<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
--------------------- ----------------
Commission file number 0-13653
--------------------------
THE PEOPLES BANCTRUST COMPANY, INC.
-----------------------------------
(Exact name of registrant as specified in its charter)
Alabama 63-0896239
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
310 Broad Street, Selma, Alabama 36701
- ----------------------------------------- -----------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (334) 875-1000.
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.10 per share
--------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The registrant's voting stock is traded on the NASDAQ SmallCap Market. The
aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the price ($31.25 per share) at which the
stock was sold on March 14, 1998, was approximately $54,977,500. For purposes
of this calculation, the term "affiliate" refers to all executive officers and
directors of the registrant and all stockholders beneficially owning more than
10% of the registrant's Common Stock.
As of the close of business on March 14, 1998, 3,428,744 shares of the
registrant's Common Stock were outstanding.
Documents Incorporated By Reference
Part II:
Annual Report to Stockholders for the year ended December 31, 1997.
Part III:
Portions of the definitive proxy statement for the Annual Meeting of the
Shareholders to be held on April 14, 1998.
<PAGE>
PART I
ITEM 1. BUSINESS
THE PEOPLES BANCTRUST COMPANY, INC. AND THE PEOPLES BANK AND TRUST COMPANY
The Peoples BancTrust Company, Inc. ("BancTrust") is a bank holding
company incorporated under the laws of the State of Alabama in April 1984.
BancTrust is registered under the Bank Holding Company Act of 1956, as amended
(the "Holding Company Act"). BancTrust is the holding company for The Peoples
Bank and Trust Company ("Peoples Bank"), which was chartered by the State of
Alabama in 1902 and acquired by BancTrust in April 1985.
BancTrust and Peoples Bank are headquartered in Selma, Alabama.
Peoples Bank conducts a general commercial and full-service retail banking
business in Dallas, Autauga, 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 also include the sale of
traveler's checks, the rental of safe deposit facilities, collection of domestic
and foreign items, issuance of cashier's checks and money orders, 24-hour
Automated Teller Machine ("ATM") service, bank by mail and night depository and
other customary banking services. Peoples Bank makes commercial, personal,
construction and real estate loans and accepts both demand and time deposits.
Peoples Bank offers a wide variety of other financial products through its
brokerage department and insurance agency.
Peoples Bank is a member of the Federal Deposit Insurance Corporation
("FDIC"), and its deposit accounts are insured by the Bank Insurance Fund
("BIF") to a maximum of $100,000 for each insured depositor. Peoples Bank is
subject to supervision and regulation by the Board of Governors of the Federal
Reserve System (the "FRB") and the State Banking Department of the State of
Alabama (the "Banking Department"). There are also various requirements and
restrictions under the laws of the United States of America and the State of
Alabama which affect the operations of Peoples Bank. These laws include usury
requirements, restrictions relating to investments and other requirements. See
"Regulation, Supervision and Governmental Policy."
BancTrust's executive offices and the main office of Peoples Bank
are located at 310 Broad Street, Selma, Alabama 36701. Peoples Bank also
operates four branches in Selma, three branches in Prattville, two branches
in Greenville and one branch in each of Plantersville, Georgiana, McKenzie,
Centreville, Millbrook and Montevallo, Alabama. BancTrust's telephone number
is (334) 875-1000.
<PAGE>
ACQUISITIONS
On March 6, 1998, BancTrust announced that, as of such date, it had
consummated the acquisition of Merchants & Planters Bancshares, Inc.
("Bancshares"), the parent company of Merchants & Planters Bank, an Alabama
commercial bank based in Montevallo, Alabama ("Merchants Bank"). BancTrust paid
$20,085,083 in cash for the outstanding shares of common stock of Bancshares,
representing consideration of $949.38 per share. The acquisition was approved
by the shareholders of Bancshares at a special meeting of stockholders on March
5, 1998. The operations Merchants Bank have not been merged with those of
Peoples Bank. BancTrust currently expects to consummate the merger of Merchants
Bank into Peoples Bank by mid-April, 1998.
On December 11, 1997, BancTrust 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 BancTrust.
In the merger, BancTrust 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 BancTrust will issue 3.1075
shares of its common stock for each outstanding share of Elmore County common
stock. Such exchange ratio is based on the unaudited 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.
LENDING ACTIVITIES
Loan Composition. The following table sets forth a five-year
----------------
comparison of major categories of BancTrust's loans.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------------- -------------- -------------- -------------- --------------
<S> <C> <C> <C> <C> <C>
(In thousands)
Commercial and industrial................. $ 91,903 $ 82,001 $ 61,984 $ 48,829 $ 42,006
Real estate - mortgage(1)................. 88,246 72,037 57,359 50,092 43,685
Personal.................................. 71,978 70,619 71,695 66,170 51,299
Overdrafts and credit line................ 7,036 5,245 5,090 4,365 4,929
-------- -------- -------- -------- --------
Total loans.............................. $259,163 $229,902 $196,128 $169,456 $141,919
======== ======== ======== ======== ========
Less:
Unearned discount........................ $ 386 $ 1,532 $ 4,996 $ 6,478 $ 4,943
Allowance for loan losses................ 2,750 2,484 2,005 2,039 2,205
-------- -------- -------- -------- --------
Total loans, net........................ $256,027 $225,886 $189,127 $160,939 $134,771
======== ======== ======== ======== ========
</TABLE>
- ----------
(1) Includes real estate-construction loans.
The above loans include agricultural loans totaling 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. 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 in BancTrust's Annual Report to Stockholders for the year ended
December 31, 1997 which is incorporated herein by reference.
<PAGE>
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 Months 4-12 Months One-Five Years After Five 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.
Note 5 of Notes to Consolidated Financial Statements in BancTrust's
Annual Report to Stockholders for the year ended December 31, 1997 (Exhibit No.
13) is incorporated herein by reference.
Commercial and Industrial Loans. BancTrust's primary lending activity
-------------------------------
consists of the origination of commercial and industrial loans. Such loans are
generally originated in BancTrust's primary lending area. BancTrust's
commercial and industrial loans are made for a variety of business purposes,
including working capital, inventory and equipment and capital expansion. At
December 31, 1997, commercial and industrial loans outstanding totaled $91. 9
million, or 35.5% of BancTrust's total net loan portfolio. The terms for
commercial and industrial loans are generally less than one year. Commercial
and industrial loan applications must be supported by current financial
information on the borrower and, where appropriate, by adequate collateral.
Approval of the loans is subject to the borrower qualifying for the loan under
BancTrust's underwriting standards. These types of loans are generally
considered to be a higher credit risk than other loans originated by BancTrust.
Real Estate Mortgage Loans. BancTrust also originates one-to-four
--------------------------
family, owner-occupied residential mortgage loans secured by property located in
BancTrust's primary market area. The majority of BancTrust's residential
mortgage loans consists of loans secured by owner-occupied, single-family
residences. At December 31, 1997, BancTrust had $88.2 million, or 34.1% of its
total net loan portfolio, in real estate mortgage loans.
Personal Loans. At December 31, 1997, BancTrust's personal loan
--------------
portfolio totaled $72.0 million, or 27.8% of BancTrust's total net loan
portfolio. BancTrust's personal loan portfolio is comprised of automobile loans
(including automobile loans requested by dealers), home improvement loans,
unsecured personal notes, mobile home loans, boat loans, credit card loans, and
loans secured by savings deposits. Although personal loans tend to have a
higher risk of default than other loans, management believes that its loan loss
experience with its personal loan portfolio is favorable. However, the
performance of such loans will be affected by the local economy.
Lending Limits. BancTrust's limit for unsecured loans to individual
--------------
customers is 10% of the capital accounts of BancTrust. The limit for unsecured
and secured loans combined to individual customers is 20% of the capital
accounts of BancTrust, subject to certain terms and conditions. For customers
desiring loans in excess of BancTrust's lending limits, BancTrust may loan on a
participation basis, with its correspondent banks taking the amount of the loan
in excess of BancTrust's lending limits. In other cases, BancTrust may refer
such borrowers to larger banks or other lending institutions.
<PAGE>
Nonaccrual, Past Due, Restructured and Potential Problem Loans.
--------------------------------------------------------------
BancTrust classifies its problem loans into four categories: non-accrual loans,
past-due loans, restructured loans, and potential problem loans. At December
31, 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 1995 1994 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
(In thousands)
Loans accounted for on a nonaccrual basis................ $1,701 $1,679 $1,503 $1,348 $2,055
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...................... 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
with their original terms and had been outstanding
through the period or since origination, if held for
part of the period...................................... 54 77 96 72 131
The amount of interest income on nonaccrual and
restructured loans that was included in net income for
the period.............................................. 26 22 36 21 34
</TABLE>
Management of BancTrust has identified certain loans aggregating
approximately $9.1 million at December 31, 1997 (including loans identified in
the above table) which it has determined require special attention due to
potential weaknesses. The largest five loans aggregated approximately $3.7
million and ranged in size from $912,000 million to $603,000. 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.
<PAGE>
The following table sets forth BancTrust's potential problem loans at
December 31, 1997 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.................................. $3,327
Collateralized by Other (1).................................... 4,076
Unsecured...................................................... 114
------
Total Commercial and Industrial................................ 7,517
------
Real Estate-Mortgage
Personal:
Collateralized by Real Estate.................................. 1,182
Collateralized by Other........................................ 95
Unsecured...................................................... 292
------
Total Real Estate-Mortgage..................................... 1,569
------
Total...................................................... $9,086
======
</TABLE>
- ----------
(1) Includes approximately $1.8 million of loans collateralized by accounts
receivable, inventory, furniture and fixtures and automobile dealer floor
plans.
Loan Loss Experience. Notes 1 and 5 of Notes to Consolidated
--------------------
Financial Statements contained in BancTrust's Annual Report to Stockholders for
the year ended December 31, 1997 (Exhibit No. 13) are incorporated herein by
reference.
The allowance for possible loan losses at BancTrust is maintained at a
level which, in management's opinion, is adequate to absorb all potential losses
on loans then present in the loan portfolio. The amount of the allowance is
affected by: (1) loan charge-offs, which decrease the allowance; (2) recoveries
on loans previously charged-off, which increase the allowance; and (3) the
provision of possible loan losses charged to income, which increase the
allowance. In determining the provision for possible loan losses, it is
necessary for management to monitor fluctuations in the allowance resulting from
actual charge-offs and recoveries, and to periodically review the size and
composition of the loan portfolio in light of current and anticipated economic
conditions in an effort to evaluate portfolio risks. Ultimately, the amount of
the provision is that amount sufficient to maintain the allowance at a level
which reflects management's judgment of those risks.
<PAGE>
The following is a summary of activity in the allowance for loan
losses for the periods:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year.............. $ 2,484,122 $ 2,004,891 $2,039,578 $2,204,807 $1,897,695
Charge-offs:
Commercial and industrial................ 210,871 151,700 388,115 184,455 440,911
Real estate-mortgage (1)................. 56,785 29,256 20,300 34,256 10,413
Personal................................. 1,803,978 1,701,439 1,198,805 906,959 932,071
Overdraft and credit line................ 29,919 56,826 14,226 22,302 27,045
----------- ----------- ---------- ---------- ----------
Total charge-offs....................... 2,101,553 1,939,221 1,621,446 1,147,972 1,410,440
Recoveries:
Commercial and industrial................ 31,831 18,270 51,359 113,259 395,319
Real estate-mortgage..................... 23,537 48,876 20,763 21,747 105,989
Personal................................. 569,026 510,770 665,065 495,000 529,529
Overdraft and credit line................ 11,388 5,725 1,571 4,737 15,023
----------- ----------- ---------- ---------- ----------
Total recoveries........................ 635,782 583,641 738,758 634,743 1,045,860
Net charge-offs........................... (1,465,771) (1,355,580) (882,688) (513,229) (364,580)
Additions charged to operations........... 1,732,000 1,834,811 848,001 348,000 483,605
Addition due to acquisition............... -- -- -- -- 188,087
----------- ----------- ---------- ---------- ----------
Balance at end of year.................... $ 2,750,351 $ 2,484,122 $2,004,891 $2,039,578 $2,204,807
=========== =========== ========== ========== ==========
Ratio of net charge-offs to average loans
outstanding, net of unearned
discounts, during the period............. .65% .69% .46% .32% .28%
=========== =========== ========== ========== ==========
</TABLE>
- ----------
(1) Includes real estate-construction loans.
The following table presents an allocation of BancTrust's allowance
for loan losses at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------------------------------------------
1997 1996 1995
-------------------------- ------------------------- ------------------------
% Amount % Amount % Amount
----------- ------------- ----------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial....... 35% $ 963 26% $ 645 38% $ 762
Real estate mortgage (1)........ 11% 298 12% 298 18% 361
Personal........................ 53% 1,462 60% 1,490 42% 842
Overdraft and credit line....... 1% 27 2% 51 2% 40
--- ------ --- ------ --- ------
Total Allowance................ 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 (1)........ 15% 307 31% 684
Personal........................ 43% 877 25% 551
Overdraft and credit line....... 2% 40 2% 44
--- ------ --- ------
Total Allowance................ 100% $2,040 100% $2,205
=== ====== === ======
</TABLE>
<PAGE>
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. There were no securities classified as held-
to-maturity or trading at December 31, 1995, 1996 and 1997. The following table
sets forth the amount of securities available-for-sale by major categories held
by BancTrust at December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
At December 31,
--------------------------------------------
1997 1996 1995
-------------- ------------- -------------
Securities Available-for-Sale (In thousands)
- -----------------------------
<S> <C> <C> <C>
U.S. Treasury, U.S. Agencies and corporations.............. $49,036 $52,961 $56,888
Obligations of states and political subdivisions........... 1,894 2,050 2,875
Corporate and other securities............................. 18,807 27,682 37,824
------- ------- -------
$69,737 $82,693 $97,587
======= ======= =======
</TABLE>
Corporate and other securities as of December 31, 1997, were comprised of
the following:
<TABLE>
<CAPTION>
Securities Available
For Sale
---------------------
(In thousands)
<S> <C>
Corporate notes......................................................... $ 2,344
Collateralized mortgage obligations..................................... 11,153
Mortgage backed securities.............................................. 156
Mutual funds............................................................ 2,327
Common stock............................................................ 2,827
-------
$18,807
=======
</TABLE>
All rated corporate notes are in the A1 to AAA range. One non-rated
security, an in-state general obligation bond, was issued by a public utility
company. All collateralized mortgage obligations are either guaranteed by the
Federal National Mortgage Association or the Federal Home Loan Mortgage
Corporation or have AAA ratings. Common stock holdings include investments in
the Federal Reserve Bank, Federal Home Loan Bank and another local bank, which
is closely monitored by management.
Management considers all of the above securities to have a relatively low
level of risk.
For information regarding the amortized cost and approximate market value
of securities at December 31, 1997, 1996 and 1995, see Note 4 of Notes to
Consolidated Financial Statements contained in BancTrust's Annual Report to
Stockholders for the year ended December 31, 1997 (Exhibit No. 13) which is
incorporated herein by reference.
Maturity Distributions of Securities. The following table sets forth the
------------------------------------
distributions of maturities of securities at amortized cost as of December
31, 1997.
<TABLE>
<CAPTION>
Maturity (in years)
----------------------------------------------------------------
No Specific Due
0-3 Months 4-12 Months Over 1 to 5 Over 5 to 10 Over 10 Date
----------- ------------ ------------ ------------- --------- ---------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury, U.S. agencies and
corporations.................... $4,415 $2,242 $37,940 $1,106 $ -- $ --
Obligations of states and
political subdivisions.......... 445 184 326 802 106 --
Corporate and other securities... 984 552 4,574 379 13,457 2,225
------ ------ ------- ------ ------- ------
Total............................ $5,844 $2,978 $42,840 $2,287 $13,563 $2,225
====== ====== ======= ====== ======= ======
Weighted average yield (%)(1).... 5.70% 6.28% 6.40% 7.00% 7.00% 8.60%
====== ====== ======= ====== ======= ======
</TABLE>
- ----------
(1) Yields on tax-exempt obligations have been computed on a tax-equivalent
basis using an incremental rate of 34%.
<PAGE>
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 contained in
BancTrust's Annual Report to Stockholders for the year ended December 31, 1997
(Exhibit No. 13) which is incorporated herein by reference.
DEPOSITS
Deposits are the primary source of funds for BancTrust. BancTrust's
deposits consist of checking accounts, regular savings deposits, NOW accounts,
Money Market Accounts, market rate Certificates of Deposit and Jumbo
Certificates of Deposit. Deposits are attracted from individuals, partnerships
and corporations in BancTrust's market area. In addition, BancTrust obtains
deposits from state and local entities and, to a lesser extent, U.S. Government
and other depository institutions. BancTrust does not accept brokered deposits.
As of December 31, 1997, BancTrust's total deposits were $298.1 million.
The following table indicates the amount of BancTrust's certificates
of deposit and other time deposits of $100,000 or more by time remaining until
maturity as of December 31, 1997.
<TABLE>
<CAPTION>
Certificates of Other Time
Maturity Period Deposits Deposits
- --------------- -------------------- ------------------
(In thousands)
<S> <C> <C>
Three months or less................................ $14,517 $10,841
Over three through six months....................... 5,241 4,898
Over six through twelve months...................... 2,345 --
Over twelve months.................................. 1,098 --
------- -------
Total.............................................. $23,201 $15,739
======= =======
</TABLE>
The following table sets forth the average balances and average
interest rates based on daily balances for deposits for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------
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, BancTrust relies substantially on
local commercial activity; personal contacts by its directors, officers, other
employees and shareholders; personalized services; and its reputation in the
communities it serves.
BancTrust is presently competing in its market area with four Alabama
holding companies. It also competes with four independent banks, several credit
unions, and various other nonbank financial companies.
The banking business in Alabama generally, and BancTrust's primary
service areas specifically, are highly competitive with respect to both loans
and deposits. BancTrust competes with many larger banks and other financial
institutions which have offices over a wide geographic area. These larger
institutions have certain inherent advantages, such as the ability to finance
wide ranging advertising campaigns and promotions and to allocate their
investment assets to regions offering the highest yield and demand. They also
offer services such as international
<PAGE>
banking, which are not offered directly by BancTrust (but could be offered
indirectly through correspondent institutions); and by virtue of their larger
total capitalization (legal lending limits to an individual consumer or
corporation are limited to a percentage of BancTrust's total capital accounts),
such banks have substantially higher lending limits than does BancTrust. Other
entities, both governmental and in private industry, raise capital through the
issuance and sale of debt and equity securities and thereby indirectly compete
with BancTrust in the acquisition of deposits.
Under the federal Bank Holding Company Act of 1956 (the "Holding
Company Act"), as amended by the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act"), Alabama banks and their holding
companies may be acquired by out-of-state banks or their holding companies, and
Alabama banks and their holding companies may acquire out-of-state banks without
regard to whether the transaction is prohibited by the laws of any state. Under
the Riegle-Neal Act and Alabama law, the FRB may not approve the acquisition of
a bank in Alabama if such bank has not been in existence for at least five
years or, if following the acquisition, the acquiring bank holding company and
its 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 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 December 31, 1997, BancTrust employed 230 persons, including
executive officers, loan officers, bookkeepers, tellers and others. None of
BancTrust's employees are presently represented by a union or covered under a
collective bargaining agreement. Management of BancTrust considers that their
employee relations are excellent.
RETURN ON EQUITY AND ASSETS
The following table shows the percentage return on equity and assets
of BancTrust for the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------
1997 1996 1995
---------------- -------------- ----------------
<S> <C> <C> <C>
Return on assets:
Net income/average total assets.................. 1.20% 1.12% 1.03%
Return on equity:
Net income/average equity........................ 10.95% 11.01% 10.51%
Dividend payout ratio:
Dividends declared per share/net income
per share....................................... 26.50% 25.72% 28.65%
Equity to assets ratio:
Average equity/average total assets.............. 10.85% 10.13% 9.77%
</TABLE>
* Earnings per share has been restated to reflect a two-for-one stock split
effected in the form of a stock dividend in March 1995 and a two-for-one stock
split effected in the form of a stock dividend in June 1997.
REGULATION, SUPERVISION AND GOVERNMENTAL POLICY
The following is a brief summary of certain statutes, rules and
regulations affecting BancTrust and Peoples Bank. A number of other statutes and
regulations have an impact on their operations. The following summary of
applicable statutes and regulations does not purport to be complete and is
qualified in its entirety by reference to such statutes and regulations.
<PAGE>
Bank Holding Company Regulation. BancTrust is registered as a bank holding
-------------------------------
company under the Holding Company Act and, as such, subject to supervision and
regulation by the FRB. A bank holding company is required to furnish to the FRB
an annual report of its operations at the end of each fiscal year and to furnish
such additional information as the FRB may require pursuant to the Holding
Company Act. BancTrust is also subject to regular examination by the FRB.
Under the Holding Company Act, a bank holding company must obtain the prior
approval of the FRB before (i) acquiring direct or indirect ownership or control
of any voting shares of any bank or bank holding company if, after such
acquisition, the bank holding company would directly or indirectly own or
control more than 5% of such shares; (2) acquiring all or substantially all of
the assets of another bank or bank holding company; or (3) merging or
consolidating with another bank holding company.
The Holding Company Act, as amended by the Riegle-Neal Act, generally
permits the FRB to approve interstate bank acquisitions by bank holding
companies without regard to any prohibitions of state law. See "Competition".
Under the Holding Company Act, any company must obtain approval of the FRB
prior to acquiring control of the BancTrust or Peoples Bank. For purposes of
the Holding Company Act, "control" is defined as ownership of more than 25% of
any class of voting securities of BancTrust or Peoples Bank, the ability to
control the election of a majority of the directors, or the exercise of a
controlling influence over management or policies of the BancTrust or Peoples
Bank.
The Change in Bank Control Act and the regulations of the FRB thereunder
require any person or persons acting in concert (except for companies required
to make application under the Holding Company Act), to file a written notice
with the FRB before such person or persons may acquire control of the BancTrust
or Peoples Bank. The Change in Bank Control Act defines "control" as the power,
directly or indirectly, to vote 25% or more of any voting securities or to
direct the management or policies of a bank holding company or an insured bank.
The Holding Company Act also prohibits, with certain exceptions, a bank
holding company from acquiring direct or indirect ownership or control of more
than 5% of the voting shares of a company that is not a bank or a bank holding
company, or from engaging directly or indirectly in activities other than those
of banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by FRB regulation or order, have been
identified as activities closely related to the business of banking or managing
or controlling banks. The activities of BancTrust and of its non-bank
subsidiaries are subject to these legal and regulatory limitations under the
Holding Company Act and the FRB's regulations thereunder. Notwithstanding the
FRB's prior approval of specific nonbanking activities, the FRB has the power to
order a holding company or its subsidiaries to terminate any activity, or to
terminate its ownership or control of any subsidiary, when it has reasonable
cause to believe that the continuation of such activity or such ownership or
control constitutes a serious risk to the financial safety, soundness or
stability of any bank subsidiary of that holding company.
The FRB has adopted guidelines regarding the capital adequacy of bank
holding companies, which require bank holding companies to maintain specified
minimum ratios of capital to total assets and capital to risk-weighted assets.
See "-- Capital Requirements."
The FRB has the power to prohibit dividends by bank holding companies if
their actions constitute unsafe or unsound practices. The FRB has issued a
policy statement on the payment of cash dividends by bank holding companies,
which expresses the FRB's view that a bank holding company should pay cash
dividends only to the extent that the company's net income for the past year is
sufficient to cover both the cash dividends and a rate of earning retention that
is consistent with the company's capital needs, asset quality, and overall
financial condition.
Bank Regulation. As an Alabama banking institution, Peoples Bank is
---------------
subject to regulation, supervision and regular examination by the Banking
Department. Peoples Bank is a member of the Federal Reserve System and thus is
subject to supervision and regular examination by the FRB under the applicable
provisions of the Federal Reserve Act and the FRB's regulations. The deposits
of Peoples Bank are insured by the FDIC to the maximum extent provided by law (a
maximum of $100,000 for each insured depositor). Alabama and federal banking
laws and regulations control, among other things, Peoples Bank's required
reserves, investments, loans, mergers and
<PAGE>
consolidations, issuance of securities, payment of dividends, and establishment
of branches and other aspects of Peoples Bank's operations.
The approval of regulatory authorities is required if the total of all the
dividends declared by the Bank in any calendar year exceeds the Bank's net
income as defined for that year combined with its retained net income for the
preceding two calendar years. The Bank obtained regulatory approval as
applicable for the payment of dividends in 1996 and 1995.
Peoples Bank is subject to various regulatory capital requirements
administered by the federal banking agencies, including the FRB's capital
adequacy guidelines for state-chartered banks that are members of the Federal
Reserve System ("state member banks"). Failure to meet minimum capital
requirements can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. See "--Capital
Requirements."
Under joint regulations of the federal banking agencies, including the FRB,
state member banks must adopt and maintain written policies that establish
appropriate limits and standards for extensions of credit that are secured by
liens or interests in real estate or are made for the purpose of financing
permanent improvements to real estate. These policies must establish loan
portfolio diversification standards, prudent underwriting standards, including
loan-to-value limits, that are clear and measurable, loan administration
procedures and documentation, approval and reporting requirements. A bank's
real estate lending policy must reflect consideration of the Interagency
Guidelines for Real Estate Lending Policies (the "Interagency Guidelines") that
have been adopted by the federal bank regulators. The Interagency Guidelines,
among other things, call upon depository institutions to establish internal
loan-to-value limits for real estate loans that are not in excess of the loan-
to-value limits specified in the Guidelines for the various types of real estate
loans. The Interagency Guidelines state that it may be appropriate in
individual cases to originate or purchase loans with loan-to-value ratios in
excess of the supervisory loan-to-value limits. The aggregate amount of loans
in excess of the supervisory loan-to-value limits, however, should not exceed
100% of total capital and the total of such loans secured by commercial,
agricultural, multifamily and other non-one-to-four family residential
properties should not exceed 30% of total capital.
As a federally insured bank, Peoples Bank is subject to FDIC deposit
insurance assessments. The FDIC has established a risk-based deposit insurance
assessment system for insured depository institutions, under which insured
institutions are assigned assessment risk classifications based upon capital
levels and supervisory evaluations. Under these regulations, the FDIC set the
1997 annual insurance assessment rates for BIF-insured banks like Peoples Bank
from $0 for well-capitalized banks in the highest supervisory subgroup to 0.27%
of insured deposits for undercapitalized banks in the lowest supervisory
subgroup. Peoples Bank was a "well-capitalized" bank as of December 31, 1997.
On September 30, 1996, President Clinton signed into law the Deposit
Insurance Funds Act of 1996 (the "1996 Act"), which, among other things, (i)
recapitalized the Savings Association Insurance Fund ("SAIF") by imposing a
special one-time assessment on SAIF-insured institutions, (ii) from January 1,
1997 through December 31, 1999, requires BIF member banks to pay one-fifth of
the assessment rate imposed upon savings institutions to cover the annual
payments on the bonds issued by the Financing Corporation ("FICO") and (iii)
from January 1, 2000 until the date the FICO bonds are retired, will require BIF
members and SAIF members to pay FICO assessments on a pro rata basis. In
accordance with the 1996 Act's requirements, the FDIC has set the 1997 FICO
assessment rate for BIF member banks at .013% of insured deposits. The annual
FICO assessment will remain at approximately the same rate until December 31,
1999, following which date BIF and SAIF members will be subject to assessments
at the same rate (estimated at .024% of insured deposits).
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") required the federal bank regulatory agencies to prescribe, by
regulation, non-capital safety and soundness standards for all insured
depository institutions and depository institution holding companies. The FRB
and the other federal banking agencies have adopted guidelines prescribing
safety and soundness standards pursuant to FDICIA. The safety and soundness
guidelines establish general standards relating to internal controls and
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and
benefits. In general the guidelines require, among other things, the
maintenance of appropriate systems and practices to identify and manage the
risks and exposures specified in the guidelines. In addition, pursuant to
FDICIA, the FRB and the other banking agencies have proposed guidelines for
asset quality and earnings standards.
<PAGE>
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 BancTrust and Peoples Bank by
the bank regulatory agencies are intended primarily for the protection of
depositors rather than for holders of BancTrust stock or of BancTrust as the
holder of the stock of Peoples Bank.
Capital Requirements. The FRB has established guidelines with respect to
--------------------
the maintenance of appropriate levels of capital by registered bank holding
companies and state member banks. The regulations of the FRB impose two sets of
capital adequacy requirements: minimum leverage rules, which require bank
holding companies and banks to maintain a specified minimum ratio of capital to
total assets, and risk-based capital rules, which require the maintenance of
specified minimum ratios of capital to "risk-weighted" assets.
The regulations of the FRB require bank holding companies and state member
banks to maintain a minimum leverage ratio of "Tier 1 capital" (as defined in
the risk-based capital guidelines discussed in the following paragraphs) to
total assets of 3.0%. Although setting a minimum 3.0% leverage ratio, the
regulations state that only the strongest bank holding companies and banks, with
composite examination ratings of 1 under the rating system used by the federal
bank regulators, would be permitted to operate at or near such minimum level of
capital. All other bank holding companies and banks are expected to maintain a
leverage ratio of at least 1% to 2% above the minimum ratio, depending on the
assessment of an individual organization's capital adequacy by its primary
regulator. Any bank or bank holding company experiencing or anticipating
significant growth would be expected to maintain capital well above the minimum
levels. In addition, the FRB has indicated that whenever appropriate, and in
particular when a bank holding company is undertaking expansion, seeking to
engage in new activities or otherwise facing unusual or abnormal risks, it will
consider, on a case-by-case basis, the level of an organization's ratio of
tangible Tier 1 capital (after deducting all intangibles) to total assets in
making an overall assessment of capital.
The risk-based capital rules of the FRB require bank holding companies and
state member banks to maintain minimum regulatory capital levels based upon a
weighing of their assets and off-balance sheet obligations according to risk.
The risk-based capital rules have two basic components: a core capital (Tier 1)
requirement and a supplementary capital (Tier 2) requirement. Core capital
consists primarily of common stockholders' equity, certain perpetual preferred
stock (which must be noncumulative with respect to banks), and minority
interests in the equity accounts of consolidated subsidiaries; less intangible
assets (primarily goodwill), 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 all banks and bank holding
companies to maintain a minimum ratio of total capital to total risk-weighted
assets of 8%, with at least 4% as core capital. For the purpose of calculating
these ratios: (i) supplementary capital will be limited to no more than 100% of
core capital; and (ii) the aggregate amount of certain types of supplementary
capital will be limited. In addition, the risk-based capital regulations limit
the allowance for loan losses includable as capital to 1.25% of total risk-
weighted assets.
Under FDICIA, the federal banking agencies were required to revise their
risk-based capital standards to ensure that such standards take adequate account
of interest rate risk, concentration of credit risk and the risks of
nontraditional activities. The FRB and the other banking agencies have amended
the risk-based capital standards to take account of a bank's concentration of
credit risk, the risk of nontraditional activities, and a bank's exposure to
declines in the economic value of its capital resulting from changes in interest
rates. The revised capital guidelines do not, however, codify a measurement
framework for assessing the level of a bank's interest rate exposure. In
addition, the FRB and the other banking agencies have adopted a joint policy
statement requiring that banks adopt
<PAGE>
comprehensive policies and procedures for managing interest rate risk and
setting forth general standards for such internal policies.
The FRB has issued final regulations that classify insured depository
institutions by capital levels and provide that the FRB will take various prompt
corrective actions to resolve the problems of any state member bank that fails
to satisfy the capital standards. Under such regulations, a "well-capitalized"
bank is one that is not subject to any regulatory order or directive to meet any
specific capital level and that has or exceeds the following capital levels: a
total risk-based capital ratio of 10%, a Tier 1 risk-based capital ratio of 6%,
and a leverage ratio of 5%. An "adequately capitalized" bank is one that does
not qualify as "well capitalized" but meets or exceeds the following capital
requirements: a total risk-based capital of 8%, a Tier 1 risk-based capital
ratio of 4%, and a leverage ratio of either (i) 4% or (ii) 3% if the bank has
the highest composite examination rating. A bank not meeting these criteria is
treated as "undercapitalized," "significantly undercapitalized," or "critically
undercapitalized" depending on the extent to which the bank's capital levels are
below these standards. A bank that fails within any of the three
"undercapitalized" categories will be subject to certain severe regulatory
sanctions required by FDICIA and the regulations of the FRB. As of December 31,
1997, Peoples Bank was categorized as "well-capitalized."
See Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 12 of Notes to Consolidated Financial
Statements contained in BancTrust's Annual Report to Stockholders for the year
ended December 31, 1997 (Exhibit No. 13) which is incorporated herein by
reference.
Effects of Governmental Policy. The earnings and business of BancTrust and
------------------------------
Peoples Bank have been and will be affected by the policies of various
regulatory authorities of the United States, particularly the FRB. Important
functions of the FRB, in addition to those enumerated above, include the
regulation of the supply of money in light of general economic conditions within
the United States. The instruments of monetary policy employed by the FRB for
these purposes influence in various ways the overall level of investments,
loans, other extensions of credit and deposits, and the interest rates paid on
liabilities and received on interest-earning assets.
Banking is a business which depends on interest rate differentials. In
general, the difference between the interest paid by Peoples Bank on its
deposits and its other borrowings and the interest received by Peoples Bank on
loans extended to customers and securities held in its investment portfolios
comprises the major portion of Peoples Bank's earnings. The earnings and gross
income of Peoples Bank thus have been and will be subject to the influence of
economic conditions generally, both domestic and foreign, and also to monetary
and fiscal policies of the United States and its agencies, particularly the FRB.
The nature and timing of any future changes in such policies and their impact on
Peoples Bank are not predictable.
<PAGE>
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K, including all documents incorporated
herein by reference, contains forward-looking statements. Additional written or
oral forward-looking statements may be made by BancTrust from time to time in
filings with the Securities and Exchange Commission or otherwise. The words
"believe," "expect," "seek," and "intend" and similar expressions identify
forward-looking statements, which speak only as of the date the statement is
made. Such forward-looking statements are within the meaning of that term in
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements may include, but
are not limited to, projections of income or loss, expenditures, acquisitions,
plans for future operations, financing needs or plans relating to services of
BancTrust, as well as assumptions relating to the foregoing. Forward-looking
statements are inherently subject to risks and uncertainties, some of which
cannot be predicted or quantified. Future events and actual results could
differ materially from those set forth in, contemplated by or underlying the
forward-looking statements.
BancTrust does not undertake, and specifically disclaims, any obligation to
publicly release the results of revisions which may be made to forward-looking
statements to reflect the occurrence of anticipated or unanticipated events or
circumstances after the date of such statements.
ITEM 2. PROPERTIES
BancTrust'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 March 14, 1998, Peoples Bank and Merchants & Planters Bank maintained 17
branches in Dallas, Autauga, Butler, Bibb, Elmore and Shelby counties, of which
five are leased.
ITEM 3. LEGAL PROCEEDINGS
Management currently is not aware of any material legal proceedings to
which BancTrust or Peoples Bank is a party or to which any of their property is
subject, except as follows:
1. Monica Hasley v. The Peoples Bank and Trust Company, et al., Circuit
-----------------------------------------------------------
Court of Macon County, Alabama, Civil Action No. CV-96-252. This case was filed
November 13, 1996. This action involved two collateral protection insurance
certificates issued in connection with a loan by Peoples Bank to the Plaintiff.
The Plaintiff alleged that Peoples Bank improperly forced-placed insurance
coverage on the Plaintiff's vehicle and sought compensatory and punitive damages
in unspecified amounts based on several alleged theories of recovery, including
fraud and deceit. Peoples Bank denied the allegations of the complaint. The
case was subsequently settled and the suit dismissed.
2. William L. Ammons, d/b/a Ammons Construction Company v. Peoples Bank
--------------------------------------------------------------------
and Trust Company, Circuit Court of Dallas County, Alabama, Case No. CV-95-295.
- -----------------
This case was filed on October 18, 1995. The Plaintiff, a contractor, was
constructing a house for a customer of Peoples Bank who had borrowed
construction monies for that purpose. Peoples Bank customer sued the
contractor, alleging that he failed to complete the construction. The
contractor has brought this action contending that Peoples Bank owes funds for
the construction to him as a third party beneficiary. He has further alleged
misrepresentation by Peoples Bank and is seeking unspecified compensatory and
punitive damages. A jury trial has been 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.
3. Raymond Lee Moseley 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 improperly sold credit life insurance and accidental death
insurance to the Plaintiff, and seeks compensatory and punitive damages in
unspecified amounts. The causes of action alleged 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 insurance form 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
<PAGE>
Bank denies the allegations of the complaint. No depositions or other
significant discovery have taken place, except for the production of certain
documents.
While Peoples Bank denies liability in each of cases No. 2 and 3 above,
Peoples Bank recognizes that the possibility of exposure to liability exists.
In each case, the monetary damage, if any, to any individual plaintiff or
potential individual plaintiff, should Peoples Bank be determined to be liable,
would be relatively minimal. Consequently, Peoples Bank considers that punitive
damages, should any be awarded, which Peoples Bank denies is justified, should
bear a reasonable relationship to compensatory damages and that, therefore, any
such damage awards in such cases would not be such as would have a reasonable
probability of a material adverse effect against Peoples Bank. Nevertheless,
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. Further, the
level of potential exposure for compensatory damages may be considerably higher
if a plaintiff can establish mental anguish or emotional distress from the
actions complained of. Consequently, Peoples Bank is unable to determine with
certainty the eventual outcome of potential exposure in such cases.
4. 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 based on alleged sexual
harassment by an officer of Peoples Bank. The complaint, in addition to the
claims of sexual harassment, avers several causes of actions related to the
alleged sexual harassment, including maintaining a 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. It is Peoples Bank's
position that there is no basis for this lawsuit against Peoples Bank or its
officers and directors. Motions to dismiss the directors and officers have been
filed, which are pending. There has been no discovery nor any scheduling of
discovery.
See Note 9 of Notes to Consolidated Financial Statements contained in
BancTrust's Annual Report to Stockholders for the year ended December 31, 1997
(Exhibit 13) which is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of the Shareholders was held on October 28, 1997 to
consider and vote upon a proposed amendment to Article IV of the Company's
Articles of Incorporation to increase the Company's authorized common stock from
4,000,000 to 9,000,000 shares, and thereby to increase the total number of
shares of authorized capital stock from 5,000,000 to 10,000,000 shares, of which
9,000,000 shares would be common stock and 1,000,000 shares would be preferred
stock. The votes cast were as follows: for 2,904,474 and against 40,616.
There were 2,067 abstentions and broker non-votes as to the matter.
EXECUTIVE OFFICERS OF THE REGISTRANT
RICHARD P. MORTHLAND, 56, is currently Chairman of the Board and Chief
Executive Officer of Peoples Bank and BancTrust. Mr. Morthland has been an
officer of Peoples Bank since 1965 and a Director since February 1977.
ELAM P. HOLLEY, JR., 47, is currently President, Chief Operating Officer
and a Director of Peoples Bank and BancTrust. Mr. Holley has been an officer of
Peoples Bank since November 1975 and a Director since January, 1988.
ANDREW C. BEARDEN, JR., 51, is currently Executive Vice President --
Retail/Operations Division of Peoples Bank and Executive Vice President and
Chief Financial Officer of BancTrust. Mr. Bearden assumed these positions in
1991 and 1997, respectively. Prior to his current assignment, Mr. Bearden
served as Vice President and Trust Officer of Peoples Bank. Mr. Bearden was in
private practice as a certified public accountant prior to his employment with
Peoples Bank in 1985.
<PAGE>
JOHN G. CHISOLM, 49, is currently Executive Vice President - Commercial
Division of Peoples Bank. Mr. Chisolm assumed this position in December 1992.
He has been employed by Peoples Bank since 1979, primarily in the commercial
lending area. Prior to his employment by Peoples Bank, Mr. Chisolm was employed
by American National Bank and Trust Company, Chattanooga, Tennessee for seven
years in its commercial lending division.
M. SCOTT PATTERSON, 55, is currently Executive Vice President-Financial
Services Division, Secretary and Investment Officer of Peoples Bank and
Secretary of BancTrust. Mr. Patterson has been in these positions with Peoples
Bank since November 1985 and with BancTrust since April 1997. Prior to coming
to Peoples Bank in October 1983, Mr. Patterson served for 20 years in the United
States Air Force, retiring as a Lieutenant Colonel.
VIRGINIA L. SELLERS, 64, is currently Vice President and Treasurer of
Peoples Bank and Treasurer of BancTrust. Mrs. Sellers has been an officer of
Peoples Bank since 1985. Prior to her employment by Peoples Bank in 1985, Mrs.
Sellers was Accounting Officer of SouthTrust Bank, Selma, Alabama for 20 years.
WILLIAM S. JOHNSON, 48, is currently Regional President of the Butler
County Division of Peoples Bank. Prior to his coming to Peoples Bank in June
1993, Mr. Johnson was President of The Fort Deposit Bank in Fort Deposit,
Alabama for eight years.
BOBBY LEACH, 49, is currently Regional President of the Bibb County
Division of Peoples Bank. Mr. Leach has been in banking over 26 years, serving
as President and Chief Executive Officer of the former Peoples Bank of
Centreville for several years.
JEFFERSON G. RATCLIFFE, JR., 36, is currently Regional President of the
Prattville/Millbrook Division of Peoples Bank. Mr. Ratcliffe joined Peoples
Bank in 1985. Before being named to his present position, Mr. Ratcliffe served
as Senior Lender and Commercial Lender for the Prattville/Millbrook Division of
Peoples Bank.
Richard P. Morthland and M. Scott Patterson are brothers-in-law.
All officers serve at the discretion of the boards of directors of
BancTrust or Peoples Bank. There are no known arrangements or understandings
between any office and any other person pursuant to which he or she was or is to
be selected as an officer.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
For information concerning holders of common stock, high and low prices and
frequency and amount of dividends on BancTrust's Common Stock, see "Stock
Dividend and Price Information" incorporated herein by reference to BancTrust's
Annual Report to Stockholders for the year ended December 31, 1997 (Exhibit No.
13) which is incorporated herein by reference.
Although BancTrust has no established policy regarding dividends, BancTrust
and Peoples Bank, prior to its acquisition by BancTrust in April 1985, have paid
regular dividends in recent years. There can be no assurance, however, as to
whether or in what amounts dividends might be declared by BancTrust in the
future or whether such dividends, once declared, will continue. Future
dividends are subject to the discretion of the Board of Directors and depend on
a number of factors, including future earnings, financial condition, and capital
requirements, along with economic and market conditions.
The primary source of BancTrust's revenues (including funds to pay
dividends) is dividends from the Bank. Alabama law imposes certain restrictions
on the ability of BancTrust and Peoples Bank to pay dividends. See Item 1.
"Business--Regulation, Supervision and Governmental Policy" and Note 12 of Notes
to Consolidated Financial Statements contained in BancTrust's Annual Report to
Stockholders for the year ended December 31, 1997 (Exhibit 13) which is
incorporated herein by reference.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Five Year Comparison of
Selected Financial Data" in BancTrust's Annual Report to Stockholders for the
year ended December 31, 1997 (Exhibit No. 13) which is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information set forth under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in BancTrust's Annual
Report to Stockholders for the year ended December 31, 1997 (Exhibit No. 13)
which is incorporated herein by reference.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
THE PEOPLES BANCTRUST COMPANY, INC.
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) BancTrust 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 earing 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 BancTrust's net interest margin. The actual interest
rate sensitivity of BancTrust's assets and liabilities could vary
significantly from the information set forth in this table due to market
and other factors.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BancTrust's Consolidated Financial Statements together with the related
notes and the report of Coopers & Lybrand LLP, independent public accountants,
all as set forth in BancTrust's Annual Report to Stockholders for the year ended
December 31, 1997 (Exhibit No. 13) which are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors of BancTrust is omitted from this Report
as BancTrust has filed a definitive proxy statement dated March 20, 1998, and
the information included therein under "Election of Directors-Directors" is
incorporated herein by reference. Information regarding the executive officers
of BancTrust is included under separate caption in Part I of this Form 10-K.
Item 405 of Regulation S-K disclosure is omitted from this Report as BancTrust
has filed a definitive proxy statement dated March 20, 1998, and the Item 405
disclosure therein under "Section 16(a) Beneficial Ownership Reporting
Compliance" which is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is omitted from this Report
as BancTrust has filed a definitive proxy statement dated March 20, 1998, and
the information included therein under "Election of Directors" which is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this Item is omitted from this Report as
BancTrust has filed a definitive proxy statement dated March 20, 1998, and the
information included therein under "Stock Ownership of Management" and
"Principal Holders of Common Stock" which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information required by this Item is omitted from this Report as
BancTrust has filed a definitive proxy statement dated March 20, 1998, and the
information included therein under "Election of Directors--Compensation
Committee Interlocks and Insider Participation" and "--Certain Transactions"
which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of BancTrust
included in the Annual Report to Stockholders for the year ended December 31,
1997, are incorporated herein by reference in Item 8 of this Report. The
remaining information appearing in the Annual Report to Stockholders is not
deemed to be filed as part of this Report, except as expressly provided herein.
1. Report of Independent Accountants.
2. Consolidated Balance Sheets - December 31, 1997 and 1996.
<PAGE>
3. Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995.
4. Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995.
5. Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.
6. Notes to Consolidated Financial Statements.
(a)(2) All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
(a)(3) The following exhibits either are filed as part of this Report
or are incorporated herein by reference:
Exhibit No. 2(i). 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.
Exhibit No. 2(ii). 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 and The Bank of Tallahassee -
incorporated herein by reference to Exhibit 2 to the
Registrant's Current Report on Form 8-K dated December 15, 1997.
Exhibit No. 3. Articles of Incorporation and Bylaws
------------------------------------
(i) Articles of Incorporation, as amended.
(ii) Bylaws - incorporated herein by reference to Exhibit 3(ii)
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995.
Exhibit No. 10(i). 1992 Stock Option Plan
----------------------
Incorporated herein by reference to Exhibit 10 to Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992.
Exhibit No. 13. Annual Report to Stockholders
-----------------------------
Except for those portions of the Annual Report to Stockholders
for the year ended December 31, 1997, which are expressly
incorporated herein by reference, such Annual Report is
furnished for the information of the Commission and is not to be
deemed "filed" as part of this Report.
Exhibit No. 21. Subsidiaries of the Registrant
------------------------------
A list of subsidiaries of the Registrant is included as an
exhibit to this Report.
Exhibit No. 23. Consent of Coopers & Lybrand LLP
Exhibit No. 27. Financial Data Schedule (SEC use only)
(b) The following reports on Form 8-K were filed during the quarter
ended December 31, 1997.
1. Current Report on Form 8-K dated December 5, 1997,
reporting under Item 5 thereof ("Other Events") the
execution of a definitive agreement for the acquisition of
Merchants & Planters Bancshares, Inc. by the Registrant.
2. Current Report on Form 8-K dated December 15, 1997,
reporting under Item 5 thereof ("Other Events") the
execution of a definitive agreement for the merger of
Elmore County Bancshares, Inc. with and into the
Registrant.
(c) Exhibits to this Form 10-K are attached or incorporated by
reference as stated above.
(d) None.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
behalf by the undersigned, thereunto duly authorized.
THE PEOPLES BANCTRUST COMPANY, INC.
(Registrant)
Date: March 27, 1998 By:
-----------------------------------------
Richard P. Morthland
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated and on the dates indicated.
SIGNATURE AND TITLE: DATE:
March 27, 1998
- ---------------------------------
Richard P. Morthland
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
March 27, 1998
- ---------------------------------
Andrew C. Bearden, Jr.
Executive Vice President and
Chief Financial Officer
March 27, 1998
- ---------------------------------
Virginia L. Sellers
Vice President and Treasurer
(Principal Accounting Officer)
March 27, 1998
- ---------------------------------
Julius R. Brown
Director
March 27, 1998
- ---------------------------------
Clyde B. Cox, Jr.
Director
March 27, 1998
- ---------------------------------
Harry W. Gamble, Jr.
Director
<PAGE>
March 27, 1998
- ---------------------------------
Ted M. Henry
Director
March 27, 1998
- ---------------------------------
Elam P. Holley, Jr.
Director, President and
Chief Operating Officer
March 27, 1998
- ---------------------------------
Edith M. Jones
Director
March 27, 1998
- ---------------------------------
A.D. Lovelady
Director
March 27, 1998
- ---------------------------------
Thomas E. Newton
Director
March 27, 1998
- ---------------------------------
David Y. Pearce
Director
March 27, 1998
- ---------------------------------
C. Ernest Smith
Director
March 27, 1998
- ---------------------------------
Julius E. Talton
Director
2
<PAGE>
EXHIBIT 3(I)
ARTICLES OF INCORPORATION
OF
THE PEOPLES BANCTRUST COMPANY, INC.
ARTICLE I
NAME
----
1.1 The name of the Corporation shall be The Peoples BancTrust Company,
Inc.
ARTICLE II
PERIOD OF DURATION
------------------
2.1 The duration of the Corporation shall be perpetual.
ARTICLE III
PURPOSES, OBJECTS AND POWERS
----------------------------
3.1 The purposes and objects and powers of the Corporation are:
(a) To engage in any lawful business, act or activity for which a
corporation may be organized under the Act, it being the purpose and intent of
this Article III to invest the Corporation with the broadest purposes, objects
and powers lawfully permitted a corporation formed under the Act.
(b) To carry on any and all aspects, ordinary or extraordinary, of any
lawful business and to enter into and carry out any transaction, ordinary or
extraordinary, permitted by law, having and exercising in connection therewith
all powers given to corporations by the laws of the State of Alabama.
(c) Without limiting the scope and generality of the foregoing, the
Corporation shall have the following specific purposes, objects and powers, to
the fullest extent permitted by law:
(1) To acquire, own, manage, operate, improve; build, to sell,
lease, mortgage, pledge, distribute or otherwise deal in and dispose of,
property of every kind and wheresoever situated.
(2) To purchase, lease or otherwise acquire any interest in the
properties and rights of any person, firm, corporation or governmental
unit; to pay for the same in cash, in shares of stock, bonds, or other
securities, evidences of indebtedness or property of this Corporation or
of any other person, firm, corporation or governmental unit.
(3) To be a promoter or incorporator, to subscribe for,
purchase, deal in and dispose of, any stock, bond, obligation or other
security, of any person, firm, corporation, or governmental unit, and
while the owner and holder thereof, to exercise all rights of possession
and ownership.
(4) To purchase or otherwise acquire (including without
limitation, to purchase its own shares to the extent of unreserved and
unrestricted capital surplus available therefor), pledge or otherwise
deal in or dispose of shares of its own stock, bonds, obligations or
other securities.
(5) To borrow money from any person, firm, corporation, or
governmental unit and to secure any debt by mortgage or pledge of any
property of the Corporation; to make contracts, guarantees, and
indemnity agreements and incur liabilities and issue its notes.
<PAGE>
(6) To lend money, or aid or extend credit to or use its credit
to assist, any person, firm, corporation, or governmental unit,
including, without limitation, its employees and directors and those of
any subsidiary.
(7) To guarantee any indebtedness and other obligations of, and
to lend its aid and credit to, any person, firm, corporation, or
governmental unit, and to secure the same by mortgage or pledge of, or
security interest in, any property of the Corporation.
(8) To consolidate, merge or otherwise reorganize in any manner
permitted by law; to engage in one or more partnerships and joint
ventures as general or limited partner.
(9) To carry on its business anywhere in the United States and
in foreign countries.
(10) To elect or appoint officers and agents and define their
duties and fix their compensation; to pay pensions and establish pension
plans, pension trusts, profit sharing plans, stock bonus plans, stock
option plans, and other incentive or deferred compensation plans for any
or all of its directors, officers and employees.
(11) To make donations for the public welfare or for
charitable, scientific, or educational purposes; to transact any lawful
business which the Board of Directors shall find to be in aid of
governmental policy.
3.2 All words, phrases and provisions appearing in this Article III are
used in their broadest sense, are not limited by reference to or interference
from any other words, phrases or provisions and shall be so construed.
ARTICLE IV
CAPITAL STOCK
-------------
The total number of shares of capital stock of all classes which the
Corporation shall have authority to issue is ten million (10,000,000), of which
nine million (9,000,000) shares shall be common stock of the par value of $0.10
per share (hereinafter called "Common Stock"), and one million (1,000,000)
shares shall be preferred stock of the par value of $0.10 per share (hereinafter
called "Preferred Stock").
No holder of any shares of capital stock of the Corporation shall have
any preemptive right to purchase, subscribe for, or otherwise acquire any shares
of the Corporation of any class now or hereafter authorized, or any securities
exchangeable for or convertible into such shares, or any warrants or other
instruments, evidencing rights or options to subscribe for, purchase, or
otherwise acquire such shares.
The Corporation may from time to time issue and dispose of any of the
authorized and unissued shares of Common Stock or of Preferred Stock for such
consideration, not less than its par value per share, as may be fixed from time
to time by the board of directors, without action by the shareholders. The board
of directors may provide for payment therefor to be received by the Corporation
in cash, property (real or personal), or services, actually performed for the
Corporation, or any combination of the foregoing, to the full extent permitted
under Alabama law. In the absence of actual fraud in the transaction, the value
of such property or services, as determined by the board of directors of the
Corporation, shall be conclusive. Any and all such shares of the Common or
Preferred Stock of the Corporation the issuance of which has been so authorized,
and for which consideration so fixed by the board of directors has been paid or
delivered, shall be deemed full-paid stock and shall not be liable to any
further call or assessment thereon.
2
<PAGE>
The designations and the powers, preferences, and rights and the
qualifications, limitations or restrictions thereof of the shares of each class
are as follows:
4.1 Common Stock.
(a) Except as provided in this Article IV (or in any resolution or
resolutions adopted by the board of directors of the Corporation pursuant
hereto), the holders of the Common Stock shall exclusively possess all voting
power. Each holder of shares of Common Stock shall be entitled to one vote for
each share held by such holder, including the election of directors. There shall
be no cumulative voting rights in the election of directors.
(b) Whenever there shall have been paid, or declared and set aside
for payment, to the holders of the outstanding shares of any class of stock
having preference over the Common Stock as to the payment of dividends, the full
amount of dividends and of sinking fund or retirement fund or other retirement
payments, if any, to which such holders are respectively entitled in preference
to the Common Stock, then dividends may be paid on the Common Stock and on any
class or series of stock entitled to participate therewith as to dividends, out
of any assets legally available for the payment of dividends; but only when and
as declared by the board of directors.
(c) In the event of any liquidation, dissolution or winding up of
the Corporation, after there shall have been paid to or set aside for the
holders of any class having preferences over the Common Stock in the event of
liquidation, dissolution or winding up of the full preferential amounts of which
they are respectively entitled, the holders of the Common Stock, and of any
class or series of stock entitled to participate therewith, in whole or in part,
as to distribution of assets, shall be entitled after payment or provision for
payment of all debts and liabilities of the Corporation, to receive the
remaining assets of the Corporation available for distribution, in cash or in
kind.
(d) Each share of Common Stock shall have the same relative rights
as and be identical in all respects with all the other shares of Common Stock.
4.2 Preferred Stock.
(a) The Preferred Stock may be issued from time to time in one or
more series, the shares of each series to have such voting powers, full or
limited, and such designations, preferences, and relative, participating,
optional, or other special rights and qualifications, limitations or
restrictions thereof as are stated and expressed herein or in the resolution or
resolutions providing for the issue of such series, adopted by the board of
directors as hereinafter provided.
(b) Authority is hereby granted to the board of directors of the
Corporation, subject to the provisions of this Article IV and to the limitations
prescribed by law, to authorize the issue of one or more series of Preferred
Stock and with respect to each such series to fix and state by resolution or
resolutions providing for the issue of each such series the voting powers, full
or limited, if any, of the shares of each such series and the designations,
preferences, and relative, participating, optional or other qualifications,
limitations, or restrictions thereof to the full extent now or hereafter
permitted by Alabama law. The authority of the board of directors with respect
to each series shall include, but not be limited to, the determination or fixing
of the following:
(i) The distinctive serial designation and the number of shares
constituting such series.
(ii) The dividend rate of such series, the conditions and dates
upon which such dividends shall be payable, the relation which such
dividends shall bear to the dividends payable on any other class or
classes of stock, and whether such dividends shall be cumulative or
noncumulative.
(iii) Whether the shares of such series shall be subject to
redemption by the Corporation and, if made subject to such redemption,
the times, prices, and other terms and conditions of such redemption.
(iv) The terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series, and if so entitled,
the amount of such fund and the manner of its application, including the
price or prices at which such shares may be redeemed or purchased
through the application of such fund.
3
<PAGE>
(v) Whether or not the shares of such series shall be
convertible into, or exchangeable for, shares of any other class or
classes or of any other series of the same or any other class or classes
of stock of the Corporation, and, if provision be made for conversion or
exchange, the times, prices, rates, adjustments, and other terms and
conditions of such conversion or exchange.
(vi) The extent, if any, to which the holders of the shares of
such series shall be entitled to vote with respect to the election of
directors or otherwise.
(vii) The restrictions, if any, on the issue or reissue of any
additional Preferred Stock.
(viii) The rights of the holders of the shares of such series
upon the dissolution of, or upon the distribution of assets of, the
Corporation.
(ix) Whether the shares of such series which are redeemed or
converted should have the status of authorized but unissued shares of
Preferred Stock and whether such shares may be reissued as shares of the
same or any other series of Preferred Stock.
(c) Dividends on outstanding shares of Preferred Stock shall be
paid, or declared and set apart for payment, before any dividends shall be paid
or declared and set apart for payment on the Common Stock with respect to the
same dividend period.
(d) If upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation, the assets available for distribution to holders
of shares of Preferred Stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all series of Preferred
Stock in accordance with the respective preferential amounts (including unpaid
cumulative dividends, if any) payable with respect thereto.
(e) Each share of each series of Preferred Stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
(f) Except as otherwise required by law and except for such voting
powers with respect to the election of directors or other matters as may be
stated in the resolution or resolutions of the board of directors providing for
the issue of any series of Preferred Stock, the holders of any such series shall
have no voting power whatsoever. Subject to such restrictions as may be stated
in the resolution or resolutions of the board of directors providing for the
issue of any series of Preferred Stock, any amendment to the Articles of
Incorporation which shall increase or decrease the authorized stock of any class
or classes may be adopted by the affirmative vote of the holders of a majority
of the outstanding shares of the voting stock of the Corporation.
ARTICLE V
REGISTERED OFFICE AND REGISTERED AGENT; PRINCIPAL OFFICE
--------------------------------------------------------
5.1 The location and mailing address of the initial registered
office of the Corporation shall be 310 Broad Street, Selma, Alabama 36702-0799.
5.2 The initial registered agent at such address shall be Richard P.
Morthland.
5.3 The principal office of the Corporation in the State of Alabama
shall be 310 Broad Street, Selma, Alabama 36702-0799.
4
<PAGE>
ARTICLE VI
BOARD OF DIRECTORS
------------------
6.1 The number of directors of the Corporation shall be a variable
range which is fixed at a minimum number of 3 and a maximum number of 18
(exclusive of directors, if any, to be elected by holders of preferred stock of
the Corporation, voting separately as a class). The number of directors may be
fixed or changed from time to time, within the minimum and maximum, by the Board
of Directors; provided that no action shall be taken to decrease or increase the
number of directors unless at least two-thirds of the directors then in office,
whether or not a quorum, shall concur in said action. Vacancies in the Board of
Directors of the Corporation, however caused, and newly created directorships
shall be filled by a vote of two-thirds of the directors then in office, whether
or not a quorum.
6.2 Notwithstanding any other provision of these Articles of
Incorporation or the by-laws of the Corporation, any director or the entire
Board of Directors of the Corporation may be removed, at any time, but only for
cause and only by the affirmative vote of the shareholders at a meeting called
for that purpose. For purpose of this Section 6.2, "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 the Corporation. A director
may only be removed by vote of the shareholders after service of specific
charges, adequate notice, and full opportunity to refute the charges.
ARTICLE VII
INCORPORATORS
-------------
7.1 The names and addresses of the incorporators are:
NAME ADDRESS
---- -------
Richard P. Morthland 310 Broad Street
Selma, AL 36702-0799
W. Henry Plant 310 Broad Street
Selma, AL 36702-0799
Elam P. Holley, Jr. 310 Broad Street
Selma, AL 36702-0799
ARTICLE VIII
INTERNAL AFFAIRS
----------------
The following provisions for the regulation of the business and for the
conduct of the affairs of the Corporation, directors and the shareholders are
hereby adopted:
8.1 The initial by-laws of the Corporation shall be adopted by the
shareholders. The shareholders shall have the authority to amend, repeal or
alter the by-laws in whole or in part by vote of the holders of a majority of
the outstanding stock of the Corporation, represented either in person or by
proxy at any regular or special shareholders' meeting. The Board of Directors
may also amend, repeal or adopt by-laws, provided, however, that the Board of
Directors may not alter, amend or repeal any by-law establishing what
constitutes a quorum at shareholders' meetings, or which was adopted by the
shareholders and specifically provides that it cannot be altered, amended or
repealed by the Board of Directors. The by-laws may contain any provisions of
the affairs of the Corporation, the directors and shareholders not inconsistent
with the Act or these Articles of Incorporation.
8.2 The business and affairs of the Corporation shall be managed by
the Board of Directors. The number of directors comprising the initial Board of
Directors shall be the number of persons listed as directors in Article VI
hereof. Thereafter, the number of directors of the Corporation shall be fixed
from time to time by the by-laws, or, in the absence of a by-law fixing the
number of directors, the number of directors shall be the same as
5
<PAGE>
the number comprising the initial Board of Directors. The number of directors
may be increased or decreased from time to time by amendment to the by-laws,
provided that the Board of Directors shall consist of not less than one natural
person, and that no decrease shall have the effect of shortening the term of any
incumbent director.
8.3 There shall be no cumulative voting rights with respect to the
election of Directors or for any purpose relating to the voting of shares.
8.4 The Board of Directors shall have the following authority with
respect to an offer for the Corporation's stock or other securities:
(a) The Board of Directors may, if it deems it advisable, oppose a
tender or other offer for the Corporation's securities, whether the offer is in
cash or in the securities of a corporation or otherwise. When considering
whether to oppose an offer, the Board of Directors may, but it is not legally
obligated to, consider any pertinent issue; by way of illustration, but not of
limitation, the Board of Directors may, but shall not be legally obligated to,
consider any or all of the following:
(i) Whether the offer price is acceptable based on the
historical and present operating results or financial condition of the
corporation;
(ii) Whether a more favorable price could be obtained for the
corporation's securities in the future;
(iii) The impact which an acquisition of the corporation would
have on the employees, depositors and customers of the corporation and
its subsidiaries and the communities which they serve;
(iv) The reputation and business practices of the offeror and
its management and affiliates as they would affect the employees,
depositors and customers of the Corporation and its subsidiaries and the
future value of the corporation's stock;
(v) The value of the securities (if any) which the offeror
is offering in exchange for the corporation's securities, based on an
analysis of the worth of the corporation as compared to the corporation
or other entity whose securities are being offered; and
(vi) Any antitrust or other legal and regulatory issues that
are raised by the offer.
(b) If the Board of Directors determines that an offer should be
rejected, it may take any lawful action to accomplish its purpose. including,
but not limited to, any or all of the following: Advising shareholders not to
accept the offer; litigation against the offeror; filing complaints with all
governmental and regulatory authorities; acquiring the corporation's securities;
selling or otherwise issuing authorized but unissued securities or treasury
stock or granting options with respect thereto; acquiring a company to create an
antitrust or other regulatory problem for the offeror; and soliciting a more
favorable offer from another individual or entity.
8.5(a) The Corporation, acting through its Board of Directors, shall
have the authority to indemnify any person who was or is a party or threatened
to be made a party to any threatened, pending or completed claim, action, suit
or proceeding, whether civil, criminal, administrative or investigative,
including appeals, including an action by or in the right of the Corporation, by
reason of the fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the Corporation as an
officer, director, partner, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such claim, action,
suit or proceeding, to the full extent authorized under Alabama law or any other
relevant laws.
6
<PAGE>
(b) The Corporation, acting through its Board of Directors, shall
have the authority to purchase and maintain insurance on behalf of any person
who is or was a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director, officer,
partner, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise against any liability asserted against him and
incurred by him in any such capacity or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under the provisions of the laws of Alabama or any other relevant
laws.
(c) A director of the Corporation shall not be personally liable to
the Corporation or its shareholders for monetary damages for any action taken,
or any failure to take any action, as a director, except liability for (i) the
amount of a financial benefit received by a director to which he or she is not
entitled; (ii) an intentional infliction of harm on the Corporation or the
shareholders; (iii) a violation of Section 10-2B-8.33 of the 1994 Alabama
Business Corporation Act ("Liability for Unlawful Distributions"); (iv) an
intentional violation of criminal law; or (v) a breach of the director's duty of
loyalty to the Corporation or its shareholders. If the 1994 Alabama Business
Corporation Act or other Alabama law is amended or enacted after the date of
filing of this Paragraph 8.5(c) to further eliminate or limit the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the 1994
Alabama Business Corporation Act, as so amended, or such other Alabama law. Any
repeal or modification of this Paragraph 8.5(c) by the shareholders of the
Corporation shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification.
8.6 The Corporation reserves the right from time to time to amend,
alter or repeal each and every provision contained in these Articles of
Incorporation, or to add one or more additional provisions, in the manner now or
hereafter prescribed or permitted by the Act, and all rights conferred upon
shareholders at any time are granted subject to this reservation.
7
<PAGE>
IN WITNESS WHEREOF, the Board of Directors of the Corporation has caused
these Articles of Restatement to be signed on behalf of the Corporation by its
Chairman of the Board and Chief Executive Officer and attested by its Secretary,
this ____ day of __________, 1998.
THE PEOPLES BANCTRUST COMPANY, INC.
----------------------------------------
Richard P. Morthland
Chairman of the Board
and Chief Executive Officer
ATTEST:
- ----------------------------------------
Elam P. Holley, Jr.
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Letter to Stockholders....................2
Management's Discussion and Analysis......4
Five Year Comparison of Selected Financial
Data....................................14
Selected Quarterly Financial Data 1997-
1996....................................14
Corporate Information....................16
Stock Dividend and Price Information.....16
Report of Independent Accountants........17
Consolidated Balance Sheets..............18
Consolidated Statements of Income........19
Consolidated Statements of Changes to
Stockholders' Equity....................20
Consolidated Statements of Cash Flows... 21
Notes to Consolidated Financial State-
ments...................................22
Officers and Directors...................38
</TABLE>
<PAGE>
LETTER TO STOCKHOLDERS
Our people did a great job last year. 1997 was our most profitable, and sound
growth occurred too. $4,000,000 in net profits was 11.7% over the prior year's
record of three and a half million dollars. Earnings per share increased to
$1.17 from $1.05 in 1996. Year end assets were up to $361,300,000 from the
$343,300,000 reported last year.
We made three strong growth moves during 1997. In August, we opened up a new
branch in Centreville, (Bibb County) Alabama. We have an excellent staff and
aggressive community leaders as directors. We are very pleased with that area
and its potential for growth.
The second major step was that we signed an agreement to purchase Merchants &
Planters Bancshares of Montevallo, Alabama. This purchase was completed in
March, 1998. We have filed an application to merge Merchants & Planters Bank
into our Peoples Bank & Trust Company. Our opportunities in Shelby County are
tremendous, beginning with a very fine bank as the foundation there. This con-
nects with our new Bibb County market in fine fashion.
The third significant expansion news was to the east in Elmore County. We have
agreed to merge with Elmore County Bancshares. Its subsidiary is the Bank of
Tallassee, another high quality community bank. We should complete the mergers
following mid-year 1998 stockholders votes.
When all this is complete, we will be strongly positioned for future growth in
excellent markets throughout Central Alabama. Our total assets will then exceed
a half a billion dollars.
The attached Total Return Performance chart shows how the market has evaluated
the Peoples BancTrust. The increased market over the five years shown of 578%
is most gratifying.
In closing, I want to express my gratitude for these additional blessings. We
truly had a wonderful year and look forward to a great future.
LOGO
Richard P. Morthland
Chairman of The Board of Directors & Chief Executive Officer
LOGO
2
<PAGE>
The Peoples Bank and Trust Company Management Team
PHOTO OF RICHARD
P. MORTHLAND PHOTO OF ELAM P.
HOLLEY, JR.
Richard P. Morthland Chairman and Elam P. Holley, Jr. President and Chief
Chief Executive Officer Operating Officer
PHOTO OF ANDREW PHOTO OF JOHN PHOTO OF M.
C. BEARDEN, JR. G. CHISOLM SCOTT PATTERSON
Andrew C. Bearden, Jr. John G. Chisolm M. Scott Patterson Executive
Executive Vice Executive Vice Vice President & Investment
President & Chief President & Commercial Officer Financial Services
Financial Officer Disivion Manager Division Manager
Retail/Operations
Division Manager
PHOTO OF PHOTO OF BOBBY PHOTO OF PHOTO OF
WILLIAM S. LEACH JEFFERSON G. MICHAEL A.
JOHNSON RATCLIFFE. JR. TRUELOVE
William S. Bobby Leach Bibb Jefferson G. Michael A. Truelove
Johnson Butler County Regional Ratcliffe, Jr. Shelby County Regional
County Regional President Prattville/Millbrook President
President Division
Regional
President
3
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
This discussion focuses on the financial condition and results of operations of
The Peoples BancTrust Company, Inc. the ("Company"), and is intended to be read
in conjunction with the consolidated financial statements in this report. Ref-
erence should be made to those statements and other financial data presented
elsewhere in this report to fully understand the following discussion and anal-
ysis.
Management's discussion and analysis includes certain forward-looking state-
ments addressing, among other things, the Company's prospects for earnings, as-
set growth and net interest margin. Forward-looking statements are accompanied
by, and identified with, such terms as "anticipates," "believes," "expects,"
"intends," and similar phrases. Management's expectations for the Company's fu-
ture 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; changes in the Company's strategies for credit-risk management, inter-
est-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
The Company's largest earning asset category is its loan portfolio. Because
loans generate the highest yields, most other assets and liabilities are man-
aged to accommodate fluctuations in the loan portfolio.
Loans, net of unearned interest, for 1997, had an average balance of
$225,706,000. This volume represents 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, the Company'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 indus-
trial 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. The Company monitors concentra-
tions of loans by certain industry segments. At December 31, 1997, those seg-
ments 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 the Com-
pany 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 in-
crease. 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 the Company's loan
portfolio is represented by the allowance for loan losses. A charge to the al-
lowance 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, de-
termine the appropriate level at which to maintain the allowance for loan loss-
es.
4
<PAGE>
Because the allowance is based on assumptions and subjective judgement, it is
not necessarily reflective of the charge-offs which could ultimately occur.
At December 31, 1997, the Company'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 ra-
tios 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 authori-
ties. It is management's belief that at its current level, the allowance for
loan losses is sufficient to absorb any potential losses in the Company's loan
portfolio. See note 1 of Notes to Consolidated Financial Statements.
INVESTMENTS
The Company's investment portfolio declined $12,956,000 to $69,737,000 at De-
cember 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 yield-
ing loan portfolio.
During 1995, the entire portfolio was classified as "available-for-sale", caus-
ing it to being 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 discuss
additional aspects of Investment Securities.
SHORT TERM INVESTMENTS
Federal funds sold and securities purchased under agreement to resell consti-
tute the bulk of the short term investments. These investments are used exten-
sively in the Company's liquidity management. The utilization of short-term in-
vestments also produces interest income on funds that might otherwise lay dor-
mant. 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. The
Company's strategy is to price deposits competitively to attract additional
funds for asset allocation.
LIQUIDITY
The term liquidity is used in describing the Company's ability to meet its
needs for cash. Those needs primarily include lending, withdrawal demands of
customers and operating expenses.
The Company's primary sources of cash are interest and fee income, loan repay-
ments and the maturity or sales of other earning assets including investment
securities. Approximately 13% of the total investment securities portfolio ma-
tures within one year. At December 31, 1997, the entire investment portfolio
was classified as available-for-sale. These securities are high grade, and en-
joy a ready market, having a value of $69,737,000. Liquid assets of the Compa-
ny, 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. The Company
typically sells federal funds, though it may, during occasional fluctuations in
its liquidity position, purchase federal funds or borrow from the Federal Re-
serve Bank or Federal Home Loan Bank to
5
<PAGE>
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. The Company'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 the Company'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.
The Federal Reserve Board has adopted risk based capital regulations. These
regulations require all bank holding companies and banks to achieve, and main-
tain, specified ratios of capital to risk-weighted assets. The risk-based capi-
tal rules assign weight factors to different classes of assets and off-balance
sheet obligations at 0%, 20%, 50% or 100%, depending upon the risk classifica-
tion of the asset or obligation. All bank holding companies and banks are re-
quired 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). Note 12 of Notes to Con-
solidated Financial Statements shows that the Company's and Bank's capital ra-
tios at December 31, 1997 were far above the minimum regulatory requirements.
In 1997, the Company entered into definitive agreements with two other Alabama
bank holding companies to acquire all their outstanding shares. The first
transaction (Merchants & Planters Bancshares, Inc.) was completed on March 6,
1998, and accounted for as a purchase. As a result, the Company's capital ra-
tios were reduced below those indicated herein but not below the required mini-
mums for capital adequacy. Conversely, the second transaction (Elmore County
Bancshares, Inc.), which will be accounted for as a pooling of interests, is
expected to increase the Company'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 second transaction will be consummated, or
if consummated, that the second transaction will increase the Company's capital
ratios as currently expected. See note 18 of Notes to Consolidated Financial
Statements.
INCOME SUMMARY
The Company reported net income of $4,003,000 for the year ended December 31,
1997. This represents 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 the Company. 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 the Company's net interest income
The following table, "Analysis of Changes in Interest Income and Expense," il-
lustrates the changes, and causes of those changes, in each line item that
makeup net interest income. The next table, "Average Balance Sheets and Analy-
sis 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 compo-
nents. Naturally, only earning assets and interest bearing liabilities have in-
come and expense associated with them.
6
<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
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
Changes Changes Changes Changes
Total in Volume in Rates Total in Volume in Rate
<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
<CAPTION>
Interest income
on:
Loans
Taxable
investment
securities
Nontaxable
investment
securities
Federal funds
sold and
securities
purchased under
agreements to
resell
Total interest
income
Interest expense
on:
Interest bearing
demand deposits
Savings deposits
Time deposits
Federal funds
purchased and
securities sold
under
agreements to
repurchase
Other borrowed
funds
Total interest
expense
Net change in
net interest
income before
loan losses
</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 the Company's interest income and expense during the periods
indicated. For each category of interest-earning assets and interest-bearing
liabilities, information is provided on changes attributable to: (1) changes in
volume (changes in volume multiplied by old rate); (2) changes in rates (change
in rate multiplied by old volume); and (3) change in rate volume (change in
rate multiplied by the change in volume, allocated between volume change and
rate change at the ratio that each bears to the total change).
Non-accrual loans affecting loan income amounted to $1,701,000 and $1,679,000
in 1997 and 1996 respectively.
7
<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 1995
--------------------------------------------------------------------------
<CAPTION>
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* $225,706 $22,394 9.92% $197,187 $20,031 10.16% $175,318 $18,129 10.34%
Taxable investment
securities 73,036 4,551 6.23% 84,751 5,111 6.03% 94,298 5,404 5.73%
Nontaxable investment
securities 1,886 66 3.50% 2,515 76 3.02% 2,171 91 4.19%
Federal funds sold and
securities purchased
under agreements to
resell 7,664 407 5.31% 8,760 447 5.10% 5,201 416 8.00%
--------------------------------------------------------------------------
Total interest earning
assets $308,292 $27,418 8.89% $293,213 $25,665 8.75% $276,988 $24,040 8.68%
Non-Interest Earning
Assets:
Cash and due from banks 13,955 15,295 15,920
Bank premises and
equipment (net) 6,191 5,831 5,749
Other Assets 8,661 6,992 7,928
--------------------------------------------------------------------------
Total non-interest
earning assets 28,807 28,118 $ 29,597
--------------------------------------------------------------------------
Total Assets $337,099 $321,331 $306,585
- -----------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest Bearing
Liabilities:
Interest bearing demand
deposits $ 66,543 $ 2,316 3.48% $ 65,211 $ 2,297 3.52% $ 64,419 $ 2,462 3.82%
Savings deposits 27,829 798 2.87% 28,882 828 2.87% 30,351 910 3.00%
Time deposits 144,743 7,949 5.49% 134,354 7,425 5.53% 129,866 7,409 5.71%
Federal funds purchased
and securities sold
under agreements to
repurchase 5,592 186 3.32% 8,164 205 2.51% 3,939 132 3.35%
Other borrowed funds 6,672 516 7.73% 6,223 465 7.47% 2,460 161 6.54%
--------------------------------------------------------------------------
Total interest bearing
liabilities $251,379 $11,765 4.68% $242,834 $11,220 4.62% $231,035 $11,074 4.79%
Non-interest bearing
demand deposits 45,968 42,529 41,634
Other liabilities 3,186 3,420 3,954
--------------------------------------------------------------------------
Total non-interest
bearing liabilities $ 49,154 $ 45,949 $ 45,588
--------------------------------------------------------------------------
Total liabilities $300,533 $288,783 $276,623
Stockholders' equity 36,566 32,548 29,962
--------------------------------------------------------------------------
Total liabilities and
stockholders' equity $337,099 $321,331 $306,585
- -----------------------------------------------------------------------------------------------------
Net interest income $15,653 $14,444 $12,966
Net yield on interest
earning assets 5.08% 4.93% 4.68%
</TABLE>
* Average balances include non-accruing loans of approximately $1,701,000,
$1,679,000 and $1,503,000 in 1997, 1996 and 1995.
The table above sets forth certain information relating to the Company's aver-
age interest-earning assets and interest-bearing liabilities and reflects the
average yield on assets and average cost on liabilities for the years indicat-
ed. Such yields and costs are derived by dividing income or expense by the av-
erage daily balance of assets or liabilities, respectively, for the years indi-
cated.
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%. The Company 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 invest-
ment funds into loans. The
8
<PAGE>
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 its 1996 total of
$11,220,000. A 2.0% increase in the average balance of interest bearing depos-
its and a 7.2% increase in the average balance of other borrowed funds attrib-
uted to the increase in interest expense. In order to fund loan growth, and
otherwise provide for liquidity, specific term and short term borrowings in-
creased 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 av-
erage balance of $6,223,000 to the 1997 average balance of $6,672,000.
Changes in the makeup of liabilities caused the Company's cost of funds to in-
crease 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
The Company's total interest income for the year 1996 amounted to $25,665,000
compared to a 1995 total of $24,040,000. The increase was the result of in-
creased 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 vol-
ume was partially funded through a shift of funds from the investment security
portfolio into the loan portfolio and thereby earning at a higher rate of in-
terest. Interest rates on the loan portfolio decreased from 10.34% in 1995 to
10.16% for 1996. Total average earning assets increased from $276,988,000 in
1995 to an average of $293,213,000 in 1996 for an increase of 5.86% in average
earning assets.
Interest income on the investment securities portfolio decreased 5.6% from
$5,495,000 in 1995 to $5,187,000 in 1996. The decrease in interest income was
primarily attributable to a 9.5% decline in average volume of the combined to-
tal of taxable and nontaxable investment securities offset by an increase in
the average yield on taxable investment securities from 5.73% in 1995 to 6.03%
in 1996.
Interest income from federal funds sold and securities purchased under agree-
ments to resell totaled $447,000 in 1996 as compared to $416,000 in 1995. The
increase was primarily attributable to an increase in the average balance of
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 fed-
eral funds purchased and securities sold under agreements to repurchase, com-
bined with a 153% increase in the average balance of other borrowed funds dur-
ing 1996. Specific term and short term borrowing increased during 1996 primar-
ily to fund loan growth and to otherwise provide for liquidity. The average
balance of federal funds purchased and securities sold under agreements to re-
purchase increased $4,225,000 from the 1995 average balance of $3,939,000 to
the average balance in 1996 of $8,164,000. Likewise, the average balance of
other borrowed funds increased by $3,763,000 from the 1995 average balance of
$2,460,000 to the average balance in 1996 of $6,223,000. Average deposits grew
by 1.7% during 1996 from an average balance in 1995 of $224,636,000 to an aver-
age balance in 1996 of $228,447,000. The primary growth was recorded in demand
deposits with decreases in savings and time deposits. As a result of the de-
clining interest rates during 1996 and the shift in the liability mix, the
Company's cost of funds declined to 4.62% in 1996 from 4.79% in 1995.
Net interest income for 1996 was $14,445,000 as compared to the 1995 total of
$12,966,000 for an increase of 11.4%.
9
<PAGE>
PROVISION FOR LOAN LOSSES
The provision for loans losses is an expense item that allows for systematic
application of the fact that some loans will not be paid back in full. It off-
sets 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 whereas in 1996, it was $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 manage-
ment, 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 Consol-
idated Financial Statements for further discussion on "Allowance for Loan Loss-
es."
NON-INTEREST INCOME
Additional fee income is generated for the Company through the wide variety of
financial services offered. With continued pressure on net interest income, the
Company views the expansion of fee income and the development of new services
as a major source of future earnings. The Company's primary sources of non-in-
terest income are deposit service charges, fee-based trust services, brokerage
income, credit life commissions, and income contributions from the Company's
insurance and finance (see below) subsidiaries.
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, the Company opened Loan Express, Inc., a consumer
finance company that extends credit to consumers who may not be eligible for
loans under the Company'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 de-
posit service charges with the balance of the increase spread over the remain-
ing non-interest income items. For the year 1996, deposit service charges
amounted to $2,512,000 as compared to $2,193,000 for 1995. In May of 1996, the
Company opened a consumer finance company, Loan Express, Inc. (Loan Express),
which extends credit to consumers who may not otherwise meet the Company's
credit standards. Loan Express recorded losses during 1996 in the amount of
$68,000. The losses were the result of first year start-up expense and low vol-
umes. 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 technolo-
gy. Additionally, total Federal Deposit Insurance Corporation ("FDIC") premi-
ums, paid for deposit insurance, of $58,000 in 1996 decreased from the 1995
amount of $305,000. The decrease in premiums was allowed in connection with
congressional legislation to recapitalize the Savings Association Insurance
Fund (SAIF) that was approved in 1996. The Company was assessed a one-time re-
capitalization 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.
10
<PAGE>
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.
The Company 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.
1996 VERSUS 1995
Income before the charge for income tax was $5,226,000 for 1996 as compared to
$4,426,000 for 1995, an increase of 18.1%. The provision for income tax which
includes both federal and state taxes amounted to $1,643,000 for 1996. The ef-
fective tax rate for 1996 and 1995 was 31.4% and 28.9%, respectively. The Com-
pany participates in multiple issues of low income housing credits which re-
duced the effective tax rate by 5.2% and 3.7% for 1996 and 1995, respectively.
IMPACT OF INFLATION AND CHANGING PRICES
The financial statements and accompanying data in this report have been pre-
pared according to generally accepted accounting principals. 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 pur-
chasing 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 as-
sets or inventories. Inflation does, however, impact the growth of total as-
sets, creating the need for more equity capital in order to maintain appropri-
ate levels of capital to assets ratios. Inflation also affects non-interest ex-
penses, which tend to rise during periods of inflation.
INTEREST RATE RISK
The profitability of most financial institutions is greatly dependent on net
interest income. Such is the case with the Company. Given this, management be-
lieves changes in interest rates impact the Company'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 the Company's as-
sets and liabilities is crucial in maintaining desired performance levels. Man-
agement 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 the Company's profitabil-
ity against radical shifts in interest rate levels. Management believes the
current relationship between rate sensitive assets and rate sensitive liabili-
ties is well matched, indicating a minimal exposure to interest rate risk. On
December 31, 1997, the Company 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."
11
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC.
INTEREST RATE SENSITIVITY POSITION
December 31, 1997
<TABLE>
<CAPTION>
Expected Maturity Date
----------------------------------------------------------------------
<CAPTION>
1998 1999 2000 2001 2002 Thereafter Total Fair Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------
INTEREST-EARNING ASSETS:
Fed funds sold under
agreement 6,677 0 0 0 0 0 6,677 6,677
Average Interest Rate 5.40% 0.00% 0.00% 0.00% 0.00% 0.00% 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 174,653 46,938 30,181 31,118 25,407 26,894 335,191 338,341
- ---------------------------------------------------------------------------------------------------
INTEREST-BEARING ASSETS:
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 0 0 155,118 155,738
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%
Fed. funds purch. under
agreement 13,642 0 0 0 0 0 13,642 13,642
Average Interest Rate 5.40% 0.00% 0.00% 0.00% 0.00% 0.00% 5.40%
Federal Home Loan Debt 209 94 0 0 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 36,793 19,735 21,092 25,095 19,948 (57,622) 65,041
Cumulative interest
sensitive gap 36,793 56,528 77,620 102,715 122,663 65,041 130,083
Interest sensitive gap
to total assets 10.18% 5.46% 5.84% 6.94% 5.52% -15.95% 18.00%
Cumulative interest
sensitive gap to total
assets 10.18% 15.64% 21.48% 28.42% 33.94% 18.00% 36.00%
- ---------------------------------------------------------------------------------------------------
</TABLE>
(1) Company 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 earing assets, such as loans and investment securities. A posi-
tive 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, how-
ever, 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. The
actual interest rate sensitivity of the Company'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 AND ACTION PLAN
The Company is aware of the current concerns throughout the business community
of reliance upon computer software that does not properly recognize the year
2000 in date formats, often referred to as the "Year 2000 Problem." The Year
2000 Problem is the result of software being written using two digits rather
than four digits to define the applicable year (i.e., "98" rather than "1998").
A failure by a business to properly identify and correct a Year 2000 Problem in
its operations could result in system failures or miscalculations. In turn,
this could result in disruptions of operations, including among other things a
temporary inability to process transactions, or otherwise engage in routine
business transactions on a day-to-day basis.
Operations of the Company depend upon the successful operation on a daily basis
of its computer software programs. The Company relies upon software purchased
from third-party vendors rather than internally generated
12
<PAGE>
software. In its analysis of the software, and based upon its ongoing discus-
sions with these vendors, a plan of action has been put in place by the Company
to minimize its risk exposure to the Year 2000 Problem.
As part of the plan, an oversight committee has been set up to monitor vendor
compliance, and identify systems and equipment crucial to the Company's opera-
tion. These systems are being tested to assure they will be able to handle the
Year 2000 event, thus minimizing risk to the Company.
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 ini-
tially 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 fi-
nancial assets and extinguishments of liabilities occurring after December 31,
1996 and is to be applied prospectively. However, in December 1996, the Finan-
cial Accounting Standards Board issued Statement of Financial Accounting Stan-
dards 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 un-
changed. The Company adopted SFAS 125 as of January 1, 1998. 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 Statement of
Financial Accounting Standards No. 130, Reporting of Comprehensive Income (SFAS
No. 130), which establishes standards for reporting and display of comprehen-
sive 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 is-
sued FAS No. 131, Disclosures about Segments of an Enterprise and Related In-
formation (SFAS 131), which establishes standards for the way that public busi-
ness enterprises report information about operating segments in annual finan-
cial 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 prod-
ucts and services, geographic areas, and major customers. This statement re-
quires the reporting of financial and descriptive information about an
enterprises's reportable operating segments.
This statement is effective for financial statements for periods beginning af-
ter December 15, 1997. In the initial year of application, comparative informa-
tion for earlier years is to be restated. The Company believes tht 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 met 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 Pen-
sions, SFAS 88, Employers' Accounting for Settlements and Curtailments of De-
fined Benefit Pension Plans and for Termination Benefits, and SFAS 106, Employ-
ers' Accounting for Postretirement Benefits Other Than Pensions.
13
<PAGE>
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 on 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. The Company has not
yet adopted SFAS 132 but does not expect tht adoption will have a material im-
pact on the Company's financial statements.
FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
(dollars in thousands, except for per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
--------------------------------------------
Net interest income $ 15,653 $ 14,445 $ 12,966 $ 11,344 $ 10,323
Provision for loan losses 1,732 1,835 848 348 484
Income before income tax 5,958 5,226 4,426 3,316 3,057
Provision for income tax 1,955 1,643 1,278 962 808
Net income 4,003 3,583 3,148 2,354 2,173
Net income per share** 1.17 1.05 .89 .66 .665
Cash dividend declared and paid** .31 0.27 .255 .24 .22
--------------------------------------------
Total assets, December 31 $361,362 $343,301 $318,311 $301,228 $281,871
- -------------------------------------------------------------------------------
</TABLE>
SELECTED QUARTERLY FINANCIAL DATA 1997-1996
(dollars in thousands, except for per share amounts)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------
<CAPTION>
Dec. 31 Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------
Net interest income $ 4,338 $ 3,930 $ 3,770 $ 3,615 $ 3,653 $ 3,549 $ 3,807 $ 3,436
Provision for loan
losses 640 368 364 360 418 368 723 326
Income before income tax 1,498 1,610 1,511 1,340 1,403 1,203 1,208 1,413
Provision for income tax 509 543 466 437 434 321 383 506
Net Income 988 1,067 1,045 903 969 882 825 907
Net income per share** 0.28 0.31 0.31 0.27 0.28 0.26 0.24 0.27
Cash dividends declared
per share** .08 .08 .075 .075 .075 . 065 .065 .065
-----------------------------------------------------------------------
Total Assets $361,362 $344,319 $334,320 $327,095 $343,301 $314,655 $322,974 $320,656
- -------------------------------------------------------------------------------------------------
</TABLE>
** Restated to show effect of a 2-for-1 stock split in the form of a stock
dividend paid June 16, 1997.
14
<PAGE>
ACQUISITIONS
On December 2, 1997 the Company entered into an Agreement and Plan of Reorgani-
zation with Merchants & Planters Bancshares, Inc., Montevallo, Alabama. The
plan called for the Company to acquire all the outstanding shares of Merchants
& Planters for $949.38 per share, or $20,085,000 total. The transaction re-
ceived its required approval from the Federal Reserve Bank of Atlanta on Febru-
ary 19, 1998. The transaction to acquire Merchants & Planters was completed on
March 6, 1998. At December 31, 1997, Merchants & Planters Bancshares reported
total assets of $66,344,000.
On December 11, 1997, the Company executed a definitive agreement with Elmore
County Bancshares, Inc. Tallassee, Alabama ("Elmore County"), the bank holding
company for The Bank of Tallassee, providing for the merger of Elmore County
with and into the Company. The Company will issue shares of its common stock in
exchange for the currently outstanding shares of common stock of Elmore County.
Based on the terms of the agreement with Elmore County, it is currently esti-
mated that the Company will issue 3.1075 shares of its common stock in exchange
for each outstanding share of Elmore County common stock, or approximately
1,719,990 shares of the Company's common stock in the aggregate.
For additional discussion, see Note 18 of Notes to Consolidated Financial
Statements.
15
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC. -- CORPORATE INFORMATION
The Peoples BancTrust Company, Inc. is a bank holding company incorporated un-
der the laws of the State of Alabama. The Company is registered under the Bank
Holding Company Act of 1965 and is the holding company for it wholly owned sub-
sidiary, The Peoples Bank and Trust Company, Selma, Alabama. Peoples Bank oper-
ates a full service retail and general commercial banking business in Dallas,
Butler, Autauga, Elmore and Bibb counties and surrounding areas in the State.
Peoples Bank also offers Financial Management and Trust services along with a
with an array of financial products through its Brokerage Department and Insur-
ance Agency. On March 6, 1998 the Company completed a transaction with Mer-
chants & Planters Bancshares, Inc. that resulting in the Company owning Mer-
chants & Planters Bank which operates one general banking facility in Shelby
County, Alabama.
TRANSFER AGENT ANNUAL REPORT ON FORM 10-K
The Peoples Bank and Trust Company For copies of the Annual Report on Form 10-
Trust Department K
P.O. Box 799 as filed with the Securities and Exchange
Selma, Alabama 36702-0799 Commission, contact:
INDEPENDENT ACCOUNTANTS M. Scott Patterson, Secretary
Coopers & Lybrand, L.L.P. The Peoples BancTrust Company, Inc.
1901 6th Avenue North P.O. Box 799
Birmingham, Alabama 35203-2690 Selma, Alabama 36702-0799
STOCK DIVIDEND AND PRICE INFORMATION
The common stock of the Company is listed on the NASDAQ Small Cap Market under
the symbol, "PBTC." Market makers for the common stock of the Company are
Sterne Agee & Leach, Inc. and Interstate/Johnson Lane.
The following table is the reported bid information for the common stock for
each quarterly period within the last two fiscal years, along with the divi-
dends declared. All data prior to June 16, 1997 has been restated to reflect
the effects of a two-for-one stock split effected in the form of a stock divi-
dend. Quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission, and may not reflect actual transactions.
<TABLE>
<CAPTION>
Dividends Declared
1996 High Low (per common share)
----------------------------------------------------------------------
<S> <C> <C> <C>
Jan-Mar 11.50 9.25 .065
Apr-June 11.00 10.75 .065
July-Sept 11.25 10.75 .065
Oct-Dec 13.50 11.25 .075
<CAPTION>
Dividends Declared
1997 High Low (per common share)
----------------------------------------------------------------------
<S> <C> <C> <C>
Jan-Mar 17.00 13.50 .075
Apr-June 18.50 17.00 .075
July-Sept 19.00 18.00 .08
Oct-Dec 31.00 17.00 .08
</TABLE>
See note 12 of Notes to Consolidated Financial Statements regarding regulatory
approval for the payment of dividends to the Company by The Peoples Bank and
Trust Company.
As of February 25, 1998, The Peoples BancTrust Company, Inc. had 817 stockhold-
ers of record and 3,403,736 shares of common stock outstanding.
16
<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 stock-
holders' 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 fi-
nancial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Peoples
BancTrust Company, Inc. and subsidiary as of December 31, 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 confor-
mity with generally accepted accounting principles.
LOGO
Birmingham, Alabama
February 6, 1998, except Note 18
as to which the date is March 6, 1998
17
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
ASSETS
<TABLE>
<CAPTION>
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.
18
<PAGE>
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:
U.S. Treasury securities 493,920 796,492 1,055,099
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.
19
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
Additional Unrealized
Common Paid-In Gains Retained Treasury
Stock Capital (Losses) Earnings 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.
20
<PAGE>
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 in-
come 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 as-
sets........................... (107) (99,964)
Write down of other real es-
tate........................... 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 liabili-
ties:
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 invest-
ment securities: held-to-matu-
rity........................... 241,717
Proceeds from maturities and
calls of investment securities:
held-to-maturity............... 6,315,000
Purchases of investment securi-
ties: held-to-maturity......... (7,980,237)
Proceeds from sales of invest-
ment 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 securi-
ties: 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 ac-
tivities..................... (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, begin-
ning 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
----------------------------------------
</TABLE>
Noncash investing activity:
The Company transferred investment securities: held to maturity having a net
book value of approximately $28,831,000 to investment securities: available for
sale during the year ended December 31, 1995.
The accompanying notes are an integral part of these financial statements.
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION -- The consolidated financial statements included herein
are those of The Peoples BancTrust Company, Inc. (the Company) and its wholly
owned subsidiary, The Peoples Bank and Trust Company (the Bank).
NATURE OF OPERATIONS -- The Company operates sixteen offices in rural and sub-
urban communities in south-central Alabama. The Company's primary source of
revenue is providing loans to customers, who are predominately small and mid-
dle-market businesses and middle-income individuals.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS -- The preparation
of financial statements in conformity with generally accepted accounting prin-
ciples requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
INVESTMENT SECURITIES -- 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 premi-
ums, 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 manage-
ment intends to use as part of its asset/liability strategy, or that may be
sold in response to changes in interest rates, changes in prepayment risk, the
need to increase regulatory capital or other similar factors. Securities avail-
able-for-sale are recorded at market value with unrealized gains and losses net
of any tax effect, added or deducted directly from stockholders' equity.
Securities carried in trading accounts are carried at market value with
unrealized gains and losses reflected in income.
At December 31, 1997 and 1996, the Company classified all securities as avail-
able for sale as part of an asset and liability strategy to maximize the flexi-
bility of its investment portfolio.
Realized and unrealized gains and losses are based on the specific identifica-
tion method.
LOANS -- Loans are stated at face value, net of unearned discount and the al-
lowance for loan losses. Unearned discounts on installment loans are recognized
as income over the terms of the loans by the sum-of-the-months-digits method,
which approximates the interest method. Interest on other loans is credited to
operations based on the principal amount outstanding. Nonrefundable fees and
costs associated with originating or acquiring loans are recognized by the in-
terest method as a yield adjustment over the life of the corresponding loan.
ALLOWANCE FOR LOAN LOSSES -- 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 mea-
sured for impairment based on the present value of expected future cash flows
discounted at the historical effective interest rate, while all collateral-de-
pendent loans are measured for impairment based on the fair value of the col-
lateral.
At December 31, 1997 and 1996, the recorded investment in loans for which im-
pairment 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, respec-
tively. 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 in-
ternal asset classification procedures include a thorough review of significant
loans and lending relationships and include the accumulation of related data.
22
<PAGE>
This data includes loan payment status, borrowers' financial data, and borrow-
ers' 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 deter-
mined to be uncollectible, the portion deemed uncollectible is charged against
the allowance and subsequent recoveries, if any, are credited to the allowance.
Management's periodic evaluation of the adequacy of the allowance is based on
the Bank's past loan loss experience, known and inherent risks in the portfo-
lio, adverse situations that may affect the borrowers' ability to repay, esti-
mated value of any underlying collateral, and current economic conditions.
While management believes that it has established the allowance in accordance
with generally accepted accounting principles and has taken into account the
views of its regulators and the current economic environment, there can be no
assurance that in the future the Bank's regulators or its economic environment
will not require further increases in the allowance.
INCOME RECOGNITION ON IMPAIRED AND NONACCRUAL LOANS -- Loans, including im-
paired loans, are generally classified as nonaccrual if they are past due as to
maturity or payment of principal or interest for a period of more than 90 days,
unless such loans are well-collateralized and in the process of collection. If
a loan or a portion of a loan is classified as doubtful or is partially charged
off, the loan is generally classified as nonaccrual. Loans that are on a cur-
rent payment status or past due less than 90 days may also be classified as
nonaccrual if repayment in full of principal and/or interest is in doubt.
Loans may be returned to accrual status when all principal and interest amounts
contractually due (including arrearages) are reasonably assured of repayment
within an acceptable period of time, and there is a sustained period of repay-
ment performance (generally a minimum of six months) by the borrower, in accor-
dance with the contractual terms of interest and principal.
While a loan is classified as nonaccrual and the future collectibility of the
recorded loan balance is doubtful, collections of interest and principal are
generally applied as a reduction to principal outstanding, except in the case
of loans with scheduled amortizations where the payment is generally applied to
the oldest payment due. When the future collectibility of the recorded loan
balance is expected, interest income may be recognized on a cash basis. In the
case where a nonaccrual loan has been partially charged off, recognition of in-
terest on a cash basis is limited to that which would have been recognized on
the recorded loan balance at the contractual interest rate. Receipts in excess
of that amount are recorded as recoveries to the allowance for loan losses un-
til prior charge-offs have been fully recovered.
BANK PREMISES AND EQUIPMENT -- Office equipment and buildings are stated at
cost less accumulated depreciation computed on the straight-line, declining-
balance and other accelerated methods over the estimated useful lives of the
assets. Gains or losses on disposition are recorded in other operating income
on the date of disposition, based upon the difference between the net proceeds
and the adjusted carrying value of the assets sold or retired. Maintenance and
repairs are charged to expense as incurred, while renewals and betterments are
capitalized. Estimated useful lives range from seven to forty years for build-
ings and improvements and three to five years for furniture and equipment.
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 am-
ortized 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 as-
sets or liabilities are expected to be realized or settled. As changes in tax
laws or rates are enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes.
23
<PAGE>
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 earn-
ings 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, securi-
ties 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 Decem-
ber 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 earn-
ings per share calculations have been restated to retroactively reflect the
stock splits.
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:
<TABLE>
<CAPTION>
1997
- -----------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Type Cost Gains Losses 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 agencies and
corporations 42,300,895 110,656 (25,691) 42,385,860
Obligations of state and
political subdivisions 1,894,974 11,662 (12,312) 1,894,324
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>
24
<PAGE>
<TABLE>
<CAPTION>
1996
- -----------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Type Cost Gains Losses Value
- -----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $11,438,134 $ 50,503 $ (12,078) $11,476,559
Obligations of other U.S.
Government agencies and
corporations 41,477,832 120,694 (113,077) 41,485,449
Obligations of state and
political subdivisions 2,071,315 6,782 (28,430) 2,049,667
Collateralized mortgage
obligations 16,923,128 22,333 (109,763) 16,835,698
Mortgage-backed securities 2,586,286 25,985 (18,993) 2,593,278
Corporate and other
securities 8,528,220 (276,175) 8,252,045
----------------------------------------------
$83,024,915 $226,297 $(558,516) $82,692,696
- -----------------------------------------------------------------------------
</TABLE>
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 be-
cause borrowers may have the right to call or prepay obligations with or with-
out call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Available
for Sale
- --------------------------------------------------------------------------
Amortized Market
Cost 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 due date 5,348,372 5,166,992
-----------------------
Total $69,926,154 $69,736,988
- --------------------------------------------------------------------------
</TABLE>
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 col-
lateral for public funds deposits and repurchase agreements at December 31,
1997 and 1996, respectively.
25
<PAGE>
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 coun-
ties in Alabama and repayment of these loans is, in part, dependent upon the
economic conditions in this region of the state. Management does not believe
the loan portfolio contains concentrations of credits either geographically or
by borrower, which would expose the Bank to unacceptable amounts of risk. The
above loans include agricultural loans totaling approximately $16,481,000 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 exten-
sion of credit is based on management's credit evaluation of the customer. Col-
lateral held varies, but may include accounts receivable, inventory, property,
plant and equipment, residential real estate, and income-producing commercial
properties. No additional credit risk exposure relating to outstanding loan
balances exists beyond the amounts shown in the consolidated balance sheets as
of December 31, 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, respec-
tively. 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>
26
<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 consoli-
dated 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 por-
tion 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>
27
<PAGE>
The provision for income taxes is different from the amount computed by apply-
ing the federal income tax statutory rate to income before provision for income
taxes. The reasons for this difference, as a percentage of pre-tax income, are
as follows:
<TABLE>
<CAPTION>
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) cov-
ering substantially all of its employees. The Company's policy is to contribute
annually an amount that can be deducted for federal income tax purposes using
the projected unit credit method of actuarial computation. Actuarial computa-
tions for financial reporting purposes are also based on the projected unit
credit method. Pension expense was $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 recog-
nized 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 obliga-
tions:
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 obli-
gation 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>
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.
28
<PAGE>
During 1987, the Company established an Employee Stock Ownership Plan (ESOP), a
tax-qualified, defined contribution plan which covers substantially all employ-
ees. Contributions are determined by the Board of Directors of the Company. As
of December 31, 1997 and 1996, the ESOP holds 62,344 and 55,158 shares (re-
stated for stock split) of common stock in the Company, respectively.
9. COMMITMENTS AND CONTINGENCIES
The Bank leases certain buildings, equipment and land under noncancelable oper-
ating leases which require various minimum annual rentals.
The total minimum rental commitment at December 31, 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 busi-
ness 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, includ-
ing 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 part-
ner of the firm serves on the board of directors of the Company.
11. EARNINGS PER SHARE
The following table reflects the reconciliation of the numerator and denomina-
tor of the basic EPS computation to the numerator and denominator of the di-
luted EPS computation:
For the year ended December 31, 1997
<TABLE>
<CAPTION>
Per-
Income Shares share
(Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS
Income available to common stockhold-
ers $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
-------------------------------
</TABLE>
29
<PAGE>
For the year ended December 31, 1996
<TABLE>
<CAPTION>
Income Shares Per-share
(Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
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
- ---------------------------------------------------------------------------------
</TABLE>
For the year ended December 31, 1995
<TABLE>
<CAPTION>
Income Shares Per-share
(Numerator) (Denominator) Amount
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
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 div-
idends 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 preced-
ing 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 regu-
latory framework for prompt corrective action, the Company must meet specific
capital guidelines that involve quantitative measures of the Company's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Company's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy re-
quire the Company to maintain minimum amounts and ratios (set forth in the ta-
ble below) of total and Tier I (as defined in the regulations) to risk-weighted
assets (as defined), and of Tier I capital (as defined) to average assets (as
defined). Management believes, as of December 31, 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 condi-
tions or events since that notification that management believes have changed
the institution's category.
30
<PAGE>
The Company's and the Bank's actual capital amounts and ratios are also pre-
sented in the table.
<TABLE>
- -------------------------------------------------------------------------------
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
- -------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Company
As of December 31, 1997
Total Capital (to Risk
Weighted Assets) $39,442 14.51% $ 21,237 8.00% $ 26,547 10.00%
Tier 1 Capital (to Risk
Weighted Assets) 36,692 13.50% 10,619 4.00% 15,928 6.00%
Tier 1 Capital Ratio
(to Average Assets) 36,692 10.91% 13,484 4.00% 16,855 5.00%
As of December 31, 1996
Total Capital (to Risk
Weighted Assets) 35,952 14.88% 19,324 8.00% 24,155 10.00%
Tier 1 Capital (to Risk
Weighted Assets) 33,468 13.86% 9,662 4.00% 14,493 6.00%
Tier 1 Capital Ratio
(to Average Assets) 33,468 10.42% 12,853 4.00% 16,067 5.00%
The Bank
As of December 31, 1997
Total Capital (to Risk
Weighted Assets) 39,481 14.86% 21,261 8.00% 26,576 10.00%
Tier 1 Capital (to Risk
Weighted Assets) 36,731 13.82% 10,631 4.00% 15,946 6.00%
Tier 1 Capital Ratio
(to Average Assets) 36,731 10.50% 13,475 4.00% 16,644 5.00%
As of December 31, 1996
Total Capital (to Risk
Weighted Assets) 36,226 15.05% 19,263 8.00% 24,078 10.00%
Tier 1 Capital (to Risk
Weighted Assets) 33,742 14.01% 9,631 4.00% 14,447 6.00%
Tier 1 Capital Ratio
(to Average Assets) 33,742 10.51% 12,842 4.00% 16,052 5.00%
</TABLE>
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 re-
flect the extent of involvement the Bank has in particular classes of financial
instruments.
The Bank's exposure to credit loss in the event of nonperformance by the
counterparty to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those in-
struments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may re-
quire payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily rep-
resent future cash requirements. The Bank had approximately $27,643,000 and
$23,810,000 in commitments to extend credit at December 31, 1997 and 1996, re-
spectively. The Bank evaluates each customer's credit worthiness on a case-by-
case basis. The amount of collateral obtained if deemed necessary by the Bank
upon extension of credit is based on management's credit evaluation of the cus-
tomer. Collateral held varies, but may include accounts receivable, inventory,
property, plant and equipment, residential real estate and income-producing
commercial properties.
31
<PAGE>
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, includ-
ing commercial paper, bond financing and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The collateral varies but may in-
clude accounts receivable, inventory, property, plant and equipment and resi-
dential real estate for those commitments for which collateral is deemed neces-
sary. The Bank had approximately $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.
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 equiva-
lents $ 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>
32
<PAGE>
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 liabili-
ties 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 trans-
fers and servicing of financial assets and extinguishments of liabilities oc-
curring 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 Cer-
tain 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 adop-
tion 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 state-
ment also requires that all items that are required to be recognized under ac-
counting standards as components of comprehensive income be reported in a fi-
nancial 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 is-
sued SFAS No. 131, Disclosures about Segments of an Enterprise and Related In-
formation (SFAS 131), which establishes standards for the way that public busi-
ness enterprises report information about operating segments in annual finan-
cial 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 prod-
ucts and services, geographic areas, and major customers. This statement re-
quires the reporting of financial and descriptive information about an enter-
prise's reportable operating segments.
This statement is effective for financial statements for periods beginning af-
ter December 15, 1997. In the initial year of application, comparative informa-
tion for earlier years is to be restated. The Company believes that the adop-
tion of SFAS 131 will not have a significant impact on its financial statements
and disclosures as it operates in only one reportable segment--commercial bank-
ing. While the Company is segmented by geographic divisions for managerial pur-
poses, 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 Pen-
sions, SFAS 88, Employers' Accounting for Settlements and Curtailments of De-
fined Benefit Pension Plans and for Termination Benefits, and SFAS 106, Employ-
ers' 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.
33
<PAGE>
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 earn-
ings per share would have been reduced to the pro forma amounts indicated be-
low:
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income As reported $4,002,864 $3,582,841 $3,147,793
Pro forma $3,960,330 $3,554,434 $3,136,196
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 assump-
tions 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 vola-
tility 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 Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year 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
options granted during
the year $ 5.03 $ 3.23 $ 2.31
- ------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
The following table summarizes information about the Plan's stock options at
December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------
Weighted-
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/97 Life Price at 12/31/97 Price
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$6.39 7,500 7.70 years $ 6.39 7,500 $6.39
$7.50 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>
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.
35
<PAGE>
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>
1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
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, respectively;
3,475,146 and 1,781,452 shares issued,
respectively 347,515 178,146
Additional paid-in capital 6,738,602 7,059,591
Net 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)
------------------------
37,232,661 34,185,472
------------------------
Total liabilities and stockholders' equity $37,870,342 $34,719,578
- -------------------------------------------------------------------------------
</TABLE>
* Eliminated in consolidation
36
<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.
37
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC.
CORPORATE OFFICERS
Richard P. Morthland M. Scott Patterson John G. Chisolm
Chairman, Chief Executive Vice Executive Vice
Executive Officer and President Secretary President Assistant
Director Andrew C. Bearden, Secretary
Jr. Virginia L. Sellers
Vice President and
Elam P. Holley, Jr. Executive Vice Treasurer
President, Chief President and Chief
Operating Officer, Financial Officer
and Director Assistant Secretary
THE PEOPLES BANCTRUST COMPANY, INC. AND THE PEOPLES BANK AND TRUST COMPANY --
DIRECTORS
Julius R. Brown A. D. Lovelady DIRECTORS EMERITUS
President Wallace Chairman Lovelady Wallace A. Buchanan
Community College - Construction Company, President
Selma Inc. Buchanan Hardwoods,
Richard P. Morthland Inc.
Clyde B. Cox, Jr. Chairman and Chief
Surgeon Executive Officer The W. Russell Buster,
Peoples Bank and Jr.
Harry W. Gamble, Jr. Trust Company Retired - Bush Hog
Attorney at Law Thomas E. Newton Division Allied
Member - Gamble, Products
Gamble, Calame, and James A. Minter, Jr.
Wilson L.L.C. Senior Partner and Farmer and Ginner
Chairman Newton,
Oldacre, McDonald Rex J. Morthland
Real Estate Chairman Emeritus
Ted M. Henry
Chairman of the Board David Y. Pearce
Henry Brick Company, Catfish Farmer C. S. Wilkinson, Jr.
Inc. C. Ernest Smith Dentist
Mayor of Greenville
Elam P. Holley, Jr. Greenville Shoe Shop
President and Chief B. Frank Wilson
Operating Officer The Julius E. Talton Chairman Emeritus
Peoples Bank and ChairmanTalton
Trust Company Telecommunications
Corp. ChairmanTalton
Edith Morthland Jones Holdings, Inc.
Film Liaison
THE PEOPLES BANK AND TRUST COMPANY -- ADVISORY BOARDS
GREENVILLE BOARD Kermit Stephens, Jr. GEORGIANA BOARD
Alan D. Boan Cahaba Pressure W. Bryant Blackmon
Boan Contracting, Treated Timber Audrey M. Gruenwald
Inc. & Boan Royce Willie
Enterprises, Inc. Brent Industries Daniel W. McDonald
Robert T. Wasden
Robert L. Wilson, Sr.
P. Richard Hartley
Partner - Hartley & PRATTVILLE BOARD
Hickman Attorneys John L. Boutwell
Farmer, Boutwell MCKENZIE BOARD
William S. Johnson Farms Grant Brown
Regional President J. N. Buckner, Jr. Clayton L. Campbell
Attorney at Law John E. Fischer
William B. Lewis Billy Lowery
Speed Auto Supplies, Dwight S. Vickery
Inc. W. Ray Gilliland
Agriculture Broker
Dexter McLendon
McLendon Medical Jeannie R. Johnson WOMEN'S ADVISORY
Supply Farmer/Historian COMMITTEE
Betty Brown
Charles O. Newton Elizabeth K. Buchanan
Newton Oil Company & Reginald Phillips Betty B. Buster
State Representative Bell South Carolyn R. Cox
Molly F. Gamble
Frank E. Thigpen Eddie E. Pope Debe D. Henry
Pharmacist Resident Mill Sandra B. Holley
Manager, Union Camp Dorothy B. Lovelady
Allin Whittle Anne Minter
Principal - W. O. Ann P. Morthland
Parmer Elementary Daniel N. Power Bobbie M. Morthland
School Power Building Fran W. Pearce
Systems Pearle L. Talton
Warren J. Williamson, Jefferson G. Doris Plant Thomas
Jr. Ratcliffe, Jr. Dorothy R. Wilkinson
Special Counselor to Regional President
Governor Fob James
DIRECTORS EMERITUS
Eric O. Cates Jr.
Farmer George P. Walthall,
Jr.
W. J. Williamson Attorney at Law
Senior Partner - DIRECTORS EMERITUS
Williamson and W. Floyd Gilliland
Williamson Retired Farmer
BIBB COUNTY BOARD
John Downs
Alabama Power Company George P. Walthall,
Sr.
Steven Q. Edmonds Retired - USDA Soil
Windwood Inns/Edmond Conservation Service
Enterprises GREENVILLE YOUNG
ADVISORY BOARD
Todd Carpenter
Bobby Leach Carol C. Lee
Regional President William V. Lewis
Terry Mosley
Debbie Martin J. McDonald Russell
Mayor of Landon K. Smith
Centreville/Rockco's Cody Wesley
Funeral Home
William Mayfield
Mayfield Oil Company
J. W. Oakley, Jr.
Journalism
Professor -
University of
Alabama
Walter Owens
State Farm Agent
38
<PAGE>
THE PEOPLES BANK AND TRUST COMPANY -- OFFICERS
DALLAS COUNTY Dawn Stolz
DIVISION Assistant Vice BUTLER SQUARE BRANCH
SELMA MAIN OFFICE President
Gary L. Lewis
*Richard P. Morthland Bruce M. Till Consumer Loan Officer
Chairman and Chief Assistant Vice
Executive Officer President and
Assistant Loan Review
Officer
Sharon W. Raybon
Assistant Cashier and
*Elam P. Holley, Jr. Branch Manager
President and Chief
Operating Officer Peggy M. Allison
GEORGIANA BRANCH
Business Development
*Andrew C. Bearden, Harry D. Poole, Jr.
Jr. Janice P. Barton Assistant Vice
Executive Vice Real Estate President and Branch
President and Chief Operations Officer Manager
Financial Officer
Retail/Operations
Division Manager
Wanda H. Burns Nell M. Lee
Assistant Personnel Assistant Cashier and
Officer Assistant Branch
Manager
*John G. Chisolm
Executive Vice C. Todd Dawson
President Commercial
Division Manager
Consumer Loan Officer MCKENZIE BRANCH
Kathryn T. Harrison Myra L. Fischer
*M. Scott Patterson Brokerage Officer Vice President and
Executive Vice- Branch Manager
President and
Investment Officer
Financial Services
Division Manager and
Secretary
Troy C .Harvill
Commercial Loan PRATTVILLE/MILLBROOK
Officer DIVISION
PRATTVILLE MAIN
Mac W. Martin OFFICE
Training Officer
James C. Harris
OFFICERS
Senior Vice President Beverly W. Ingram
and Operations
Officer
Administrative *Jefferson G.
Officer Ratcliffe, Jr.
Regional President
W. Forrest Hatfield Thomas P. Wilbourne
Senior Vice Assistant Accounting M. Paul Daffin
President, Credit Officer Vice President Real
Officer and CRA Estate
Officer
Jan S. Williamson
Assistant Operations Sara F. Lolley
Gary M. Pierson Officer and Branch Vice President
Senior Vice President Administrator
and Trust Officer
Lawrence D. Vickers
MALL BRANCH Vice President
C. Crenshaw
Pritchett, III
Deborah W. Donald E. Clayton
Senior Vice President Middlebrooks Assistant Vice
President and
Mortgage Loan Officer
Assistant Cashier and
Terry L. Pritchett Branch Manager
Senior Vice President
and Auditor
WAL-MART BRANCH Kenny F. Hubbard
Assistant Vice
Lynn D. Swindal Shirley U. Holmes President
Senior Vice President Assistant Cashier and
Branch Manager
David W. Lewis
Thomas R. Brumley
Loan Officer
Vice President BIBB COUNTY DIVISION
CENTREVILLE OFFICE PRATTVILLE EAST
N. P. Chesnut BRANCH
Vice President *Bobby Leach
Regional President Thomas J. Gay
B. Wayne Middlebrooks
Senior Vice President
Vice President Faye M. Brazier
Vice President William T. Alexander
William C. Porter
Vice President
Vice President and J. Gregory Suttle
Mortgage Loan Officer
Assistant Vice ELMORE COUNTY
President
MILLBROOK OFFICE
*Virginia L. Sellers
Vice President and Rhonda K. Cook Tonya Maynard
Treasurer Loan Officer Loan Officer
Julie M. Simmons BUTLER COUNTY SHELBY COUNTY
Vice President and DIVISION DIVISION
Investment Officer GREENVILLE MAIN MONTEVALLO OFFICE
OFFICE
Phillip R. Wheat
*Michael A. Truelove
Vice President and *William S. Johnson Regional President
Automations Officer Regional President
J. Ronald Edwards Joby Norman
Assistant Vice Vice President
President and
Assistant Loan Review
Officer
Margie B. Kelley
Assistant Vice
President and Branch
Administration
Wesley R. Heaton
Marketing Officer
Al Landwehr
Martha S. Hughes Vice President and
Assistant Vice Loan Officer
President and
Personnel Officer
Linda S. Roberts
Assistant Vice
President and
Assistant Trust
Officer
John H. Seale
Assistant Vice
President
*Executive Officer
39
<PAGE>
PEOPLES AGENCY, INC. D/B/A PEOPLES INSURANCE AGENCY -- OFFICERS
Claude D. Anderson Kenneth T. Perdue
President Vice President
LOAN EXPRESS, INC. -- OFFICER
Brent Page
President
THE PEOPLES BANK AND TRUST COMPANY BRANCHES AND LOCATIONS
DALLAS COUNTY AUTAUGA COUNTY BIBB COUNTY
BUTLER COUNTY ELMORE COUNTY
Centreville Main Office Millbrook Office
Selma Main Office
Prattville Main Office Greenville Main Office
125 Hazel Avenue 3891 Highway 14
310 Broad Street
148 East Main Street 300 East Commerce Street
Centreville, Alabama 35042 Grandview Pines
Selma, Alabama 36703 Shopping Center
Prattville, Alabama 36067
205/926-4810 Greenville, Alabama 36037
334/875-1000 334/365-8806 334/382-6623
Fax 205/926-7058 Millbrook, Alabama
Fax 334/875-1010 36054
Fax 334/361-3022
Fax 334/382-5048
334/285-0169
Selma Mall Branch
Prattville East Branch Butler Square Branch
1309 Highway 80 East
1805 East Main Street 122 Greenville Bypass
Selma, Alabama 36703
Prattville, Alabama 36066 Greenville, Alabama 36037
334/418-8400 334/365-8806 334/382-6623
Satterfield Plaza Branch
Prattmont Branch Georgiana Branch
1805 West Dallas Avenue
801 South Memorial Drive 230 Miranda Street
Selma, Alabama 36701
Prattville, Alabama 36066 Georgiana, Alabama 36033
334/875-1011 334/365-8806 334/376-2273
Plantersville Branch
Winn Dixie Marketplace Branch McKenzie Branch
Highway 22 North
699 East Main Street Intersection Hwy. 31 and 55
Plantersville, Alabama 36758
Prattville, Alabama 36067 McKenzie, Alabama 36456
334/366-5544 334/361-3210 334/374-2361
WalMart Branch
1501 Highland Avenue
Selma, Alabama 36703
334/418-8462
40
<PAGE>
IN MEMORY OF
EARL BENNETT
1910 - 1998
Earl Bennett, respected businessman and politician, died February 10, 1998.
For more than twenty years, Mr. Bennett worked not only in the town of McKenzie
as a businessman, but also for its citizens, serving as City Councilman for
three terms.
In addition to serving many years on the McKenzie Advisory Board of The Peoples
Bank and Trust Company, he was also a Trustee of McKenzie High School and an
active member in the Kiwanis Club. He was a member of The Bethel Primitive Bap-
tist Church in McKenzie where he served as deacon.
Mr. Bennett is survived by his wife, Lela Mae, and three daughters.
LOGO
41
<PAGE>
MISSION STATEMENT
The Peoples Bank and Trust Company is owned by
stockholders and managed for the long-range profit of
its stockholders. The bank, in addition, has a quasi
public trust to financial and other sectors for the
betterment of the community served by the bank. The
long-run interest of the stockholders and the rest of
the public should coincide. The bank is a retail
financial institution. The customer base is the sole
continuing source of profits. Understanding, using, and
building in the interest of that customer base ensures
the attainment of the objectives of the bank. Serving
the needs and the conveniences of our customer base is
accomplished by the efforts, abilities and dedication
of those employed by the bank. The bank, therefore, has
an obligation to its people. Meeting the long-run
interest of our shareholders, fulfilling public trust,
serving our customer base, and loyalty to the employees
of the bank are, we believe, what is meant by the
slogan, "People Make the Difference."
42
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
Subsidiaries Percentage Owned (1) State of Incorporation
- ------------ --------------------- ----------------------
<S> <C> <C>
The Peoples Bank and Trust Company 100% Alabama
The Peoples Agency, Inc. (2) 100% Alabama
Loan Express, Inc. (2) 100% Alabama
</TABLE>
- ----------
(1) At December 31, 1997.
(2) Second-tier subsidiary, 100% owned by The Peoples Bank and Trust Company.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
The Peoples BancTrust Company, Inc. on Form S-3 (File No. 33-60935) and Form S-8
(File No. 333-43363) 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, which report is incorporated by reference in
this Annual Report on Form 10-K.
/s/ Coopers & Lybrand LLP
Birmingham, Alabama
March 26, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 13,984
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 6,677
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 69,737
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 258,777
<ALLOWANCE> 2,750
<TOTAL-ASSETS> 361,362
<DEPOSITS> 298,108
<SHORT-TERM> 13,642
<LIABILITIES-OTHER> 4,082
<LONG-TERM> 8,297
0
0
<COMMON> 348
<OTHER-SE> 37,233
<TOTAL-LIABILITIES-AND-EQUITY> 361,362
<INTEREST-LOAN> 22,394
<INTEREST-INVEST> 4,617
<INTEREST-OTHER> 407
<INTEREST-TOTAL> 27,418
<INTEREST-DEPOSIT> 11,063
<INTEREST-EXPENSE> 11,765
<INTEREST-INCOME-NET> 15,653
<LOAN-LOSSES> 1,732
<SECURITIES-GAINS> 78
<EXPENSE-OTHER> 12,100
<INCOME-PRETAX> 5,958
<INCOME-PRE-EXTRAORDINARY> 5,958
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,033
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.17
<YIELD-ACTUAL> 4.71
<LOANS-NON> 1,701
<LOANS-PAST> 0
<LOANS-TROUBLED> 69
<LOANS-PROBLEM> 9,086
<ALLOWANCE-OPEN> 2,484
<CHARGE-OFFS> 2,102
<RECOVERIES> 636
<ALLOWANCE-CLOSE> 2,750
<ALLOWANCE-DOMESTIC> 2,750
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
