tallassee on the other hand willfully breaches its obligations under this
Agreement, or willfully fails to satisfy a condition precedent to the closing of
the Merger, such party shall be liable to the other for all of its out-of-pocket
expenses, in addition to all other rights and remedies such other party may
have. The allocable costs of the special legal counsel responsible for preparing
the Registration Statement and other appropriate filings with the Commission
shall be paid one-half by BancTrust and one-half by Bancshares; provided,
however, that the share of any such costs to be paid by Bancshares shall not
exceed the sum of $15,000. All other costs and expenses, including legal,
accounting and financial advisors' fees, and all fees to be submitted in
connection with applications and filings, shall be paid by the party for whom
such services are performed or on whose behalf such filing or application is
made.
8.2 Entire Agreement
----------------
This Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereto, written or oral, other than
documents referred to herein or therein. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the parties hereto
and thereto and their respective successors. Nothing in this Agreement,
expressed or implied, is intended to confer upon any party, other than the
parties hereto and thereto, and their respective successors, any rights,
remedies, obligations or liabilities other than as set forth in Section 5.12
hereof.
8.3 No Assignment
-------------
None of the parties hereto may assign any of its rights or obligations
under this Agreement to any other person.
8.4 Notices
-------
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
overnight express or by registered or certified mail, postage prepaid, addressed
as follows:
If to BancTrust or Peoples:
The Peoples BancTrust Company, Inc.
310 Broad Street
Selma, Alabama 36701
Attention: Richard P. Morthland, Chairman of the Board
With copies to:
I-27
<PAGE>
Gamble, Gamble, Calame & Wilson, L.L.C.
807 Selma Avenue
Selma, Alabama 36701
Attention: Harry W. Gamble, Jr., Esq.
and
Kutak Rock
1101 Connecticut Avenue, N.W., Suite 1000
Washington, D.C. 20036
Attention: Edward B. Crosland, Jr., Esq.
If to Bancshares or Tallassee:
Elmore County Bancshares, Inc.
304 Barnett Boulevard
Tallassee, Alabama 36078
Attention: Arnold B. Dopson, Chairman of the Board
With a copy to:
Bowles & Cottle
P.O. Box 704
Tallassee, Alabama 36078
Attention: John I. Cottle III, Esq.
8.5 Captions
--------
The captions contained in this Agreement are for reference purposes only
and are not part of this Agreement.
8.6 Counterparts
------------
This Agreement may be executed in multiple counterparts, each of which
shall be deemed to be an original instrument, and all such counterparts together
shall constitute one agreement.
8.7 Governing Law
-------------
This Agreement shall be construed and interpreted in accordance with the
laws of the State of Alabama applicable to agreements made and entirely to be
performed within such jurisdiction.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers and their corporate
seals to be hereunto affixed and attested by their officers thereunto duly
authorized, all as of the day and year first above written.
Attest: THE PEOPLES BANCTRUST COMPANY, INC.
/s/ Elam P. Holley, Jr. By: /s/ Richard P. Morthland
- ---------------------------- --------------------------------------
Richard P. Morthland, Chairman
Attest: THE PEOPLES BANK AND TRUST COMPANY
/s/ Elam P. Holley, Jr. By: /s/ Richard P. Morthland
- ---------------------------- --------------------------------------
Richard P. Morthland, Chairman
Attest: ELMORE COUNTY BANCSHARES, INC.
/s/ David W. Baggett, Jr. By: /s/ Arnold B. Dopson
- ---------------------------- --------------------------------------
Arnold B. Dopson, Chairman
Attest: THE BANK OF TALLASSEE
/s/ David W. Baggett, Jr. By: /s/ Arnold B. Dopson
- ---------------------------- --------------------------------------
Arnold B. Dopson, Chairman
I-29
<PAGE>
EXHIBIT A
EMPLOYMENT AGREEMENT
--------------------
AND COVENANT NOT TO COMPETE
---------------------------
THIS AGREEMENT (the "Agreement"), made this the 11th day of December,
1997, by and between THE PEOPLES BANCTRUST COMPANY, INC. ("BancTrust"), and THE
BANK OF TALLASSEE, an Alabama banking corporation ("Tallassee"), as Employers,
and DAVID W. BAGGETT, JR. ("Baggett"), as Employee.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, BancTrust has entered into an Agreement and Plan of Reorganization
dated the 11th day of December, 1997 (the "Acquisition Agreement"), by and among
The Peoples BancTrust Company, Inc., an Alabama business corporation, The
Peoples Bank and Trust Company, an Alabama commercial bank ("Peoples"), Elmore
County Bancshares, Inc., an Alabama business corporation ("Bancshares"), and The
Bank of Tallassee, an Alabama commercial bank "(Tallassee"), whereby the
BancTrust, subject to the terms and conditions of the Acquisition Agreement, is
to acquire all of the outstanding shares of Bancshares; and,
WHEREAS, Tallassee is a wholly-owned subsidiary of Bancshares and, upon
completion of the merger contemplated by the Acquisition Agreement, will be a
wholly-owned subsidiary of BancTrust; and,
WHEREAS, Baggett is the President of Tallassee, and BancTrust desires to
retain his experience and abilities by continuing his employment with Tallassee
following the acquisition by BancTrust of Bancshares; and,
WHEREAS, Baggett agrees to accept such engagement, upon the terms and
conditions set forth below; and,
WHEREAS, Baggett has certain rights under an Agreement Providing for Salary
Continuation Upon Resignation of Termination by and between Tallassee and
Baggett dated January 23, 1997 (the "Salary Continuation Agreement") which, for
the considerations stated herein, will be terminated; and,
WHEREAS, Baggett is a shareholder of Bancshares and will receive shares of
BancTrust upon the completion of the merger contemplated by the Acquisition
Agreement; and,
WHEREAS, as a further and material inducement to the exchange of BancTrust
shares for the Bancshares owned by Baggett and agreement by BancTrust and
Tallassee to enter into this Agreement, Baggett has agreed to enter into a
covenant not to complete, on the terms and conditions set forth below:
NOW, THEREFORE, the parties agree as follows:
1. EFFECTIVE DATE. This Agreement shall become effective following the
--------------
Closing and at the Effective Time as those terms are defined in the Acquisition
Agreement. If the Closing is not completed, in accordance with the terms of the
Acquisition Agreement, then this Agreement shall terminate and be rendered void
and of no force and effect.
2. TERM AND DUTIES. Tallassee, as of the Effective Time, as a subsidiary
---------------
of BancTrust, hereby employs Baggett for a period from said Effective Time to a
date two (2) years thereafter (the "Employment Period"). Baggett shall be
initially employed in his current position as President of Tallassee, with the
same general duties and responsibilities. Tallassee and/or BancTrust may assign
to Baggett such other positions or other duties as it may reasonably determine
are in the best interests of BancTrust and/or Tallassee; provided, however, that
any different position shall be at no less officer level than is currently held
by Baggett, and any such other position shall
I-30
<PAGE>
not, unless consented to by Baggett, require him to be primarily located at
offices other than in Elmore County, Alabama. Baggett's employment shall be
considered full-time, and he shall devote his entire time and best efforts to
the advancements of the interests of Tallassee and BancTrust.
3. COMPENSATION. For consideration of the services to be performed under
------------
this Agreement, Baggett shall be guaranteed a minimum salary of SEVENTY-SIX
THOUSAND AND NO/100 DOLLARS ($76,000.00) annually, payable in installments
consistent with other officers of Peoples, less applicable federal and state
taxes, including social security withholding and unemployment insurance taxes.
Further, Baggett shall be entitled to be reviewed for salary increases
consistent with other officers of Peoples, and shall be eligible for incentive
compensation or bonuses in the same manner as are similarly situated officers
and employees of Peoples.
4. EMPLOYEE BENEFITS. Baggett shall receive benefits as an employee for
-----------------
medical insurance, disability, pension or retirement benefits, and life
insurance, in the manner and to the extent that such benefits are provided for
employees of Peoples and shall receive credit for his period of service to
Bancshares and/or Tallassee for purposes of determining accrued vacation, sick
leave and short-term disability, and for eligibility, participation and vesting
in all Peoples' plans qualifying under Section 401 of the Code. He shall not,
however, be given credit for prior service to Bancshares or Tallassee for the
purpose of determining benefit accrual with respect to any plans of Peoples
qualifying under Section 401 of the Code. If Baggett elects participation in the
cafeteria plan of Peoples, or similar plans where compensation is agreed to be
reduced, the compensation of Baggett as set forth herein shall be reduced
accordingly.
5. VACATION AND HOLIDAYS. Baggett shall receive such vacation and
---------------------
holidays as may be set by Tallassee and/or BancTrust, which shall be consistent
with the vacation and holidays for other employees of Peoples. Vacation,
however, shall not be less than three (3) weeks per year.
6. COVENANT NOT TO COMPETE. In consideration for this Agreement and as a
-----------------------
part of the consideration for the exchange of the Bancshares shares of Baggett
pursuant to the Acquisition Agreement, Baggett agrees as follows:
(a) That during the Employment Period and for a period of two (2)
years thereafter, Baggett will not within Elmore or Tallapoosa Counties,
Alabama, or within a thirty-five (35) mile radius of the current offices of
The Bank of Tallassee or The Peoples Bank and Trust Company, directly or
indirectly, own, manage, operate, control, be employed by, participate in,
or be connected with any bank, savings association, savings bank, credit
union, other financial institution, or finance company, nor shall he
otherwise within such geographical area solicit the customers of Tallassee,
BancTrust or any of their subsidiaries.
(b) Baggett will not solicit any employee of BancTrust, Tallassee, or
any of their subsidiaries to leave their employment for any reason without
the prior written consent of BancTrust.
(c) Baggett will not use for his benefit or disclose at any time any
information that was obtained or developed by him while in the employ of
Tallassee with respect to any trade secrets, customers, suppliers,
products, employees, financial, or any other confidential matter pertaining
to BancTrust, Tallassee, or any of their subsidiaries.
(d) Baggett will not take with him upon leaving Tallassee's
employment any document or copies of documents, or any other items relating
to any of the business of Tallassee or BancTrust or any of their
subsidiaries.
(e) If, at any time, the provisions of this Section 6 shall be
determined to be invalid or unenforceable, by reason of being vague or
unreasonable as to area, duration or scope of activity, this Section 6
shall be considered divisible and shall become and be immediately amended
to only such area, duration and scope of activity as shall be determined to
be reasonable and enforceable by the court or other
I-31
<PAGE>
body having jurisdiction over the matter; and Baggett agrees that this
Section 6 as so amended shall be valid and binding as though any invalid or
unenforceable provision had not been included herein.
(f) Both parties recognize that this covenant not to compete is
material and unique. Accordingly, if Baggett breaches the terms and
conditions of this Agreement, either BancTrust or Tallassee shall be
entitled to institute legal and equitable proceedings in any court of
competent jurisdiction. The remedies of BancTrust and Tallassee for such
breach shall, in addition to any other available legal remedies, include
the right to enforce specific performance by Baggett, and to enjoin Baggett
from performing services for any competing person, firm, or corporation
during the period that this covenant not to compete is applicable.
7. CONTINUATION - SUCCESSOR. It is understood that Tallassee may, at
------------------------
some time, merge into Peoples or that other mergers or reorganizations may occur
whereby either Tallassee or BancTrust would cease to be the surviving
corporation. In such event, this Agreement shall continue and be binding upon
any successor to Tallassee or BancTrust, and Baggett's position, title, and
duties with any such successor shall be substantially similar to those provided
for herein as to Tallassee, except that his position would be as a Division
President.
8. CANCELLATION OF SALARY CONTINUATION AGREEMENT. In consideration
---------------------------------------------
for entering into this Agreement, and in further consideration for agreement by
Baggett to terminate and not exercise rights under the Salary Continuation
Agreement, BancTrust and Tallassee agree to pay or cause to be paid to Baggett
the sum of SEVENTY-FIVE THOUSAND AND NO/100 DOLLARS ($75,000.00). Said sum shall
be paid at the Effective Time, and conditioned upon this Agreement becoming
effective. As of the Effective Time, this Agreement shall replace the Salary
Continuation Agreement and any other prior agreements of employment or for
salary continuation between Baggett and Tallassee or Baggett and Bancshares, and
all such agreements shall be thereupon cancelled and terminated. Further,
Baggett agrees that he will not exercise any rights under the Salary
Continuation Agreement by reason of the actions contemplated by the Acquisition
Agreement before the Effective Time, it being understood, however, that if the
Acquisition Agreement is terminated, Baggett's rights under the Salary
Continuation Agreement shall remain in full force and effect.
9. TERMINATION
-----------
(a) Unless sooner terminated in accordance with this Section, this
Agreement shall terminate upon expiration of the Employment Period described
under Section 2 hereof.
(b) This Agreement shall automatically terminate upon Baggett's death, in
which event his estate shall be entitled to receive the compensation due
Baggett through the last day of the calendar month in which his death occurred
and such other benefits as may accrue to Baggett in his status as an employee.
(c) In the event Baggett becomes disabled to the extent that he cannot
substantially perform the duties of his employment, and should such disability
continue for a period of ninety (90) days, this Agreement may be terminated by
either BancTrust or Tallassee, in which event compensation shall cease, except
for accrued benefits and such benefits as are provided to employees with
similar disabilities.
(d) Tallassee or BancTrust may terminate this Agreement at any time for
cause, immediately and with or without notice to Baggett. BancTrust may from
time to time establish grounds for cause, consistent with grounds as are
determined for employees of Peoples.
(e) Termination of this Agreement, for whatever reason, shall not
terminate the continuing obligations under the covenant not to compete, as
provided for in Section 6.
10. NOTICE. Any notice or communication herein required or permitted to
------
be given shall be in writing and may be hand delivered, sent by telex,
telegraph, or telefax, or if mailed, shall be deemed given when mailed by United
States Registered or Certified Mail, postage prepaid, addressed as follows:
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<PAGE>
BAGGETT: BANCTRUST:
David W. Baggett, Jr. The Peoples BancTrust Company, Inc.
1865 Woodmere Loop 310 Broad Street
Montgomery, Alabama 36117 Selma, Alabama 36701
TALLASSEE:
The Bank of Tallassee
P. O. Box 607
Tallassee, Alabama 36078
Each party shall have the right to specify as his or its proper address any
other address in the United States of America by giving to the other party at
least fifteen (15) days written notice thereof.
11. WAIVER, MODIFICATION, OR CANCELLATION. Any waiver, alteration, or
-------------------------------------
modification of any of the provisions of this Agreement, or its cancellation or
replacement, shall not be valid unless in writing and signed by the parties.
Neither the failure nor any delay by any party in exercising any right, power or
privilege under this Agreement will operate as a waiver of such right, power or
privilege, and no single or partial exercise of any such right, power or
privilege will preclude any other or further exercise of such right, power or
privilege.
12. ENTIRE AGREEMENT. This Agreement constitutes the entire
----------------
agreement between the parties with respect to the subject matter of this
Agreement and supersedes all prior written and oral agreements and
understandings between the parties with respect to the subject matter of this
Agreement. This Agreement may not be amended except by a written agreement
executed by both parties.
13. BINDING EFFECT. Except as may be otherwise limited herein, this
--------------
Agreement shall inure to the benefit of and bind the parties hereto and their
respective legal representatives, successors, and assigns.
14. GOVERNING LAW. This Agreement shall be construed and interpreted
-------------
in accordance with the laws of the State of Alabama applicable to agreements
made and entirely to be performed within such jurisdiction.
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<PAGE>
IN WITNESS WHEREOF, BancTrust and Baggett have caused this Agreement to be
signed as of the day, month and year first hereinabove written.
BANCTRUST:
THE PEOPLES BANCTRUST COMPANY, INC.
BY:/s/ Richard P. Morthland
--------------------------------
TALLASSEE:
THE BANK OF TALLASSEE
BY:/s/ A. B. Dopson
--------------------------------
BAGGETT:
/s/ David W. Baggett, Jr.
-----------------------------------
David W. Baggett, Jr.
I-34
<PAGE>
EXHIBIT B
EMPLOYMENT AGREEMENT
--------------------
AND COVENANT NOT TO COMPETE
---------------------------
THIS AGREEMENT (the "Agreement"), made this the 11th day of December, 1997,
by and between THE PEOPLES BANCTRUST COMPANY, INC. ("BancTrust"), and THE BANK
OF TALLASSEE, an Alabama banking corporation ("Tallassee"), as Employers, and
ARNOLD B. DOPSON ("Dopson"), as Employee.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, BancTrust has entered into an Agreement and Plan of Reorganization
dated the 11th day of December, 1997 (the "Acquisition Agreement"), by and among
The Peoples BancTrust Company, Inc., an Alabama business corporation, The People
Bank and Trust Company, an Alabama commercial bank ("Peoples"), Elmore County
Bancshares, Inc., an Alabama business corporation ("Bancshares"), and The Bank
of Tallassee, an Alabama commercial bank ("Tallassee"), whereby BancTrust,
subject to the terms and conditions of the Acquisition Agreement, is to acquire
all of the outstanding shares of Bancshares; and,
WHEREAS, Tallassee is a wholly-owned subsidiary of Bancshares and, upon
completion of the merger contemplated by the Acquisition Agreement, will be a
wholly-owned subsidiary of BancTrust; and,
WHEREAS, Dopson is Chairman of the Board of Tallassee, and BancTrust
desires to retain his experience and abilities by continuing his employment with
Tallassee and have him assist in performing duties for BancTrust following the
acquisition by BancTrust of Bancshares; and,
WHEREAS, Dopson agrees to accept such engagement, upon the terms and
conditions set forth below; and,
WHEREAS, Dopson is a shareholder of Bancshares and will receive shares of
BancTrust upon the completion of the merger contemplated by the Acquisition
Agreement; and,
WHEREAS, as a further and material inducement to the exchange of BancTrust
shares for the Bancshares owned by Dopson and agreement by BancTrust and
Tallassee to enter into this Agreement, Dopson has agreed to enter into a
covenant not to compete, on the terms and conditions set forth below;
NOW, THEREFORE, the parties agree as follows;
1. EFFECTIVE DATE. This Agreement shall become effective following the
--------------
Closing and at the Effective Time as those terms are defined in the Acquisition
Agreement. If the Closing is not completed, in accordance with the terms of the
Acquisition Agreement, then this Agreement shall terminate and be rendered void
and of no force and effect.
2. TERM AND DUTIES. Tallassee, as of the Effective Time, as a subsidiary
---------------
of BancTrust, hereby employs Dopson for a period from said Effective Time to
September 16,2000 (the "Employment Period"). Dopson shall be employ as
Chairman of the Board of Tallassee, and shall also be responsible for the
Tallassee division of BancTrust and Peoples. Dopson shall devote his best
efforts to the advancement of the interest of Tallassee and BancTrust and shall
perform such duties as may be reasonably assigned to him by BancTrust and
Tallassee.
3. COMPENSATION. For consideration of the services to be performed under
------------
this Agreement, Dopson shall be paid a salary of ONE HUNDRED FIFTEEN THOUSAND
($115,000,00) annually, payable in installments consistent with other officers
of Peoples, less applicable federal and state taxes, including social security
withholding and unemployment insurance taxes. This salary shall constitute the
entire compensation of Dopson, and he shall
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<PAGE>
not be eligible for incentive bonuses, a director's fee, or other forms of
compensation while such salary is being paid.
4. BANC TRUST BOARD. The management of BancTrust agrees to nominate and
----------------
support the election of Dopson to its Board of Directors beginning with the
Effective Time and ending at the next annual meeting of the shareholders of
BancTrust thereafter.
5. EMPLOYEE BENEFITS. Dopson shall receive benefits as an employee for
-----------------
medical insurance, disability, pension or retirement benefits, and life
insurance, in the manner and to the extent that such benefits are provided for
employees of Peoples and shall receive credit for his period of service to
Bancshares and/or Tallassee for purposes of determining accrued vacation, sick
leave and short-term disability, and for eligibility, participation and vesting
in all Peoples' plans qualifying under Section 401 of the Code. He shall not,
however, be given credit for prior service to Bancshares or Tallassee for the
purpose of determining benefit accurual with respect to any plans of Peoples
qualifying under Section 401 of the Code. If Dopson elects participation in the
cafeteria plan of Peoples, or similar plans where compensation is agreed to be
reduced, the compensation of Dopson as set forth herein shall be reduced
accordingly.
6. VACATION AND HOLIDAYS. Dopson shall receive such vacation and holidays
---------------------
as may be agreed upon by him and Tallassee and/or BancTrust, and shall not be
bound by the vacation policies set for employees generally.
7. COVENANT NOT TO COMPETE. In consideration for this Agreement and as a
-----------------------
part of the consideration for the exchange of the Bancshares shares of Dopson
pursuant to the Acquisition Agreement, Dopson agrees as follows:
(a) That during the Employment Period and for a period of two (2)
years thereafter, Dopson will not within Elmore or Tallapoosa Counties,
Alabama, or within a thirty-five (35) mile radius of the current offices of
The Bank of Tallassee or The Peoples Bank and Trust Company, directly or
indirectly, own, manage, operate, control, be employed by, participate in,
or be connected with any bank, savings association, savings bank, credit
union, other financial institution, or finance company, nor shall he
otherwise within such geographical area solicit the customers of Tallassee,
BancTrust or any of their subsidiaries.
(b) Dopson will not solicit any employee of BancTrust, Tallassee, or
any of their subsidiaries to leave their employment for any reason without
the prior written consent of BancTrust.
(c) Dopson will not use for his benefit or disclose at any time any
information that was obtained or developed by him while in the employ of
Tallassee with respect to any trade secrets, customers, suppliers,
products, employees, financial, or any other confidential matter pertaining
to BancTrust, Tallassee, or any of their subsidiaries.
(d) Dopson will not take with him upon leaving Tallassee's employment
any document or copies of documents, or any other items relating to any of
the business of Tallassee or BancTrust or any of their subsidiaries.
(e) If, at any time, the provisions of this Section 7 shall be
determined to be invalid or unenforceable, by reason of being vague or
unreasonable as to area, duration or scope of activity, this Section 7
shall be considered divisible and shall become and be immediately amended
to only such area, duration and scope of activity as shall be determined to
be reasonable and enforceable by the court or other body having
jurisdiction over the matter; and Dopson agrees that this Section 7 as so
amended shall be valid and binding as though any invalid or unenforceable
provision had not been included herein.
(f) Both parties recognize that this covenant not to compete is
material and unique. Accordingly, if Dopson breaches the terms and
conditions of this Agreement, either BancTrust or Tallassee shall be
entitled to institute legal and equitable proceedings in any court of
competent jurisdiction. The
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<PAGE>
remedies of BancTrust and Tallassee for such breach shall, in addition to
any other available legal remedies, include the right to enforce specific
performance by Dopson, and to enjoin Dopson from performing services for
any competing person, firm, or corporation during the period that this
covenant not to compete is applicable.
8. CONTINUATION - SUCCESSOR. It is understood that Tallassee may, at some
------------------------
time, merge into Peoples or that other mergers or reorganizations may occur
whereby either Tallassee or BancTrust would cease to be the surviving
corporation. In such event, this Agreement shall continue and be binding upon
any successor to Tallassee or BancTrust, and Dopson's position, title, and
duties with any such successor shall be substantially similar to those provided
for herein as to Tallassee, except that he shall be Division Chairman.
9. CANCELLATION OF PRIOR AGREEMENT. As of the Effective Time, this
-------------------------------
Agreement shall replace any prior agreements of employment between Dopson and
Tallassee or Dopson and Bancshares, which agreements shall thereupon be
cancelled and terminated, but shall not affect the funded salary continuation
agreement(s) listed on the schedule to the Acquisition Agreement, except that
base salary under the salary continuation agreement shall be as of the date of
the Acquisition Agreement.
10. TERMINATION.
-----------
(a) Unless sooner terminated in accordance with this Section, this
Agreement shall terminate upon expiration of the Employment Period described
under Section 2 hereof.
(b) Dopson shall have the right to terminate this Agreement, in his sole
discretion, upon ninety (90) days written notice to BancTrust and Tallassee, in
which event his duties hereunder and his compensation and his benefits shall
thereupon cease.
(c) This Agreement shall automatically terminate upon Dopson's death, in
which event his estate shall be entitled to receive the compensation due Dopson
through the last day of the calendar month in which his death occurred and such
other benefits as may accrue to Dopson in his status as an employee.
(d) In the event Dopson becomes disabled to the extent that he cannot
substantially perform the duties of his employment, and should such disability
continue for a period of ninety (90) days, this Agreement may be terminated by
either BancTrust or Tallassee, in which event compensation shall cease, except
for accrued benefits and such benefits as are provided to employees with similar
disabilities.
(e) Tallassee or BancTrust may terminate this Agreement at any time for
cause, immediately and with or without notice to Dopson. BancTrust may from time
to time establish grounds for cause, consistent with grounds as are determined
for employees of Peoples.
(f) Termination of this Agreement, for whatever reason, shall not
terminate the continuing obligations under the covenant not to complete, as
provided for in Section 7.
11. NOTICE. Any notice or communication herein required or permitted to be
------
given shall be in writing and may be hand delivered, sent by telex, telegraph,
or telefax, or if mailed, shall be deemed given when mailed by United States
Registered or Certified Mail, postage prepaid, addressed as follows:
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<PAGE>
DOPSON: BANCTRUST:
Arnold B. Dopson The Peoples BancTrust Company, Inc.
P.O. Box 780008 310 Board Street
Tallassee, Alabama 36078-0008 Selma, Alabama 36701
TALLASSEE:
The Bank of Tallassee
P.O. Box 607
Tallassee, Alabama 36078
Each party shall have the right to specify as his or its proper address any
other address in the United States of America by giving to the other party at
least fifteen (15) days written notice thereof.
12. WAIVER, MODIFICATION, OR CANCELLATION. Any waiver, alteration, or
-------------------------------------
modification of any of the provisions of this Agreement, or its cancellation or
replacement, shall not be valid unless in writing and signed by the parties.
Neither the failure nor any delay by party in exercising any right, power or
privilege under this Agreement will operate as a waiver of such right, power or
privilege, and no single or partial exercise of any such right, power or
privilege will preclude any other or further exercise of such right, power or
privilege.
13. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
----------------
between the parties with respect to the subject matter of this Agreement and
supersedes all prior written and oral agreements and understandings between the
parties with respect to the subject matter of this Agreement. This Agreement may
not be amended except by a written agreement executed by both parties.
14. BINDING EFFECT. Except as may be otherwise limited herein, this
--------------
Agreement shall inure to the benefit of and bind the parties hereto and their
respective legal representatives, successors, and assigns.
15. GOVERNING LAW. This Agreement shall be construed and interpreted in
-------------
accordance with the laws of the State of Alabama applicable to agreement made
and entirely to be performed within such jurisdiction.
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<PAGE>
IN WITNESS WHEREOF, BancTrust and Dopson have caused this Agreement to be
signed as of the day, month and year first hereinabove written.
BANCTRUST:
THE PEOPLES BANCTRUST COMPANY, INC.
BY: /s/ Richard P. Morthland
-------------------------------
TALLASSEE:
THE BANK OF TALLASSEE
BY: /s/ David W. Baggett, Jr.
-------------------------------
DOPSON:
/s/ Arnold B. Dopson
-----------------------------------
Arnold B. Dopson
I-39
<PAGE>
EXHIBIT C
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of December 11, 1997, is by and
between Elmore County Bancshares, Inc., an Alabama business corporation
("Bancshares") and The Peoples BancTrust Company, Inc., an Alabama business
corporation ("BancTrust").
WHEREAS, Bancshares and BancTrust have entered into an Agreement and Plan
of Merger and Reorganization dated of even date hereof (the "Merger Agreement")
regarding the acquisition by BancTrust of all of the outstanding capital stock
of Bancshares; and
WHEREAS, in order to induce BancTrust to enter into the Merger Agreement,
Bancshares has agreed to grant the Stock Option (as hereinafter defined):
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained herein, the parties hereby agree as follows:
1. Grant of Stock Option. Subject to the terms and conditions set forth
---------------------
herein, Bancshares hereby irrevocably grants to BancTrust an option (the "Stock
Option") to purchase up to 110,273 shares of Bancshares common stock, par value
$.05 per share (the "Common Stock"), at a cash purchase price of $26.45 per
share (the "Exercise Price").
2. Exercise of Stock Option.
------------------------
(a) Subject to the receipt of all necessary approvals required by, and the
expiration or termination of any applicable waiting period under, any federal or
state statutes regulating or governing the acquisition or change in control of
banks (the "Bank Regulatory Acts"), the Stock Option, subject to Section 2(b)
below, may be exercised by BancTrust or its permitted assignee, in whole or in
part, at any time or from time to time, on or before the termination of this
Stock Option Agreement (the "Termination Date"). The Termination Date shall be
the earlier to occur of the following:
(i) the Effective Time (as defined in the Merger Agreement);
(ii) termination of this Stock Option Agreement prior to the
occurrence of an Initial Triggering Event (as hereinafter defined);
(iii) eighteen (18) months after the first occurrence of an Initial
Triggering Event;
(iv) eighteen (18) months after the date of termination of the
Merger Agreement by BancTrust pursuant to Sections 7.1(c) or 7.1(d)
thereof; or
(v) the date of termination of the Merger Agreement in accordance
with its terms (other than by BancTrust in accordance with Section 2(a)(iv)
hereof) prior to the occurrence of an Initial Triggering Event.
In the event BancTrust wishes to exercise the Stock Option, BancTrust shall
send a written notice to Bancshares specifying the total number of shares it
will purchase and a place and date not later than 10 business days from the
date such notice is given for the closing of such purchase.
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<PAGE>
(b) BancTrust may exercise the Stock Option, in whole or part, if, but
only if, an Initial Triggering Event (as hereinafter defined) shall have
occurred prior to the occurrence of the Termination Date; provided that
--------
BancTrust shall have sent the written notice of such exercise (as provided in
subsection (a) of this Section 2).
(c) The term "Initial Triggering Event" shall mean any of the following
events of transactions occurring after the date hereof:
(i) Bancshares, without having received BancTrust's prior written
consent, shall have entered into an agreement to engage in an Acquisition
Transaction (as hereinafter defined) with any person (the term "person" for
purposes of this Stock Option Agreement having the meaning assigned
thereto in Sections 3(a)(9) and 13(d)(3) of the Securities Exchange Act of
1934, as amended (the "1934 Act"), and the rules and regulations
thereunder) other than BancTrust, or the Board of Directors of Bancshares
shall have recommended that the shareholders of Bancshares approve or
accept any Acquisition Transaction other than as contemplated by the
Merger Agreement. For purposes of this Stock Option Agreement, "Acquisition
Transaction" shall mean (x) a merger or consolidation, or any similar
transaction, involving Bancshares; (y) a purchase, lease or other
acquisition of all or substantially all of the assets of Bancshares; or (z)
a purchase or other acquisition (including by way of merger, consolidation,
share exchange or otherwise) of securities representing 10% or more of the
voting power of Bancshares;
(ii) Any person other than BancTrust or the current holders of the
Common Stock shall have acquired beneficial ownership or the right to
acquire beneficial ownership of 15% or more of the outstanding shares of
Common Stock (the term "beneficial ownership" for purposes of this Stock
Option Agreement having the meaning assigned thereto in Section 13(d) of
the 1934 Act, and the rules and regulations thereunder);
(iii) Any person other than BancTrust shall have made a bona fide
---- ----
proposal to Bancshares or its shareholders by public announcement or
written communication that is or becomes the subject of public disclosure
to engage in an Acquisition Transaction; or
(iv) Any person other than BancTrust, other than in connection with
a transaction to which BancTrust has given its prior written consent, shall
have filed an application or notice with the Board of Governors of the
Federal Reserve System, or other federal or state bank regulatory
authority, which application or notice has been accepted for processing,
for approval to engage in an Acquisition Transaction.
(d) Bancshares shall notify BancTrust promptly in writing of the
occurrence of any Initial Triggering Event, it being understood that the giving
of such notice by Bancshares shall not be a condition to the right of BancTrust
to exercise the Stock Option.
3. Payment and delivery of Certificate(s). At any closing hereunder,
--------------------------------------
BancTrust or its permitted assignee shall make payment to Bancshares of the
aggregate Exercise Price for the shares of Common Stock so purchase by certified
or official bank check or wire transfer of same day funds to an account
specified by Bancshares, and Bancshares shall deliver to BancTrust or its
permitted assignee a certificate or certificates in form satisfactory to
BancTrust representing the number of shares of Common Stock being purchased in
the denominations designated by BancTrust in its notice of exercise.
4. Representations and Warranties of Bancshares. Bancshares hereby
--------------------------------------------
represents and warrants to BancTrust as follows:
(a) Due Authorization. This Stock Option Agreement has been duly
-----------------
authorized by all necessary corporate action on the part of Bancshares and
has been duly executed by a duly authorized officer of Bancshares, and
constitutes a valid and binding obligation of Bancshares, enforceable
against it in accordance with its terms, except as enforcement may be
limited by bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' right generally, and except that the availability of
equitable
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<PAGE>
remedies, including specific performance, is subject to the discretion of
the court before which any proceeding therefor may be brought.
(b) Due Organization. Bancshares is a corporation duly organized,
----------------
validly existing and in good standing under the laws of Alabama and has the
requisite corporate power to enter into and perform this Stock Option
Agreement.
(c) Stock Option Shares. Except for any required regulatory filing,
-------------------
Bancshares has taken all necessary corporate and other action to authorize
and reserve and to permit it to issue, and at all times from the date
hereof through the Termination Date will keep reserved for issuance upon
exercise of the Stock Option, 110,273 shares of Common Stock, all of which,
upon issuance pursuant hereto, shall be duly and validly issued, fully paid
and nonassessable, and shall be delivered free and clear of all charges,
claims, liens, encumbrances, security interests or rights of others,
including any preemptive rights.
(d) No Conflicts. Subject to Section 2(b) hereof, neither the
------------
execution and delivery of this Stock Option Agreement nor the consummation
of the transactions contemplated hereby will violate or result in any
violation of or be in conflict with or constitute a default under any term
of the Articles of Incorporation or Bylaws of Bancshares or of any
agreement, instrument, judgment, decree, order, statute, rule or government
regulation applicable to Bancshares.
5. Representations and Warranties of BancTrust. BancTrust hereby
-------------------------------------------
represents and warrants to Bancshares as follows:
(a) Distribution. None of the shares of Common Stock acquired upon
------------
exercise of the Stock Option will be transferred except in a transaction
registered or exempt from registration under the Securities Act of 1933, as
amended, and any applicable state securities law.
(b) No Conflicts. Neither the execution and delivery of this Stock
------------
Option Agreement nor the consummation of the transactions contemplated
hereby will violate or result in any violation of or be in conflict with or
constitute a default under any term of the Articles of Incorporation or
Bylaws of BancTrust or of any agreement, instrument, judgment, decree,
order, statue, rule or governmental regulation applicable to BancTrust.
6. Bank Regulatory Acts. Bancshares and BancTrust will each, timely and
--------------------
promptly after the execution hereof, make all filings required under each of the
Bank Regulatory Acts and use their best efforts to cause the receipt of all
required approvals and the satisfaction or termination of all waiting periods
under the Bank Regulatory Acts applicable to the exercise of the Stock Option.
Bancshares and BancTrust will furnish to each other such necessary information
and reasonable assistance as may be requested in connection with the respective
preparation of necessary filings or submissions to any governmental agency
including, without limitation, any filings necessary under the provisions of any
of the Bank Regulatory Acts. Bancshares and BancTrust will supply each other
with copies of all correspondence, filings or communications (or memoranda
setting forth the substance thereof) between either of them or their respective
representatives and any governmental agency or authority or members of their
respective staffs with respect to this Stock Option Agreement or the
transaction contemplated hereby.
7. Cancellation Payment. In the event that any person or entity other
--------------------
than BancTrust or any affiliate of BancTrust (as such term is defined in Rule
13e-3 promulgated under the 1934 Act) (a) consummates a tender offer, as
determined by the precedent construing Sections 14(c) and 14(d) of the 1934 Act,
for more than 20% and not more than 25% of the outstanding shares of Bancshares,
(b) commences a tender offer for 25% or more of the outstanding shares of
Bancshares, or (c) enters into any agreement with Bancshares to engage in an
Acquisition Transaction in which the Common Stock would be convertible into or
exchangeable for securities or assets of another entity or cash. BancTrust, at
its election and subject to any required regulatory approvals, shall be entitled
to receive, in consideration for the cancellation of the Stock Option, an amount
in cash (the "Cancellation Payment") equal to (i) the excess, if any of (A) the
highest price or consideration paid by such third party for any shares so
acquired less (B) the Exercise Price, multiplied by (ii) 110,273 shares, less
the number of shares (if any) that have
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<PAGE>
previously been purchased upon exercise of the Stock Option, or, at the option
of BancTrust, such lesser amount, if any, as may be paid by Bancshares without
being required to obtain any prior regulatory approval from or to make any
filing with the regulatory agency with respect to Bancshares' purchase of its
equity securities. The Cancellation Payment shall be made within three (3)
business days of BancTrust's election to receive the Cancellation Payment by
certified or official bank check or wire transfer of same day funds to such
account as BancTrust shall designate.
8. Adjustment Upon Changes in Capitalization, Merger, Etc. In the event
-------------------------------------------------------
of any change in the shares of Common Stock occurring on or after the date
hereof, by reason of stock dividends, stock splits, mergers, recapitalization,
combinations, conversions, exchanges of shares or the like, the number and kind
of shares or securities subject to the Stock Option, the Exercise Price per
share and the Cancellation Payment shall be appropriately adjusted.
9. Legend. Certificates for the shares of Common Stock delivered at the
------
closing hereunder shall be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder thereof
and Elmore County Bancshares, Inc., a copy of which agreement is on file at
the principal office of Elmore County Bancshares, Inc. and to resale
restriction imposed by the Securities Act of 1933. A copy of such agreement
will be provided to the holder without charge upon receipt by Elmore County
Bancshares, Inc. of a written request."
In addition, such certificates shall bear any other legend as may be
required by law.
10. Assignment. Neither of the parties hereto may assign, pledge or
----------
convey any of its rights of obligations under this Stock Option Agreement or the
Stock Option created hereunder to any other person or entity, without the
express written consent of the other party, provided, however, that BancTrust's
rights and obligations under this Stock Option Agreement and the Stock Option
created hereunder shall be automatically transferred to any corporation
succeeding to the rights and obligations of BancTrust under the Merger
Agreement.
11. Remedies. BancTrust, on the one hand, and Bancshares, on the other
--------
hand, each acknowledges and agrees that the other would be irreparably damaged
in the event any of the provisions of this Stock Option Agreement were not
performed by the other in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that each party shall be entitled to an
injunction or injunctions to redress the breaches of this Stock Option Agreement
and to specifically enforce the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction, in addition to any other remedy to which such party may be
entitled at law or in equity. In the event litigation shall be necessary to
enforce, interpret or rescind the provisions of this Stock Option Agreement, the
prevailing party shall be entitled to recover from the other party, in addition
to other relief, the prevailing party's reasonable attorneys' fees for services
before trial, on trial and on any appeal therefrom.
12. Miscellaneous.
-------------
(a) Effect and Assignment of Agreement. Subject to the provisions of
----------------------------------
Section 10 hereof, this Stock Option Agreement shall be binding upon and
enforceable by and against the parties hereto and their respective successors
and assigns.
(b) Amendments. This Stock Option Agreement may not be modified, amended,
----------
altered or supplemented, except upon the execution and delivery of a written
amendment executed by the parties.
(c) Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by cable,
telegram or telex, or by mail (registered or certified mail, postage prepaid,
return receipt requested) to the respect parties as follows:
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<PAGE>
If to Bancshares:
Elmore County Bancshares, Inc.
304 Barnett Boulevard
Tallassee, Alabama 36078
Attention: Arnold B. Dopson,
Chairman of the Board
with a copy to:
Bowles & Cottle
P.O. Box 704
Tallassee, Alabama 36078
Attention: John I. Cottle, Esq.
If to BancTrust:
The Peoples BancTrust Company, Inc.
310 Broad Street
Selma, Alabama 36701
Attention: Richard P. Morthland,
Chairman of the Board
with a copy to:
Gamble, Gamble, Calame & Wilson, L.L.C.
807 Selma Avenue
Selma, Alabama 36701
Attention: Harry W. Gamble, Jr., Esq.
or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notices of a change of address shall
only be effective upon receipt.
(d) Governing Law. This Stock Option Agreement shall be governed by
-------------
and construed in accordance with the laws of the State of Alabama, without
regard to the principles of conflict of laws.
(e) No Prior Agreements. This Stock Option Agreement (i) contains the
-------------------
entire agreement, and supersedes all other prior agreements and understandings,
both written and oral, between the parties hereto with respect to the subject
matter hereof, and (ii) is not intended to confer upon any other person other
than a permitted assignee any rights or remedies hereunder.
(f) Severability. If any term, provision, covenant or restriction of this
------------
Stock Option Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provision, covenants
and restrictions of this Stock Option Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated.
(g) Expenses. Each of the parties shall pay its own expenses in
--------
connection with the negotiation, execution and performance of this Stock Option
Agreement.
(h) Effect of Headings. The section headings herein are for convenience
------------------
only and shall not affect the meanings or construction of this Stock Option
Agreement.
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(i) Counterparts. This Stock Option Agreement may be executed in several
------------
counterparts, each of which shall be an original, but all of which together
shall constitute the same agreement.
IN WITNESS WHEREOF, Bancshares and BancTrust have caused this Stock Option
Agreement to take effect as of the date set forth above.
ELMORE COUNTY BANCSHARES, INC.
By: /s/ Arnold B. Dopson
------------------------------------
Arnold B. Dopson
Chairman of the Board
THE PEOPLES BANCTRUST COMPANY, INC.
By: /s/ Richard P. Morthland
------------------------------------
Richard P. Morthland
Chairman of the Board
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<PAGE>
EXHIBIT D
LEGAL OPINION MATTERS -- BANCTRUST AND PEOPLES
1. BancTrust is a corporation, and Peoples is a commercial bank, validly
existing and in good standing under the laws of the States of Alabama, and each
of them has the corporate power and corporate authority to execute, deliver and
perform all transactions contemplated by the Agreement and Plan of Merger and
Reorganization (the "Agreement").
2. BancTrust and People each have the requisite corporate power and
authority to carry on their respective business as they are now being conducted
and to own their respective properties and assets as such businesses, properties
and assets are described in the BancTrust Annual Report on Form 10-K for the
year ended December 31, 1996.
3. The authorized capital stock of BancTrust consists of 9,000,000 shares
of BancTrust Common Stock, of which the number of shares of BancTrust Common
Stock specified in the opinion are issued and outstanding at the Effective Time.
Each of such outstanding shares of Banctrust Common Stock (a) has been validly
issued and is fully paid and nonassessable and (b) has not been issued in
violation of any preemptive rights. To such counsel's knowledge, except for
BancTrust's obligations to issue shares of BancTrust's Common Stock under the
terms of its stock option plan, (i) no unissued shares of BancTrust Common Stock
or any other securities of BancTrust are subject to any warrants, options,
commitments, preemptive or other rights of any kind or nature, and (ii)
BancTrust is not obligated to issue any additional shares of capital stock or
any securities of any kind or nature.
4. The authorized capital stock of Peoples consists of 100,000 shares of
People Common Stock, of which 100,000 are issued and outstanding at the
Effective Time. Each of the outstanding shares of Peoples Common Stock (a) has
been validly issued and is fully paid and nonassessable and (b) has not been
issued in violation of any preemptive rights. To such counsel's knowledge, no
unissued shares of Peoples Common Stock or any other securities of Peoples are
subject to any warrants, options, commitments, preemptive rights or other rights
of any kind or nature, and Peoples is not obligated to issue any additional
share of capital stock or any other securities of any kind or nature. The share
of Peoples Common Stock owned by Banctrust are owned free and clear of all
liens, pledges, security interests, claims or other encumbrances.
5. The execution, delivery and performance, as of the date of such
opinions, of all transactions contemplated by the Agreement have been duly
authorized and approved by all requisite corporate action on the part of
BancTrust and Peoples.
6. The Agreement has been duly authorized, executed and delivered by
BancTrust and Peoples and constitutes the valid and binding obligation of
BancTrust and Peoples, enforceable against BancTrust and Peoples in accordance
with its terms. This opinion concerning the validity, binding effect and
enforceability of the Agreement means that (a) the Agreement constitutes an
effective contract under applicable law, (b) the Agreement is not invalid in its
entirety because of a specific statutory prohibition or public policy and is not
subject in its entirety to a contractual defense and (c) subject to the last
sentence of this paragraph, some remedy is available if a party is in material
default under the Agreement. This opinion does not mean that (a) any particular
remedy is available upon a material default or (b) every provision of the
Agreement will be upheld or enforced in any or each circumstance by a court.
Furthermore, the validity, binding effect and enforceability of the Agreement
may be limited or otherwise affected by (a) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar statutes,
rules, regulations or other laws affecting the enforcement of creditors' rights
and remedies generally and (b) the unavailability of, or limitation on the
availability of, a particular right or remedy (whether in a proceeding in equity
or at law) because of an equitable principle or a requirement as to commercial
reasonableness, conscionability or good faith.
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7. Neither the execution and delivery of the Agreement by BancTrust and
Peoples nor the consummation of the Merger will (a) violate in any material
respect any provision of the Articles of Incorporation or Bylaws of BancTrust or
Peoples or any federal or Alabama statute or regulation; (b) to such counsel's
knowledge, violate the provisions of or constitute a default under any other
material agreement or instrument to which BancTrust or Peoples is a party or to
which either of them or any of its properties or assets is subject, except where
such default would not have a material adverse effect on the financial
condition, operations, business or properties of BancTrust or Peoples; (c)
require that BancTrust or Peoples obtain the consent or approval of any third
party other than consents and approvals previously obtained; or (d) violate, in
any material respect, any judgement, order, injunction, decree or award against,
or binding upon, BancTrust or Peoples know to such counsel that would prohibit
consummation of the Merger.
8. Subject to the satisfaction of post-closing conditions, BancTrust has
obtained all consents and approvals of (and made all filings with) all federal
or state regulatory agencies or other authorities having jurisdiction over the
Merger that BancTrust was required to obtain or make in order to consummate the
Merger, and all such consents and approvals are in full force and effect; such
opinion to express those agencies or authorities whose approvals have been
obtained or accomplished and to be given on a knowledge basis as to all others.
9. Assuming that all necessary corporate action in respect of the Merger
has been duly and validly taken by Bancshares and its shareholders, upon filing
of Articles of Merger between BancTrust and Bancshares with the Secretary of
State of Alabama, the Merger will have been validly effected in accordance with
the Alabama Business Corporation Act.
10. To the best knowledge of counsel, there are no pending or threatened
actions, suits or proceedings before any federal, state or local court or
governmental authority that seek to modify, enjoin or prohibit or otherwise
adversely and materially interfere with the Merger.
11. To the best knowledge of counsel, there are no pending actions, suits
or proceedings before any federal, state or local or governmental authority
against BancTrust or Peoples (except as set forth in Schedule 4.10 or other
schedules to the Agreement or an attachment to counsel's opinion) that, if
determined adversely to BancTrust or Peoples, would have a material adverse
effect upon the financial condition, business or operation of BancTrust or
Peoples.
12. The shares of BancTrust Common Stock into which shares of Bancshares
Common Stock will be converted pursuant to the Agreement have been duly
authorized and, when initially issued in accordance with the Agreement as of the
Effective Time, will be duly and validly issued and will be fully paid and
nonassessable.
The opinions of counsel need refer only to matters of Alabama and federal
law and may add other qualifications and explanations of counsels' opinions as
may be reasonably acceptable to Bancshares.
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EXHIBIT E
LEGAL OPINION MATTERS -- BANCSHARES AND TALLASSEE
1. Bancshares is a corporation, and Tallassee is a commercial bank, duly
organized, validly existing and in good standing under the laws of the State of
Alabama, and each of them has the corporate power and corporate authority to
execute, deliver and perform its obligations under the Agreement and Plan of
Merger and Reorganization (the "Agreement").
2. Bancshares and Tallassee each have the requisite corporate power and
authority to carry on their respective business as they are now being conducted
and to own their respective properties and assets.
3. The authorized capital stock of Bancshares consists of 1,680,000
shares of Bancshares Common Stock, of which the number of shares of Bancshares
Common Stock specified in the opinion are issued and outstanding at the
Effective Time. Each of such outstanding shares of Bancshares Common Stock (a)
has been validly issued and is fully paid and nonassessable and (b) has not been
issued in violation of any preemptive rights. To such counsel's knowledge,
except for Bancshares' obligations under that certain Stock Option Agreement
dated as of December 11, 1997, (i) no unissued shares of Bancshares Common Stock
or any other securities of Bancshares are subject to any warrants, options,
commitments, preemptive or other rights of any kind or nature and (ii)
Bancshares is not obligated to issue any additional shares of capital stock or
any other securities of any kind or nature.
4. The authorized capital stock of Tallassee consists of 42,000 shares of
Tallassee Common Stock, of which 42,000 are issued and outstanding at the
Effective Time. Each of the outstanding shares of Tallassee Common Stock (a) has
been validly issued and is fully paid and nonassessable and (b) has not been
issued in violation of any preemptive rights. To such counsel's knowledge, no
unissued shares of Tallassee Common Stock or any other securities of Tallassee
are subject to any warrants, options, commitments, preemptive rights or other
rights of any kind or nature, and Tallassee is not obligated to issue any
additional share of capital stock or any other securities of any kind or nature.
The shares of Tallassee Common Stock owned by Bancshares are owned free and
clear of all liens, pledges, security interests, claims or other encumbrances.
5. The execution, delivery and performance, as of the date of such
opinion, of the Agreement and all transactions contemplated by the Agreement
have been duly authorized and approved by all requisite corporate action on the
part of Bancshares and Tallassee.
6. The Agreement has been duly authorized, executed and delivered by
Bancshares and Tallassee and constitutes the valid and binding obligation of
Bancshares and Tallassee, enforceable against Bancshares and Tallassee in
accordance with its terms. This opinion concerning the validity, binding effect
and enforceability of the Agreement means that (a) the Agreement constitutes an
effective contract under applicable law, (b) the Agreement is not invalid in its
entirety because of a specific statutory prohibition or public policy and is not
subject in its entirety to a contractual defense and (c) subject to the last
sentence of this paragraph, some remedy is available if a party is in material
default under the Agreement. This opinion does not mean that (a) any particular
remedy is available upon a material default or (b) every provision of the
Agreement will be upheld or enforced in any or each circumstance by a court.
Furthermore, the validity, binding effect and enforceability of the Agreement
may be limited or otherwise affected by (a) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar statutes,
rules, regulations or other laws affecting the enforcement of creditors' rights
and remedies generally and (b) the unavailability of, or limitation on the
availability of, a particular right or remedy (whether in a proceeding in equity
or at law) because of an equitable principle or a requirement as to commercial
reasonableness, conscionability or good faith.
7. Neither the execution and delivery of the Agreement by Bancshares and
Tallassee nor the consummation of the Merger will (a) violate in any material
respect any provision of the Articles of Incorporation
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or Bylaws of Bancshares or Tallassee or any federal or Alabama statue or
regulation; (b) to such counsel's knowledge, violate the provisions of or
constitute a default under any other material agreement or instrument to which
Bancshares or Tallassee is a party or to which either of them or any of its
properties or assets is subject, except which such default would not have a
material adverse effect on the financial condition, operations, business, or
properties of Bancshares or Tallassee; (c) require that Bancshares or Tallassee
obtain the consent or approval of any third party other than consents and
approvals previously obtained; or (d) violate, in any material respect, any
judgment, order, injunction, decree or award against, or binding upon,
Bancshares or Tallassee known to such counsel that would prohibit consummation
of the Merger.
8. Subject to the satisfaction or post-closing conditions, Bancshares has
obtained all consents and approvals of (and made all filings with) all federal
or state regulatory agencies or other authorities having jurisdiction over the
Merger that Bancshares was required to obtain or make in order to consummate the
Merger, and all such consents and approvals are in full force and effect; such
opinion to express those agencies or authorities whose approvals have been
obtained or accomplished and to be given on a knowledge basis as to all others.
9. Assuming that all necessary corporate action in respect of the Merger
has been duly and validly taken by BancTrust and its shareholders, upon filing
of Articles of Merger between BancTrust and Bancshares with the Secretary of
State of Alabama, the Merger will have been validly effected in accordance with
the Alabama Business Corporation Act.
10. To the best knowledge of counsel, there are no pending or threatened
actions, suits or proceedings before any federal, state or local court or
governmental authority that seek to modify, enjoin or prohibit or otherwise
adversely and materially interfere with the Merger.
11. To the best knowledge of counsel, there are no pending actions, suits
or proceedings before any federal, state or local or governmental authority
against Bancshares or Tallassee (except as set forth in Schedule 3.4 or other
schedules to the Agreement or an attachment to counsel's opinion) that, if
determined adversely to Bancshares or Tallassee, would have a material adverse
effect upon the financial condition, business or operation of Bancshares or
Tallassee.
The opinion of counsel need refer only to matters of Alabama and federal
law and may add other qualifications and explanations of counsel's opinion as
may be reasonably acceptable to BancTrust.
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APPENDIX II
ARTICLE 13. DISSENTERS' RIGHTS
DIVISION A. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
10-2B-13.01 DEFINITIONS. - (1) "Corporate action" means the filing of
articles of merger or share exchange by the Probate Judge or Secretary of State,
or other action giving legal effect to a transaction that is the subject of
dissenters' rights.
(2) "Corporation" means the issuer of shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 13.02 and who exercises that right when and in
the manner required by Sections 13.20 through 13.28.
(4) "Fair Value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans, or, if none, at a rate that is fair and
equitable under all circumstances.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
(7) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
10-2B-13.02 RIGHT TO DISSENT. - (a) A shareholder is entitled to dissent
from, and obtain payment of the fair value of his or her shares in the event of,
any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by Section
11.03 or the articles of incorporation and the shareholder is entitled to
vote on the merger or (ii) if the corporation is a subsidiary that is
merged with its parent under Section 11.04;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange by all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(4) To the extent that the articles of incorporation of the
corporation so provide, an amendment of the articles of incorporation that
materially and adversely affects rights in respect to a dissenter's shares
because it:
(i) Alters or abolishes a preferential right of the shares;
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(ii) Creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for the
redemption or repurchase of the shares;
(iii) Alters or abolishes a preemptive right of the holder of
the shares to acquire shares or other securities;
(iv) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights; or
(v) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be
acquired for cash under Section 6.04; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for shares under
this chapter may not challenge the corporate action creating his or her
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
10-2B-13.03 DISSENT BY NOMINEES AND BENEFICIAL OWNERS. - (a) A record
shareholder may assert dissenters' rights as to fewer than all of the shares
registered in his or her name only if he or she dissents with respect to all
shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he or she asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares to which he or she dissents and his or her other
shares were registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his or her behalf only if:
(1) He or she submits to the corporation the record shareholder's
written consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
(2) He or she does so with respect to all shares of which he or she
is the beneficial shareholder or over which he or she has power to direct
the vote.
DIVISION B. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
10-2B-13.20 NOTICE OF DISSENTERS' RIGHTS. - (a) If proposed corporate
action creating dissenters' rights under Section 13.02 is submitted to a vote at
a shareholders' meeting, the meeting notice must state that shareholders are or
may be entitled to assert dissenters' rights under this article and be
accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under Section 13.02 is
taken without a vote of shareholders, the corporation shall (1) notify in
writing all shareholders entitled to assert dissenters' rights that the action
was taken; and (2) send them the dissenters' notice described in Section 13.22.
10-2B-13.21 NOTICE OF INTENT TO DEMAND PAYMENT. - (a) If proposed
corporate action creating dissenters' rights under Section 13.02 is submitted to
a vote at a shareholder's meeting, a shareholder who wishes to assert
dissenters' rights (1) must deliver to the corporation before the vote is taken
written notice of his or her intent to demand payment or his or her shares if
the proposed action is effectuated; and (2) must not vote his or her shares in
favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for his or her shares under this article.
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10-2B-13.22 DISSENTERS' NOTICE. - (a) If proposed corporate action
creating dissenters' rights under Section 13.02 is authorized at a shareholders'
meeting, the corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of Section 13.21.
(b) The dissenters' notice must be sent no later than 10 days after the
corporate action was taken, and must:
(1) State where the payment demand must be sent;
(2) Inform holders of shares to what extent transfer of the
shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than 30 nor more than 60
days after the date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this article.
10-2B-13.23 DUTY TO DEMAND PAYMENT. - (a) A shareholder sent a
dissenters' notice described in Section 13.22 must demand payment in accordance
with the terms of the dissenters' notice.
(b) The shareholder who demands payment retains all other rights of a
shareholder until those rights are canceled or modified by the taking of the
proposed corporate action.
(c) A shareholder who does not demand payment by the date set in the
dissenters' notice is not entitled to payment for his or her shares under this
article.
(d) A shareholder who demands payment under subsection (a) may not
thereafter withdraw that demand and accept the terms offered under the proposed
corporate action unless the corporation shall consent thereto.
10-2B-13.24 SHARE RESTRICTIONS. - (a) Within 20 days after making a
formal payment demand, each shareholder demanding payment shall submit the
certificate or certificates representing his or her shares to the corporation
for (1) notation thereon by the corporation that such demand has been made and
(2) return to the shareholder by the corporation.
(b) The failure to submit his or her shares for notation shall, at the
option of the corporation, terminate the shareholders' rights under this article
unless a court of competent jurisdiction, for good and sufficient cause, shall
otherwise direct.
(c) If shares represented by a certificate on which notation has been made
shall be transferred, each new certificate issued therefor shall bear similar
notation, together with the name of the original dissenting holder of such
shares.
(d) A transferee of such shares shall acquire by such transfer no rights
in the corporation other than those which the original dissenting shareholder
had after making demand for payment of the fair value thereof.
10-2B-13.25 OFFER OF PAYMENT. - (a) As soon as the proposed corporate
action is taken, or upon receipt of a payment demand, the corporation shall
offer to pay each dissenter who complied with Section 13.23 the amount the
corporation estimates to be the fair value of his or her shares, plus accrued
interest.
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(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of the offer, an income
statement for that year, and the latest available interim financial
statements, if any;
(2) A statement of the corporation's estimate of the fair value of
the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under
Section 13.28; and
(5) A copy of this article.
(c) Each dissenter who agrees to accept the corporation's offer of payment
in full satisfaction of his or her demand must surrender to the corporation the
certificate or certificates representing his or her shares in accordance with
terms of the dissenters' notice. Upon receiving the certificate or
certificates, the corporation shall pay each dissenter the fair value of his or
her shares, plus accrued interest, as provided in subsection (a). Upon
receiving payment, a dissenting shareholder ceases to have any interest in the
shares.
10-2B-13.26 FAILURE TO TAKE CORPORATE ACTION. - (a) If the corporation
does not take the proposed action within 60 days after the date set for
demanding payment, the corporation shall release the transfer restrictions
imposed on shares.
(b) If, after releasing transfer restrictions, the corporation takes the
proposed action, it must send a new dissenters' notice under Section 13.22 and
repeat the payment demand procedure.
10-2B-13.28 PROCEDURE IF SHAREHOLDER DISSATISFIED WITH OFFER OF PAYMENT. -
(a) A dissenter may notify the corporation in writing of his or her own
estimate of the fair value of his or her shares and amount of interest due, and
demand payment of his or her estimate, or reject the corporation's offer under
Section 13.25 and demand payment of the fair value of his or her shares and
interest due, if:
(1) The dissenter believes that the amount offered under Section
13.25 is less than the fair value of his or her shares or that the interest
due is incorrectly calculated;
(2) The corporation fails to make an offer under Section 13.25 within
60 days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does
not release the transfer restrictions imposed on shares within 60 days
after the date set for demanding payment.
(b) A dissenter waives his or her right to demand payment under this
section unless he or she notifies the corporation of his or her demand in
writing under subsection (a) within 30 days after the corporation offered
payment for his or her shares.
DIVISION C. JUDICIAL APPRAISAL OF SHARES
10-2B-13.30 COURT ACTION. - (a) If a demand for payment under Section
13.28 remains unsettled, the corporation shall commence a proceeding within 60
days after receiving the payment demand and petition the court to determine the
fair value of the shares and accrued interest. If the corporation does not
commence the proceeding within the 60 day period, it shall pay each dissenter
whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the circuit court of
the county where the corporation's principal office (or, if none in this state,
its registered office) is located. If the corporation is a foreign corporation
without a registered office in this state, it shall commence the proceeding in
the county in this state where the registered office of the domestic corporation
merged with or whose shares were acquired by the foreign corporation was
located.
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(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares, and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided under the Alabama Rules of Civil Procedure.
(d) After service is completed, the corporation shall deposit with the
clerk of the court an amount sufficient to pay unsettled claims of all
dissenters party to the action in an amount per share equal to its prior
estimate of fair value, plus accrued interest, under Section 13.25.
(e) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(f) Each dissenter made a party to the proceeding is entitled to judgment
for the amount the court finds to be the fair value of his or her shares, plus
accrued interest. If the court's determination as to the fair value of a
dissenter's shares, plus accrued interest, is higher than the amount estimated
by the corporation and deposited with the clerk of the court pursuant to
subsection (d), the corporation shall pay the excess to the dissenting
shareholder. If the court's determination as to fair value, plus accrued
interest, of a dissenter's shares is less than the amount estimated by the
corporation and deposited with the clerk of the court pursuant to subsection
(d), then the clerk shall return the balance of funds deposited, less any costs
under Section 13.31, to the corporation.
(g) Upon payment of the judgment, and surrender to the corporation of the
certificate or certificates representing the appraised shares, a dissenting
shareholder ceases to have any interest in the shares.
10-2B-13.31 COURT COSTS AND COUNSEL FEES. - (a) The court in an appraisal
proceeding commenced under Section 13.30 shall determine all costs of the
proceeding, including compensation and expenses of appraisers appointed by the
court. The court shall assess the costs against the corporation, except that
the court may assess costs against all or some of the dissenters, in amounts the
court finds equitable, to the extent the court finds the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under
Section 13.28.
(b) The court may also assess the reasonable fees and expenses of counsel
and experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of Sections 13.20 through 13.28; or
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefitted.
10-2B-13.32 STATUS OF SHARES AFTER PAYMENT. - Shares acquired by a
corporation pursuant to payment of the agreed value therefor or to payment of
the judgment entered therefor, as in this chapter provided, may be held and
disposed of by such corporation as in the case of other treasury shares, except
that, in the case of a merger or share exchange, they may be held and disposed
of as the plan of merger or share exchange may otherwise provide.
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APPENDIX III
June 5, 1998
Board of Directors
Elmore County Bancshares, Inc.
304 Barnett Boulevard
Tallassee, Alabama 36078
Dear Directors:
T. Stephen Johnson & Associates, Inc., Roswell, Georgia ("TSJ&A") has been asked
to render an opinion as to the fairness from a financial point of view of the
consideration to be received by the shareholders of Elmore County Bancshares,
Inc. ("Bancshares") in connection with the proposed merger of Bancshares with
and into The Peoples BancTrust Company, Inc. ("BancTrust"), pursuant to an
Agreement and Plan of Merger (the "Merger Agreement") dated as of December 11,
1997 (the "Merger"). The Merger Agreement calls for each outstanding share of
Bancshares common stock to be converted into shares of BancTrust Common Stock
based on an Exchange Ratio defined as the quotient of (A) the product of 2.35
times the Net Book Value Per Share of Bancshares as of September 30, 1997
divided by (B) the Fair Market Value Per BancTrust Share set at $20.00.
TSJ&A is an investment banking and consulting firm that specializes in the
valuation of closely-held corporations and provides fairness opinions as part of
its practice. Because of its prior experience in the appraisal of Southeastern
financial institutions involved in mergers, TSJ&A has developed an expertise in
fairness opinions related to the securities of Southeastern financial
institutions.
TSJ&A was engaged by Bancshares in the fall, 1997 to analyze and suggest an
exchange ratio for a merger between Bancshares and BancTrust. This analysis was
used as a resource for Bancshares to negotiate a fair exchange ratio in
contemplation of a merger.
In performing its analysis, TSJ&A relied upon and assumed without independent
verification, the accuracy and completeness of all information provided to it.
TSJ&A has not performed any independent appraisal or evaluation of the assets of
Bancshares or of BancTrust or any of its subsidiaries. As such, TSJ&A does not
express an opinion as to the fair market value of Bancshares. The opinion of
financial fairness expressed herein is necessarily based on market, economic and
other relevant considerations as they exist and can be evaluated as of June 1,
1998.
In arriving at its opinion, TSJ&A reviewed and analyzed audited and unaudited
financial information through March 31, 1998, regarding Bancshares and BancTrust
and reviewed its analysis regarding the preliminary exchange ratio prepared as
of September 30, 1997.
Based on a Net Book Value Per Share of Bancshares of $26.29, as of September 30,
each share of Bancshares common stock would be converted into the right to
receive 3.0893 shares of BancTrust.
BancTrust shares are traded on NASDAQ. The closing price for the shares on June
1, 1998 was $29.50 per share. If the transaction were consummated as of this
date, the value of the transaction per Bancshares share would be $91.13. This
value is 3.338 times the March 31, 1998 book value of $27.30 per share and
30.6835 times the last twelve months earnings per share as of March 31, 1998.
TSJ&A reviewed the Merger as of March 29, 1998, for the purpose of determining
purchase premiums that could be used in comparing the Merger with other
announced transactions. TSJ&A reviewed the purchase premiums paid in 63
transactions that were announced between July 1, 1997 and March 29, 1998
involving selling institutions with total assets between $50 million and $150
million headquartered in the southeastern United States. Of these transactions,
18 involved selling institutions that have been determined to be comparable
transactions. They include institutions representing commercial bank
institutions with total equity greater than 10.00 percent of total assets. A
listing of these transactions is attached. The purchase premiums in the Merger
exceeded the range of price to book purchase premiums
III-1
<PAGE>
Board of Directors
June 5, 1998
Page 2
paid in the comparable transactions and ranked well above average in the price
to earnings ratio. On average, the 18 comparable transactions reported an
announced deal price to book value of 2.5763 times and an announced deal price
to earnings of 23.47 times.
Therefore, in consideration of the above, it is the opinion of TSJ&A that, based
on the structure of the Merger and the analyses that have been performed, the
consideration to be received by the shareholders of Bancshares is fair from a
financial point of view.
Sincerely,
T. Stephen Johnson & Associates, Inc.
III-2
<PAGE>
APPENDIX IV
[BAXTER FENTRISS AND COMPANY LETTERHEAD]
June 26, 1998
The Board of Directors
Peoples BancTrust Company, Inc.
310 Broad Street
Selma, AL 36701
Dear Members of the Board:
Peoples BancTrust Company, Inc., Selma, Alabama ("Peoples") and Elmore County
Bancshares, Inc., Tallassee, Alabama, ("Elmore County") have entered into an
agreement providing for the merger of Elmore County with and into Peoples
("Merger"). The terms of the Merger are set forth in the Agreement and Plan of
Merger and Reorganization ("Agreement") dated December 11, 1997.
The terms of the Merger provide that, with the possible exception of those
shares as to which dissenter's rights may be perfected, each common share of
Elmore County ($0.05 par value) shall be converted into the right to receive
3.0893 shares (the "Exchange Ratio") of Peoples common stock and cash in lieu of
fractional shares, subject to certain adjustments.
You have asked our opinion as to whether the Exchange Ratio pursuant to the
terms of the Merger are fair to the respective shareholders of Peoples from a
financial point of view.
In rendering our opinion, we have evaluated the consolidated financial
statements of Peoples and Elmore County available to us from published sources.
In addition, we have, among other things: (a) to the extent deemed relevant,
analyzed selected public information of certain other financial institutions and
compared Elmore County from a financial point of view to the other financial
institutions; (b) compared the terms of the Merger with the terms of certain
other comparable transactions to the extent information concerning such
acquisitions was publicly available; (c) reviewed the drafts of the Agreement
and Plan of Merger and Reorganization and related documents; (d) reviewed the
historical market price of the common stock of Peoples and Elmore County; (e)
made such other analyses and examinations as we deemed necessary. We also met
with various senior officers of Elmore County and Peoples to discuss the
foregoing as well as other matters that may be relevant.
We have not independently verified the financial and other information
concerning Peoples and Elmore County, or other data which we have considered in
our review. We have assumed the accuracy and completeness of all such
information; however, we have no reason to believe that such information is not
accurate and complete. Our conclusion is rendered on the basis of securities
market conditions prevailing as of the date hereof and on the conditions and
prospects, financial and otherwise, of Peoples and Elmore County as they exist
and are known to us as of September 30, 1997.
We have acted as financial advisor to Peoples in connection with the Merger and
will receive from Peoples a fee for our services, a significant portion of which
is contingent upon the consummation of the Merger.
It is understood that this opinion may be included in its entirety in any
communication by Peoples or the Board of Directors to the stockholders of
Peoples. The opinion may not, however, be summarized, excerpted from or
otherwise publicly referred to without our prior written consent.
IV-1
<PAGE>
Board of Directors
June 5, 1998
Page 2
Based on the foregoing, and subject to the limitations described above, we are
of the opinion that the Exchange Ratio is fair to the shareholders of Peoples
from a financial point of view.
Sincerely,
Baxter Fentriss and Company
IV-2
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. Indemnification of Directors and Officers
The Registrant's Articles of Incorporation provide that the Registrant
shall have the authority to indemnify, to the full extent permitted by Alabama
or other applicable law, any person who was or is a party to or threatened to be
made a party to any threatened, pending or completed action, suit or proceeding
of any kind, including an action by or in the right of the Registrant, as a
result of the fact that such person was or is serving as a director, officer,
employee or agent of the Registrant or was serving at the request of the Board
of Directors as a director, officer, employee or agent of another corporation,
partnership, or other enterprise, against expenses (including attorney's fees),
judgments, penalties, fines or amounts paid in settlement in connection
therewith.
The Alabama Business Corporation Act ("ABCA") limits the instances in which
an Alabama corporation may provide indemnification. Under the ABCA, a
corporation may provide indemnification (other than in connection with a
proceeding by or in the right of the corporation) only if the person being
indemnified acted in good faith and in a manner he or she reasonably believed to
be in the best interests of the corporation or its shareholders and, with
respect to any criminal action or proceeding, if the person had no reasonable
cause to believe his or her conduct was unlawful. The termination of any action
by judgment, order, settlement, conviction or upon a plea of nolo contendere or
its equivalent is not, of itself, determinative that the person did not meet
this statutory standard of conduct. An Alabama corporation is required to
provide indemnification of directors, officers, employees or agents against all
reasonably incurred expenses to the extent the individual has been successful on
the merits or otherwise in defense in defense of an action, suit or proceeding.
An individual may also apply to the court conducting the proceeding or to
another court of competent jurisdiction for indemnification. Such a court may
order indemnification if it determines that the person either is entitled to
mandatory indemnification of is fairly and reasonable entitled in
indemnification in view of all the relevant circumstances, whether or not the
applicable standard of conduct described above has been satisfied.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers, or
persons controlling the Registrant pursuant to the foregoing provisions, the
Registrant has been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in that
Act and is therefore unenforceable. The Registrant also provides each Director
with director's insurance.
ITEM 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Exhibit
Number Description
------ -----------
2.1 Agreement and Plan of Reorganization dated as of December 2,
1997, by and among The Peoples BancTrust Company, Inc., The
Peoples Bank and Trust Company, Merchants & Planters
Bancshares, Inc. and Merchants & Planters Bank -
incorporated herein by reference to Exhibit 2 to the
Registrant's Current Report on Form 8-K dated December 5,
1997.
2.2 Agreement and Plan of Merger and Reorganization dated as of
December 11, 1997, by and among The Peoples BancTrust
Company, Inc., The Peoples Bank and Trust Company, Elmore
County Bancshares, Inc. and The Bank of Tallahassee -
reference is made to Appendix I to the Joint Proxy
Statement/Prospectus.
3.1 Articles of Incorporation as amended - incorporated herein
by reference to Exhibit 3(i) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1997.
3.2 Bylaws - incorporated herein by reference to Exhibit 3(ii)
to the Registrant's Quarterly
II-1
<PAGE>
Report on Form 10-Q for the quarter ended June 30, 1995.
5 Opinion of Kutak Rock on the legality of the securities
being registered.
8 Opinion of Kutak Rock regarding certain tax matters.
10.1 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.
10.2 Salary Continuation Agreement dated February 18, 1997, by
and between Arnold B. Dopson and Elmore County Bancshares,
Inc.
10.3 Employment Agreement and Covenant Not to Compete to be
entered into by and between Arnold B. Dopson and The Peoples
BancTrust Company, Inc. -- reference is made to Exhibit B to
Appendix I to the Joint Proxy Statement/Prospectus.
10.4 Employment Agreement and Covenant Not to Compete to be
entered into by and between David W. Baggett, Jr. and The
Peoples BancTrust Company, Inc. -- reference is made to
Exhibit A to Appendix I to the Joint Proxy
Statement/Prospectus.
21 Subsidiaries of the Registrant - A list of subsidiaries of
the Registrant is included as an exhibit to this
Registration Statement.
23.1 Consent of Kutak Rock (contained in it opinions filed as
Exhibits 5 and 8).
23.2 Consent of Coopers & Lybrand, L.L.P.
23.3 Consent of Donaldson, Holman & West, P.C.
23.4 Consent of Wilson, Price, Barranco, Blankenship &
Billingsley, P.C.
23.5 Consent of T. Stephen Johnson & Associates, Inc.
23.6 Consent of Baxter Fentriss and Company.
24 Power of Attorney (included in signature page).
99.1 Form of Proxy - Elmore County Bancshares, Inc.
99.2 Form of Proxy - The Peoples BancTrust Company, Inc.
(b) Financial Statements
Not Applicable.
(c) Report or Appraisal
Not Applicable.
II-2
<PAGE>
ITEM 22. Undertakings
The undersigned registrant hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provision, or otherwise, the registrant has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective
amendment by those paragraphs is contained in periodic reports filed
by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(1) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
II-3
<PAGE>
the initial bona fide offering thereof.
The undersigned registrant hereby undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in the
registration statement when it became effective.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Selma, state of Alabama,
on June 26, 1998.
THE PEOPLES BANCTRUST COMPANY, INC.
By: /s/ Richard P. Morthland
---------------------------------------
Richard P. Morthland
Chairman of the Board and Chief
Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Richard P. Morthland his true and lawful
attorney-in-fact and agent, with power to act and full power of substitution, in
any and all capacities, to sign any and all Registration Statements filed by The
Peoples BancTrust Company, Inc., an Alabama corporation, in which the
undersigned holds office, and any amendments to the Registration Statement,
including all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C> <C>
/s/ Richard P. Morthland June 26, 1998 /s/ Clyde B. Cox, Jr. June 26, 1998
- --------------------------------- ---------------------------------
Richard P. Morthland Clyde B. Cox, Jr.
Chairman of the Board and Director
Chief Executive Officer
/s/ Andrew C. Bearden, Jr. June 26, 1998 /s/ Harry W. Gamble, Jr. June 26, 1998
- --------------------------------- ---------------------------------
Andrew C. Bearden, Jr. Harry W. Gamble, Jr.
Executive Vice President Director
and Chief Financial Officer
/s/ Virginia L. Sellers June 26, 1998 /s/ Ted M. Henry June 26, 1998
- --------------------------------- ---------------------------------
Virginia L. Sellers Ted M. Henry
Vice President and Treasurer Director
(Principal Accounting Officer)
/s/ Julius R. Brown June 26, 1998 /s/ Elam P. Holley, Jr. June 26, 1998
- --------------------------------- ---------------------------------
Julius R. Brown Elam P. Holley, Jr.
Director Director, President and
Chief Operating Officer
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
/s/ Edith M. Jones June 26, 1998 /s/ David Y. Pearce June 26, 1998
- --------------------------------- ---------------------------------
Edith M. Jones David Y. Pearce
Director Director
/s/ A.D. Lovelady June 26, 1998 /s/ C. Earnest Smith June 26, 1998
- --------------------------------- ---------------------------------
A.D. Lovelady C. Earnest Smith
Director Director
/s/ Thomas E. Newton June 26, 1998 /s/ Julius E. Talton June 26, 1998
- --------------------------------- ---------------------------------
Thomas E. Newtom Julius E. Talton
Director Director
</TABLE>
<PAGE>
EXHIBIT 5
[KUTAK ROCK LETTERHEAD]
June 26, 1998
Board of Directors
The Peoples BancTrust Company, Inc.
310 Broad Street
Selma, Alabama 36701
Re: Registration Statement on Form S-4
Gentlemen:
You have requested our opinion as special counsel to The Peoples BancTrust
Company, Inc. (the "Registrant") in connection with a Registration Statement
filed by the Registrant with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, on Form S-4 (the "Registration Statement").
The Registration Statement relates to shares of the Registrant's common stock,
par value $.10 per share (the "Common Stock"), to be issued in connection with
the merger of Elmore County Bancshares, Inc. with and into the Registrant (the
"Merger").
In rendering this opinion, we understand that the Common Stock will be
issued in the Merger as described in the Joint Proxy Statement/Prospectus, which
is a part of the Registration Statement. We have examined such corporate
records, certificates of public officials, officers' certificates and the other
documents and made such examination as we have deemed relevant in connection
with this opinion.
Based upon the foregoing, it is our opinion that the shares of Common Stock
will, upon issuance pursuant to the Merger, be legally issued, fully paid and
nonassessable.
This opinion is furnished for use as an exhibit to the Registration
Statement. We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us in the Joint Proxy
Statement/Prospectus under the heading "Legal Matters."
Very truly yours,
/s/ KUTAK ROCK
<PAGE>
EXHIBIT 8
June 29, 1998
The Peoples BancTrust Company, Inc.
301 Broad Street
Selma, Alabama 36701
Elmore County Bancshares, Inc.
304 Barnett Boulevard
Tallassee, Alabama 36078
Gentlemen:
You have requested our opinion regarding certain federal income tax
consequences arising from the proposed merger of Elmore County Bancshares, Inc.
("Elmore County") with and into The Peoples Banctrust Company, Inc. ("Peoples")
(the "Company Merger") and the subsequent merger (the "Bank Merger") of The Bank
of Tallassee ("Tallassee"), a wholly owned subsidiary of Elmore County, with and
into The Peoples Bank and Trust Company, Inc. (the "Bank"), a wholly owned
subsidiary of Peoples. Both of the Bank Merger and the Company Merger are
pursuant to the Agreement and Plan of Merger and Reorganization dated December
11, 1997 by and between Peoples, the Bank, Elmore County and Tallassee (the
"Agreement") and are described in Amendment No. 1 to the Registration Statement
on Form S-4 expected to be filed today by Peoples with the Securities and
Exchange Commission (the "Registration Statement"). Terms used but not defined
herein, whether capitalized or not, shall have the meaning given to them in the
Joint Proxy Statement/Prospectus of Peoples and Elmore County included in the
Registration Statement (the "Joint Proxy Statement/Prospectus"). This opinion
is being rendered pursuant to the requirements of Item 21(a) of Form S-4 under
the Securities Act of 1933, as amended (the "Securities Act").
For purposes of this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the Agreement, (ii) the Registration Statement, including the Joint Proxy
Statement/Prospectus, and (iii) such other documents as we have deemed necessary
or appropriate in order to enable us to render the opinion below. In our
examination, we have assumed the genuineness
<PAGE>
June 29, 1998
Page 2
of all signatures where due execution and delivery are requirements to the
effectiveness thereof, the legal capacity of all natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such copies.
We have also assumed that the transactions contemplated by the Agreement
will be consummated strictly in accordance with the Agreement and as described
in the Joint Proxy Statement/Prospectus, that the Company Merger will qualify as
a statutory merger under the applicable laws of the State of Alabama, and that
the Bank Merger will qualify as a statutory merger under applicable federal law.
This opinion is subject to the receipt by this firm prior to the Effective Time
of certain written representations of FirstFed and Charter.
Based upon and subject to the foregoing, the discussion contained in the
Joint Proxy Statement/Prospectus under the caption "Federal Income Tax
Consequences", to the extent of legal conclusions enumerated therein and except
as otherwise indicated, expresses our opinion as to the material federal income
tax consequences of the Merger applicable to holders of Elmore County Common
Stock. You should be aware, however, that the discussion under the caption
"Federal Income Tax Consequences" in the Joint Proxy Statement/Prospectus
represents our conclusions as to the application of existing law to the instant
transactions. There can be no assurance that contrary positions may not be
taken by the Internal Revenue Service.
This opinion is furnished to you solely for use in connection with the
Registration Statement. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the references to this firm under
the heading "Federal Income Tax Consequences" in the Joint Proxy
Statement/Prospectus included therein. In giving such consent, we do not hereby
admit that we are in the category of persons whose consent is required under
Section 7 of the Securities Act.
Very truly yours,
/s/ KUTAK ROCK
<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 March 31, 1998.
(2) Second-tier subsidiary, 100% owned by The Peoples Bank and Trust Company.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of The Peoples
BancTrust Company, Inc. on Form S-4 (File No. ____) of our report dated February
6, 1998, except Note 18 as to which the date is March 6, 1998, on our audits of
the consolidated financial statements as of December 31, 1997 and 1996, and for
each of the three years in the period ended December 31, 1997. We also consent
to the references to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P
Birmingham, Alabama
June 25, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of The Peoples
BancTrust Company, Inc. on Form S-4 of our report dated January 12, 1998, on our
audit of the consolidated financial statements of Merchants & Planters
Bancshares, Inc. as of December 31, 1997, and for the year then ended. We also
consent to the references to our firm under the caption "Experts."
/s/ DONALDSON, HOLMAN & WEST, P.C.
Birmingham, Alabama
June 25, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of The Peoples
BancTrust Company, Inc. of our report dated March 6, 1998, on our audit of the
consolidated financial statements of Elmore County Bancshares, Inc. as of
December 31, 1997, and for the year then ended. We also consent to the
references to our firm under the caption "Experts."
/s/ WILSON, PRICE, BARRANCO,
BLANKENSHIP & BILLINGSLEY, P.C.
Montgomery, Alabama
June 25, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF FINANCIAL ADVISOR
We consent to the use in this Registration Statement of The Peoples BancTrust
Company, Inc. on Form S-4 of our opinion related to Elmore County Bancshares,
Inc. included in the Joint Proxy Statement/Prospectus of such Registration
Statement at Appendix III and to the reference to our firm in the Joint Proxy
Statement/Prospectus under the caption "The Merger-Opinion of Financial Advisor
to Elmore County."
/s/ T. Stephen Johnson & Associates
Roswell, Georgia
June 26, 1998
<PAGE>
EXHIBIT 23.6
CONSENT OF FINANCIAL ADVISOR
We consent to the inclusion of our Fairness Opinion issued to The Peoples
BancTrust Company, Inc. in this registration statement on Form S-4. We also
consent to the reference to our firm under the caption "The Merger -- Opinion of
Financial Advisor to PBTC."
/s/ Baxter Fentriss and Company
Richmond, Virginia
June 26, 1996
<PAGE>
EXHIBIT 99.1
ELMORE COUNTY BANCSHARES, INC.
304 BARNETT BOULEVARD
TALLASSEE, ALABAMA 36078
REVOCABLE PROXY FOR SPECIAL MEETING
OF SHAREHOLDERS
__________________, 1998
The undersigned hereby constitutes and appoints_______________________
___________________________, ____________________ and ________________________,
and each of them, the proxies of the undersigned with full power of
substitution, to attend the Special Meeting of Shareholders of Elmore County
Bancshares, Inc. ("Elmore County") to be held at the main office of The Bank of
Tallassee ("Tallassee Bank"), 304 Barnett Boulevard, Tallassee, Alabama on
_________________, ____________, 1998 at ___ .m., local time, and any
adjournments thereof, and to vote all the shares of stock of Elmore County which
the undersigned may be entitled to vote, upon the following matters.
1. The approval of the Agreement and Plan of Merger and Reorganization,
dated as of December 11, 1997 (the "Merger Agreement"), by and among The Peoples
BancTrust Company, Inc. ("PBTC"), The Peoples Bank and Trust Company, Elmore
County and Tallassee Bank, and the transactions contemplated thereby, including
the merger of Elmore County with and into PBTC, pursuant to which each
outstanding share of Elmore County common stock will be converted into 3.0893
shares of common stock of PBTC (with cash paid in lieu of fractional interests).
2. The transaction of such other business as may properly come before the
Special Meeting or any adjournments thereof.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF ELMORE COUNTY, WILL BE
VOTED IN ACCORDANCE WITH THE INSTRUCTIONS MARKED HEREIN, AND WILL BE VOTED FOR
THE MERGER AGREEMENT IF NO INSTRUCTIONS TO THE CONTRARY ARE MARKED HEREIN. IF
ANY OTHER BUSINESS IS PRESENTED AT THE SPECIAL MEETING, THIS PROXY WILL BE VOTED
BY THOSE NAMED IN THIS PROXY AS DETERMINED BY A MAJORITY OF THE BOARD OF
DIRECTORS. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER
BUSINESS TO BE PRESENTED AT THE SPECIAL MEETING.
The undersigned hereby acknowledges receipt of a copy of the accompanying
Notice of Special Meeting of Shareholders and Joint Proxy Statement/Prospectus,
and hereby revokes any proxy heretofore given. THIS PROXY MAY BE REVOKED AT ANY
TIME BEFORE ITS EXERCISE.
Date:_________________________
Signature:____________________
Signature:____________________
PLEASE MARK, DATE AND SIGN AS YOUR NAME APPEARS HEREIN AND RETURN IN THE
ENCLOSED ENVELOPE. If acting as executor, administrator, trustee, guardian,
etc. you should so indicate when signing. If the signer is a corporation,
please sign the full name by duly appointed officer. If a partnership, please
sign in partnership name by authorized person. If shares are held jointly, each
shareholder named should sign.
<PAGE>
EXHIBIT 99.2
THE PEOPLES BANCTRUST COMPANY, INC.
310 BROAD STREET
SELMA, ALABAMA 36701
REVOCABLE PROXY FOR SPECIAL MEETING
OF SHAREHOLDERS
__________________, 1998
The undersigned hereby constitutes and appoints_______________________
___________________________, ____________________ and _______________________,
and each of them, the proxies of the undersigned with full power of
substitution, to attend the Special Meeting of Shareholders of The Peoples
BancTrust Company, Inc. ("PBTC") to be held at the main office of The Peoples
Bank and Trust Company ("Peoples Bank"), 310 Broad Street, Selma, Alabama on
_________________, ____________, 1998 at ___ .m., local time, and any
adjournments thereof, and to vote all the shares of stock of PBTC which the
undersigned may be entitled to vote, upon the following matters.
1. The approval of the Agreement and Plan of Merger and Reorganization,
dated as of December 11, 1997 (the "Merger Agreement"), by and among Elmore
County Bancshares, Inc. ("Elmore County"), The Bank of Tallassee, PBTC and
Peoples Bank and the transactions contemplated thereby, including the merger of
Elmore County with and into PBTC, pursuant to which each outstanding share of
Elmore County common stock will be converted into 3.0893 shares of common stock
of PBTC (with cash paid in lieu of fractional interests).
2. The transaction of such other business as may properly come before the
Special Meeting or any adjournments thereof.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF PBTC, WILL BE VOTED IN
ACCORDANCE WITH THE INSTRUCTIONS MARKED HEREIN, AND WILL BE VOTED FOR THE MERGER
AGREEMENT IF NO INSTRUCTIONS TO THE CONTRARY ARE MARKED HEREIN. IF ANY OTHER
BUSINESS IS PRESENTED AT THE SPECIAL MEETING, THIS PROXY WILL BE VOTED BY THOSE
NAMED IN THIS PROXY AS DETERMINED BY A MAJORITY OF THE BOARD OF DIRECTORS. AT
THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE SPECIAL MEETING.
The undersigned hereby acknowledges receipt of a copy of the accompanying
Notice of Special Meting of Shareholders and Joint Proxy Statement/Prospectus,
and hereby revokes any proxy heretofore given. THIS PROXY MAY BE REVOKED AT ANY
TIME BEFORE ITS EXERCISE.
Date:_______________________
Signature:__________________
Signature:__________________
PLEASE MARK, DATE AND SIGN AS YOUR NAME APPEARS HEREIN AND RETURN IN THE
ENCLOSED ENVELOPE. If acting as executor, administrator, trustee, guardian,
etc. you should so indicate when signing. If the signer is a corporation,
please sign the full name by duly appointed officer. If a partnership, please
sign in partnership name by authorized person. If shares are held jointly, each
shareholder named should sign.
