<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
-------------------------
(MARK ONE)
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: O-13653
THE PEOPLES BANCTRUST COMPANY, INC.
-----------------------------------
(Exact name of registrant as specified on its charter)
Alabama 63-0896239
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
310 Broad Street, Selma, Alabama 36701
- ---------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
(334) 875-1000
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by a check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 of 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter time period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---
As of the close of business on October 30, 1998, 5,148,138 shares of
registrant's Common Stock, par value $.10 per share, were outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
THE PEOPLES BANCTRUST COMPANY, INC., SELMA, ALABAMA
CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
<TABLE>
<CAPTION>
In Thousands
September 30, 1998 December 31, 1997
------------------------ ----------------------
<S> <C> <C>
ASSETS:
Cash and due from banks $ 22,747 $ 16,322
Federal funds sold and securities purchased under
Agreements to resell 8,062 9,477
------------ -----------
Total cash and cash equivalents 30,809 25,799
Securities available-for-sale 142,056 107,009
Loans, net of unearned income 325,574 305,733
Allowance for loan losses (4,198) (3,445)
------------ -----------
Net loans 321,376 302,288
Premises and equipment 10,227 8,023
Intangibles 10,118 666
Other real estate, net 548 398
Other assets 10,423 9,644
------------ -----------
Total assets $ 525,557 $ 453,827
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Noninterest-bearing deposits $ 56,116 $ 64,286
Interest-bearing deposits 381,801 310,595
------------ -----------
Total deposits 437,917 374,881
Federal funds purchased and securities sold under
Agreement to repurchase 6,741 13,642
Other borrowed funds 17,643 8,797
Other liabilities 7,189 4,500
------------ -----------
Total liabilities 469,490 401,820
Common stock 519 519
Additional paid-in capital 6,286 6,568
Treasury stock (637) (1,136)
Retained earnings 48,843 46,098
Accumulated other comprehensive income,
Net of tax 1,056 (42)
------------ -----------
Total stockholders' equity 56,067 52,007
------------ -----------
Total liabilities and stockholders' equity $ 525,557 $ 453,827
============ ===========
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
1
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC., SELMA, ALABAMA
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
In Thousands, except share and per share data
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- ----------------------------
1998 1997 1998 1997
---- ---- ---- ----
(restated) (restated)
<S> <C> <C> <C> <C>
Interest and fees on loans $ 8,422 $ 6,909 $ 23,124 $ 19,748
Interest and dividends on investment securities 2,112 1,753 5,874 5,361
Other interest income 258 106 1,102 299
--------- --------- --------- ---------
Total interest income 10,972 8,768 30,100 25,408
Interest on deposits 4,297 3,503 12,335 10,286
Interest on borrowed funds 352 159 896 516
--------- --------- --------- ---------
Total interest expense 4,649 3,662 13,231 10,802
--------- --------- --------- ---------
Net interest income 6,143 5,106 16,869 14,606
Provision for loan losses 745 387 1,692 1,193
--------- --------- --------- ---------
Net interest income after provision for
Loan losses 5,398 4,719 15,177 13,413
Net securities gains 106 20 143 47
Other income 1,675 1,456 4,521 3,995
Other expense 5,112 3,976 13,917 11,277
--------- --------- --------- ---------
Income before income taxes 2,067 2,219 5,924 6,138
Provision for income taxes 636 621 1,871 1,828
--------- --------- --------- ---------
Net income $ 1,431 $ 1,598 $ 4,053 $ 4,310
========= ========= ========= =========
Basic weighted average number of
Shares outstanding 5,147,790 5,099,182 5,139,778 5,099,182
Diluted weighted average number of shares
Outstanding 5,165,135 5,137,910 5,162,342 5,128,333
Basic net income per share $ 0.28 $ 0.31 $ 0.79 $ 0.85
========= ========= ========= =========
Diluted net income per share $ 0.28 $ 0.31 $ 0.79 $ 0.84
========= ========= ========= =========
Dividends per share $ 0.08 $ 0.08 $ 0.24 $ 0.23
========= ========= ========= =========
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
2
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC., SELMA, ALABAMA
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
In Thousands
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income $1,431 $1,598 $4,053 $4,310
Other comprehensive income, net of tax:
Unrealized gains (losses) arising during period 858 402 955 9
Less: reclassification adjustment for gains
included in net income 106 20 143 47
------ ------ ------ ------
Other comprehensive income 964 422 1,098 56
Comprehensive income $2,395 $2,020 $5,151 $4,366
====== ====== ====== ======
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
THE PEOPLES BANCTRUST COMPANY, INC., SELMA, ALABAMA
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
In Thousands
(Unaudited)
Nine Months Ended September 30,
-----------------------------------
1998 1997
--------------- ----------------
(restated)
<S> <C> <C>
Net cash provided by operating activities $ 27,823 $ 7,006
Cash flows from investing activities
Proceeds from sales of securities available for sale 29,010 13,942
Proceeds from maturities and calls of securities
available for sale 32,563 18,688
Purchase of securities available for sale (67,683) (22,184)
Net increase in loans (3,478) (13,959)
Purchases of bank premises and equipment (1,420) (1,269)
Proceeds from sale of bank premises and equipment 248 368
Investment in low income housing projects (712) (676)
Investment in other real estate and equipment (269) 0
Investment in Merchants & Planters (net) (10,317) 0
Other 0 157
-------- --------
Net cash used by investing activities (22,058) (4,933)
Cash flows from financing activities
Net increase (decrease) in deposits 6,885 (747)
Net decrease in borrowed funds (6,485) (864)
Dividends paid (1,373) (1,056)
Stock options exercised 218 0
-------- --------
Net cash used by financing activities (755) (2,667)
Net increase (decrease) in cash and cash equivalents 5,010 (594)
Cash and cash equivalents at beginning of period 25,799 25,048
-------- --------
Cash and cash equivalents at September 30 $ 30,809 $ 24,454
Supplemental disclosure of clash information:
Cash paid during the period for:
Interest $ 12,555 $ 10,441
Taxes $ 1,558 $ 1,672
</TABLE>
See Notes to the Unaudited Condensed Consolidated Financial Statements
3
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC. AND SUBSIDIARY
Notes to the Unaudited Condensed Consolidated Financial Statements (Unaudited)
Accounting Policies:
The accompanying unaudited consolidated financial statements of The
Peoples BancTrust Company, Inc, (the "Company") and its subsidiary, The Peoples
Bank and Trust Company, have been prepared in accordance with generally accepted
accounting principles for interim information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. All interim amounts are subject to
year-end audit, and the results of operations for the interim periods herein are
not necessarily indicative of the results that may be expected for the year
ending December 31, 1998. For further information refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997.
Commitments and Contingencies:
The Company and its subsidiaries are from time to time defendants in
legal actions arising from normal business activities. Management does not
anticipate that the ultimate liability arising from litigation outstanding at
September 30, 1998, will have a materially adverse effect on the Company's
financial statements.
Comprehensive Income:
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130, Reporting Comprehensive
Income ("SFAS 130"). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. This Statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Comprehensive
income includes all changes in equity during a period, excluding investments by
and distributions to stockholders. As a result of implementing SFAS 130, the
Company recorded other comprehensive income (loss), net of income taxes, of
$1,098,000 and $56,000 for the nine months ended September 30, 1998 and 1997,
respectively. These amounts had previously been reported as a direct change in
shareholders' equity and relate to the change in unrealized gains (losses) on
securities available for sale.
Segment Reporting:
In June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, Disclosures About Segments of a Business Enterprise and
Related Information ("SFAS 131"). SFAS 131, effective for fiscal years beginning
after December 15, 1997, establishes standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. Early application is permitted, but is
not required, and comprehensive information for interim periods in the initial
year of application must be reported in statements for interim periods in the
second year of application.
The Company believes that the adoption of SFAS 131 will not have a
significant impact on its financial statements and disclosures as it operates in
only one reportable segment-commercial banking.
Pensions and Other Postretirement Benefits:
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, Employers' Disclosures About Pensions and Other
Postretirement Benefits ("SFAS 132"). SFAS 132, effective for fiscal years
beginning after December 15, 1997, standardizes the disclosure requirements for
pensions and other postretirement benefits, eliminates certain disclosures, and
requires additional information on changes in the benefit obligations and
4
<PAGE>
fair values of plan assets. Restatement of disclosures for previous periods is
required. The Company had experienced no effect from SFAS 132 at September
30,1998
Derivatives and Hedging Activities:
In June 1998, the FASB issued Statement of Financial Accounting
Standards No. 133, Accounting for Derivative Instruments and Hedging Activities
("SFAS 133"). SFAS 133, effective for all fiscal quarters of fiscal years
beginning after June 15, 1999, establishes accounting and reporting for
derivative instruments, including certain derivative instruments embedded in
other contracts, (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. It also establishes the condition under which a
derivative should be designated as hedging a specific type of exposure and
requires the company to establish at the inception of the hedge the method and
measurement approach used to assess its effectiveness.
The Company does not believe the adoption of SFAS 133 will have a
significant impact on its financial statements and disclosures.
Mortgage-Backed Securities
In October 1998, the FASB issued statement of Financial Accounting
Standards No. 134, Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise
("SFAS 134"). SFAS 134 requires that after an intity tht is engaged in mortgage
banking activities has securitized mortgage loans that are held for sale, it
must classify the resulting retained mortgage-backed securities or other
retained interests based on its ability and intent to sell or hold those
investments. However, a mortgage banking enterprise must classify as trading any
retained mortgage-backed securities that it commits to sell before or during the
securitization process. SFAS 134 conforms (1) the accounting for securities that
have been retained after the securitization of mortgage loans by a mortgage
banking enterprise with (2) the accounting for securities that have been
retained after the securitization of other types of assets by a non-mortgage
banking enterprise.
The Company does not believe the adoption of SFAS 134 will have a
significant impact on its financial statements and disclosures.
Business Combinations:
On March 6, 1998, the Company completed its acquisition of Merchants &
Planters Bancshares, Inc. ("M&P"). In the acquisition, shareholders of M&P
received $949.38 in cash for each outstanding share of M&P common stock (total
consideration of approximately $20,085,000). The combination was accounted for
as a purchase, with the purchase price allocated as follows:
(in thousands)
--------------
Cash and cash equivalents $ 9,768
Securities available-for-sale 29,258
Loans, net 27,703
Premises and equipment 1,733
Intangibles 9,679
Other assets 632
Deposits (56,151)
Other borrowed funds (606)
Other liabilities (1,931)
--------
Cash paid $ 20,085
========
5
<PAGE>
The results of operations of M&P subsequent to the acquisition date are
included in the Company's consolidated statements of income. The following pro
forma information reflects the Company's consolidated results of operations as
if the acquisition occurred at January 1, 1997:
In Thousands, except per share data
Nine Months Ended September 30,
--------------------------------------------
1998 1997
---- ----
Net interest income $ 17,089 $ 15,549
Net income $ 3,896 $ 4,272
Diluted earnings per share $ .75 $ .83
On July 31, 1998, Elmore County Bancshares, Inc. ("Elmore County"),
headquartered in Tallassee, Alabama, was merged with and into the Company. Under
terms of the merger, the Company issued 1,711,794 of the Company's common stock
to Elmore County shareholders. Elmore county and it wholly-owned subsidiary, The
Bank of Tallassee, had total assets of $91,023,000 as of July 31, 1998. This
merger was accounted for as a pooling of interests and the financial statements
have been restated accordingly. Separate results of the Company and Elmore
County are presented below.
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended Nine Months Ended Nine Months Ended
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Net interest income
The Company $5,963,000 $3,930,000 $13,889,000 $11,315,000
Elmore County $207,000 $1,176,000 $2,980,000 $3,291,000
---------- ---------- ----------- -----------
As currently reported $6,143,000 $5,106,000 $16,869,000 $14,606,000
Net income
The Company $1,028,000 $1,067,000 $2,598,000 $3,015,000
Elmore County $403,000 $531,000 $1,455,000 $1,295,000
-------- ---------- ---------- ----------
As currently reported $1,431,000 $1,598,000 $4,053,000 $4,310,000
</TABLE>
6
<PAGE>
Earning Per Share:
The following table reflects the reconciliation of the numerator and
denominator of the basic EPS computation to the diluted EPS computation for the
quarter and nine months ended September 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998
-------------------------------------------------------------
Basic Diluted
Q-T-D Y-T-D Q-T-D Y-T-D
----- ----- ----- -----
<S> <C> <C> <C> <C>
Net income $ 1,431 $ 4,053 $ 1,431 $ 4,053
Average shares outstanding 5,148 5,140 5,148 5,140
Effect of dilutive securities options 17 23
--------- ---------
Diluted average shares outstanding 5,165 5,162
Earnings per share:
Net income $ 0.28 $ 0.79 $ 0.28 $ 0.79
1997
-------------------------------------------------------------
Basic Diluted
Q-T-D Y-T-D Q-T-D Y-T-D
----- ----- ----- -----
Net income $ 1,598 $ 4,310 $ 1,598 $ 4,310
Average shares outstanding 5,099 5,099 5,099 5,099
Effect of dilutive securities options 39 29
--------- ---------
Diluted average shares outstanding 5,138 5,128
Earnings per share:
Net income $ 0.31 $ 0.85 $ 0.31 $ 0.84
</TABLE>
7
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
GENERAL
The following analysis focuses on the financial condition of the
Company, and should be read in conjunction with the condensed consolidated
financial statements included in this report.
Management's discussion and analysis includes certain forward-looking
statements addressing, among other things, the Company's prospects for earnings,
asset growth and net interest margin. Forward-looking statements are accompanied
by, and identified with, such terms as "anticipates," "believes," "expects,"
"intends," and similar phrases. Management's expectations for the Company's
future necessarily involve a number of assumptions and estimates. Factors that
could cause actual results to differ from the expectations expressed herein are:
substantial changes in interest rates, and changes in the general economy;
changes in the Company's strategies for credit-risk management, interest-rate
risk management and investment activities. Accordingly, any forward-looking
statements included herein do not purport to be predictions of future events or
circumstances and may not be realized.
As discussed in the accompanying Notes to the Unaudited Condensed
Consolidated Financial Statements, the Company completed its acquisition of M&P
on March 6, 1998 and has included the operations and income of M&P in the income
of the Company from the date of purchase.
Additionally, the Company completed its merger with Elmore County
Bancshares, Inc. ("Elmore County") on July 31, 1998. This merger was accounted
for as a pooling of interests, and accordingly, all financial information herein
has been restated.
FINANCIAL CONDITION
Total consolidated assets of the Company and PB&T, totaled $525,557,000
at September 30, 1998, an increase of $71,730,000 from the December 31, 1997
total of $453,827,000. The acquisition of M&P increased total assets by
$81,900,000, whereas total assets net of said acquisition fell by $10,170,000.
The majority of this reduction resulted from a decrease in earning assets.
Earning assets consist of net loans, investment securities available for sale
and federal funds sold and securities purchased under agreement to resell. On
September 30, 1998, earning assets totaled $471,494,000 as compared to
$418,774,000 at December 31, 1997. Excluding the M&P purchase, the Company's
earning assets declined $12,001,000. Significantly lower loan origination
coupled with a reduction in short term investments, ws the main reason for this
fall in earning assets.
Investments
Total investments were $142,056,000 at September 30, 1998 as compared
to $107,009,000 at December 31, 1997. Excluding M&P, the Company's securities
portfolio increased $5,612,000.
At December 31, 1997 and September 30, 1998, the entire investment
portfolio was classified as "available for sale", resulting in the portfolio
being marked-to-market. At December 31, 1997, the portfolio had a net unrealized
loss of $42,000 as compared to a net unrealized gain of $1,056,000 at September
30, 1998. The investment portfolio of the Company is comprised almost entirely
of investment grade bonds. Due to the conditions in global equity markets over
the last quarter, the value of such investment instruments has risen
significantly, resulting in the sharp increase for the Company in net unrealized
gain on securities available-for-sale.
Short Term Investments
Short term investments (primarily federal funds and securities
purchased under agreements to resell) totaled $8,062,000 at September 30, 1998
as compared to $9,477,000 at December 31, 1997, an increase of $1,415,000. Net
of M&P, short-term investments decreased by $9,000,000. Large fluctuations in
these funds is not unusual, as the relationship between items being paid by the
Company and those items for which the Company is due payment, is constantly
changing. Management closely monitors these funds, seeking alternative uses for
them.
8
<PAGE>
Loans
Loans, net of unearned income, totaled $325,574,000 at September 30,
1998, and $305,733,000 at December 31, 1997. Excluding M&P, this represents a
reduction of $8,312,000. This decrease in loans was primarily due to lighter
loan demand and the January 1998 repayment by customers of several, large
short-term loans taken out at December 31, 1997.
Allowance for Loan Losses
In making loans, the Company recognizes the fact that credit losses
will occur, and that the risk of loss will vary with, among other things, the
type of loan being made and the credit-worthiness of the borrower and the
collateral of the security for the loan. The allowance for loan losses is
maintained at a level believed to be adequate by management to absorb potential
losses in the Company's portfolio.
Management's determination of allowance adequacy is based, among other
things, on estimates of the historical loan loss experience, evaluations of
economic conditions in general and in various sectors of the Company's customer
base, and periodic reviews of loan portfolio quality by the Company's personnel,
and other relevant factors. Generally reserves will be provided for loans where
the ultimate collection is considered questionable by management after reviewing
the current status of loans which are contractually past due, structurally
deficient or economically depreciating, and considering the net realizable value
of the security of the loan or guarantees, if applicable. Management will
continue to monitor the Company's asset quality and will charge off loans
against the allowance for loan losses when appropriate or provide specific loss
reserves when necessary. Because the allowance is based on assumptions and
subjective judgement, it is not necessarily indicative of the actual charge-offs
which may ultimately occur.
The Company's allowance for loan losses totaled $4,198,000 at September
30, 1998 as compared to $3,445,000 at December 31, 1997. The resulting ratios of
allowance to total loans net of unearned interest were 1.29% and 1.13% as of
September 30, 1998 and December 31, 1997, respectively. The acquisition of M&P
caused an increase in the allowance for loan losses of $450,000. The amount of
loans management had identified as requiring special attention due to potential
weaknesses as of September 30, 1998 was $7,091,000. Standing at 2.18% of the
total loan portfolio, management believes the level of classified loans to be
acceptable. At September, 1998, classified loans were as follows: business loans
totaled $3,577,000, agricultural loans totaled, $1,929,000, real estate loans
totaled 849,000 and personal loans totaled.$736,000. Management monitors
fluctuations of the loan portfolio in light of charge-offs and recoveries, as
well as anticipated economic conditions.
Deposits
At September 30, 1998, total deposits had increased $63,036,000 to
$437,917,000 from their December 31, 1997 total. Of this increase, $56,151,000
was realized in the acquisition of M&P, with the deposits of the Company having
increased $6,885,000. At September 30, 1998, interest-bearing deposits totaled
$381,801,000 with non-interest-bearing deposits totaling $56,116,000.
Liquidity
In order to maintain required liquidity levels, the Company has
periodic needs for short-term borrowings. At September 30, 1998, short-term
borrowings in the form of federal funds purchased totaled $6,741,000, as
compared to $13,642,000 at December 31, 1997. The fall in these short-term
borrowings, was primarily due to higher deposit levels and decreased loan
volume. Other borrowed funds increased $8,846,000 to $17,643,000 during the
period. This increase represents borrowings by the Company to fund several large
commercial loans made during 1998. One commonly used measure of liquidity is the
loan to deposit ratio. Expressed as a percent, this ratio illustrates that
portion of the deposit base represented by loans net of unearned income. At
September 30, 1998 the loan to deposit ratio of the Company was 74%.
9
<PAGE>
Stockholders' Equity
Total stockholders' equity at September 30, 1998 was $56,067,000
compared to $52,007,000 at December 31, 1997. The $4,060,000 increase was
primarily attributable to year-to-date earnings of $4,053,000 combined with an
increase in unrealized gain on available for sale securities in the amount of
$1,098,000 and a reduction of $1,373,000 for common stock dividends.
Risk-based capital regulations require all bank holding companies and
banks to achieve and maintain a minimum total capital to risk-weighted assets
ratio of 8.00%, at least half of which must be in the form of Tier 1 capital
(consisting of stockholders' equity less goodwill). The following table
indicates the Company's Tier 1 capital ratio and total capital ratio at
September 30, 1998 were 12.91% and 14.08%, respectively. The Company maintained,
at September 30, 1998, a leverage ratio of Tier 1 capital to total assets of
9.61% compared to the minimum regulatory standard of 4.00% required of the
strongest companies and banks. In addition, the table indicates that the ratios
of the Company's subsidiary bank also well exceed the minimum requirements of
the regulation.
<TABLE>
<CAPTION>
Risk-Based Capital Ratios & Leverage Ratios
As of September 30, 1998
-----------------------------------------------------------
Dollars in Thousands
RISK-BASED CAPITAL RATIOS
- -------------------------
The Company Bank
---------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
Tier 1 Capital $ 44,897 12.91% $ 44,823 13.08%
Tier 1 Capital - Minimum Required 13,911 4.00% 13,703 4.00%
----------- -------- ----------- ----------
Excess $ 30,986 8.91% $ 31,120 9.08%
Total Capital $ 48,970 14.08% $ 49,021 10.18%
Total Capital - Minimum Required 27,823 8.00% 27,406 8.00%
----------- -------- ----------- ----------
Excess $ 21,147 6.08% $ 21,615 2.18%
Net risk-weighted assets $ 347,783 $ 342,577
LEVERAGE RATIOS
- ---------------
Total Tier 1 Capital $ 44,897 9.61% $ 44,823 9.59%
Minimum Leverage Requirement 18,695 4.00% 18,697 4.00%
----------- -------- ----------- ----------
Excess $ 26,202 5.61% $ 26,126 5.59%
Average Total Assets,
Net of all intangibles $ 467,374 $ 467,434
</TABLE>
RESULTS OF OPERATIONS
Three Months Ended September 30, 1998, Compared to Three Months Ended September
30, 1997
The Company's profitability, like that of many financial institutions,
is dependent to a large extent upon its net interest income. Simply stated, net
interest income is the difference between interest income on interest-earning
assets, such as loans and investments, and interest expense on interest bearing
liabilities, such as deposits and borrowings.
Interest income for the third quarter of 1998 (the "1998 Quarter") was
$10,792,000 compared to $8,768,000 for the same quarter of 1997 (the "1997
Quarter"). The increase of $2,024,000 was due primarily to interest earned on
loans and investments purchased in the M&P acquisition.
Interest income on investments totaled $2,112,000 for the 1998 Quarter
compared to $1,753,000 for the 1997 Quarter. This increase was due entirely to
higher volume, mainly from the M&P acquisition, as the yield on these securities
has declined since September 30, 1997.
10
<PAGE>
Interest earned on the Company's loan portfolio totaled $8,422,000 for
the 1998 Quarter, as compared to $6,909,000 for the 1997 Quarter. While the
yield on the loan portfolio has risen slightly, this increase of $1,513,000 was
mainly due to increased loan volume attributable to the M&P purchase.
The amount of interest paid on deposits during the 1998 Quarter totaled
$4,297,000. This represents an increase of $794,000 over the 1997 Quarter, when
interest paid on deposits totaled $3,503,000. As the rate of interest paid on
these deposits was slightly lower in the 1998 Quarter, the increased cost was
due entirely to higher volumes of interest bearing deposits, again attributable
to M&P.
Non-interest income for the 1998 Quarter totaled $1,675,000 as compared
to $1,456,000 for the 1997 Quarter. The M&P acquisition accounted for the
majority of the $88,000 increase in this category.
Non-interest expenses increased $1,136,000 to $5,112,000 for the 1998
Quarter from $3,976,000 for the 1997 Quarter. Expenses associated with opening
two new branches in the 1998 Quarter, along with non-recrruing merger related
expenses of approximately $341,000 accounted for the majority of the increase.
Also contributing to this increase were additional operating expenses associated
with the M&P acquisition.
Income before taxes for the 1998 Quarter was $2,067,000, compared to
$2,219,000 for the 1997 Quarter. Net income after tax for the 1998 Quarter
totaled $1,431,000, a decrease of $167,000 from the 1997 Quarter total of
$1,598,000. Additional expenses associated with the M&P acquisition, include
intangible asset amortization, along with professional fees and other
non-recurring charges related to the Elmore County acquisition, accounted for
the majority of the decrease in earnings for the 1998 Quarter. Earnings per
share for the 1998 Quarter were $.28, compared to $.31 for the 1997 Quarter.
Nine Months Ended September 30, 1998 Compared to Nine Months Ended September 30,
1997
Interest income for the nine months ended September 30, 1998 totaled
$30,100,000, an increase of $4,692,000 from its September 30, 1997 level of
$25,408,000. Interest earned on loans and investments purchased with M&P
contributed greatly to the increase.
Interest income on the Company's investment securities portfolio for
the nine months ended September 30, 1998 totaled $5,874,000, or an average
annual yield of 5.92%. For the nine months ended September 30, 1997, income from
investment securities totaled $5,361,000, or a 6.16% average annual yield. Upon
acquisition, a substantial portion of the M&P investment portfolio was
liquidated. The remaining M&P investment portfolio was combined with the
Company's investments, and primarily accounted for the increase in investment
income.
Interest income on the Company's loans totaled $23,124,000 for the nine
months ended September 30, 1998. For the same period 1997, interest income on
loans totaled $19,748,000. Average volume of loans for the nine months ended
September 30, 1998 was $310,309,000, yielding a 9.94% return. For the same
period 1997, the average volume of loans was $267,694,000, earning a yield of
9.84%. This increase in interest income on loans was the result of both
increased loan volume, resulting from the M&P acquisition, and a slightly higher
rate of return on the total portfolio.
Interest expense on interest-bearing deposits for the nine months ended
September 30, 1998 totaled $12,335,000, or an average cost for deposits equal to
4.52%. For the same period 1997, interest expense on deposits totaled
$10,286,000, or an average cost equal to 4.58%. The average balances of
interest-bearing deposits for the nine months ended September 30, 1998 and 1997
were $363,728,000 and $299,797,000 respectively. Increased interest-bearing
deposit volume as a result of the M&P acquisition accounts for the $2,049,000
increase in interest expense on deposits, as the rate paid for these deposits
declined slightly from 1997 to 1998.
The resulting net interest income of the Company for the nine months
ended September 30, 1998 totaled $16,869,000, an increase of $2,263,000 over net
interest income for the same period 1997 of $14,606,000.
Provision for loan losses for the nine months ended September 30, 1998
totaled $1,692,000 as compared to $1,193,000 for the 1997 Quarter. The increase
in these charges is the result of holding more loans in 1998 than in
11
<PAGE>
1997, increasing the amount of loans ultimately charged off. These are charges
made against net interest income, and applied to the allowance for loan losses.
See"--Financial Condition--Allowance for Loan Losses" above.
During the nine months ended September 30, 1998, non-interest income
totaled $4,521,000 as compared to $3,995,000 for the same period 1997.
Non-interest income realized as a result of the M&P acquisition accounted for a
major portion of the $526,000 increase in this category. Expansion of the
Company's fee structure and marketing efforts are other factors contributing to
the increase in non-interest income.
At September 30, 1998 non-interest expense for the nine months then
ended totaled $13,917,000 as compared to $11,277,000 for the 1997 Quarter. A
significant portion of this $2,640,000 increase over 1997 was attributable to
non-recurring expenses associated with the acquisition of M&P and the merger
with Elmore County, including professional fees, overtime salaries for
operations personnel and a salary continuation buyout. The amortization of
intangible assets acquired in the M&P purchase, along with the added expense of
administering the new facilities and staffing them, also contributed to the
increase in the non-interest expense category. Other contributing factors
included expenses associated with building repair and refurbishment and the
opening of two new offices.
For the nine months ended September 30, 1998, income before taxes
totaled $5,924,000 compared to $6,138,000 for the 1997 Quarter. The income tax
provision for the nine months ended September 30,1998 totaled $1,871,000,
compared to $1,828,000 for the same period 1997. The resulting net income at
September 30, 1998 for the nine months then ended totaled $4,053,000 compared to
$4,310,000 for the 1997 Quarter.
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.
Management has implemented a Company-wide initiative for preparing its
systems, applications and equipment for functioning in the year 2000 and beyond.
Most phases of the year 2000 project are substantially complete.
The Company continues to monitor efforts to ready internal systems, to
correct the Year 2000 Problem. Highest priority has been assigned to those
systems determined to be critical to the ongoing operation of the Company.
Programming changes and listing of critical systems, affiliates and equipment
are currently scheduled to be complete by December 31, 1998.
The Company has modified its credit risk assessment to include
consideration of incremental risk that may be faced by the inability of
customers to address the Year 2000 Problem. The Company has developed policies
and procedures to help identify potential customer related risks to the Company,
and to gain a better understanding of how its customers are managing their own
risks associated with the Year 2000 Problem. Additionally, the Company has
implemented a process for assessing the readiness of its major vendors and
affiliates.
Although the Company believes it will be fully compliant, the risk of
system failures cannot be eliminated. Also, the Company cannot guarantee the
performance of third parties as to which it has material relationships. The
Company has not assessed a worst case scenario resulting from the Year 2000
issue, but will do so by December 31, 1998. The Company will review the
implications of this worst case scenario in light of the current plan of action.
This review will cover all areas necessary to maintain the Company's operational
capacity after January 1, 2000, to include customers, suppliers and business
partners.
As part of the plan, an oversight committee has been set up to monitor
vendor Year 2000 compliance, and identify systems and equipment crucial to the
Company's operations. This committee consists of upper management and mission
critical personnel, and reports to the operations committee of the board of
directors. These
12
<PAGE>
systems are being tested to assure they will be able to handle the Year 2000
event, thus minimizing risk to the Company.
As of September 30, 1998, the Company had incurred approximately
$51,000 in direct compliance costs associated with the Year 2000 Problem. The
Company estimates that $350,000 will be the total direct compliance costs
through the Year 2000. The Company does not separately track internal costs
incurred for year 2000 compliance; such costs are primarily related to payroll
expenditures. Funding for such costs has been, and will continue to be derived
from normal operating cash flow.
IMPACT OF NEW ACCOUNTING STANDARDS
See Notes to the Unaudited Condensed Consolidated Financial Statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Interest sensitivity is one measure of the vulnerability of earnings to
changes in the general level of interest rates. Whenever interest-earning assets
reprice to market interest rates at a different pace than interest-bearing
liabilities, interest income performance will be affected favorably or
unfavorably during periods of changes in general interest rates. Management is
unable to predict future changes in market rates and their impact on the
Company's profitability. Management believes, however, that the Company's
current rate sensitivity position is well matched, indicating the assumption of
minimal interest rate risk. Management does not believe there to have been any
material shift in the relationship between the maturity characteristics of
interest-earning assets, and interest-bearing liabilities since December 31,
1997, and, consequently, no change in interest rate risk exposure.
ITEM. 4 Submission of Matters to a Vote of Security Holders
On July 30, 1998 the Company held a Special Meeting of Shareholders to
consider and act upon the approval of the Agreement and Plan of Merger and
Reorganization dated as of December 11, 1997, by and among the Company, PB&T,
Elmore County, and The Bank of Tallassee and the transaction contemplated
thereby, including the merger of Elmore County with and into the Company,
pursuant to which each outstanding share of Elmore County common stock would by
converted into 3.0893 shares of common stock of the Company, with cash paid in
lieu of fractional shares.
For Against Abstain
--- ------- -------
2,813,880 7,195 1,157
There were no broker non-votes.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Management currently is not aware of any material legal proceedings to
which the Company or Peoples Bank is a party, or to which any of their property
is subject, except as follows:
Raymond Lee Moseley, Billy Drayton v. The Peoples Bank and Trust
----------------------------------------------------------------
Company, et al., Circuit Court of Autauga County, Alabama, Civil Action No.
- ----------------
CV-97-169-B. This suit has been settled among the parties on a class action
basis, subject to final approval of the court. On November 9, 1998, an order was
entered granting preliminary approval of the class action settlement, approving
a class action notice, and setting a schedule for consideration of the proposed
settlement at a fairness hearing scheduled for February 5, 1999. Management
believes that it has adequately reserved in the financial statements its
ultimate liability to result from the proposed settlement.
13
<PAGE>
Sara F. Lolley and Rita Carter v. The Peoples BancTrust Company, Inc.,
----------------------------------------------------------------------
The Peoples BancTrust 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 has been settled, and the case dismissed by order of the court dated
October 27, 1998. The terms of the settlement are confidential, and do not
exceed the amount reserved by management for the suit.
William L. Ammons, d/b/a Ammons Construction Company v. Peoples Bank &
----------------------------------------------------------------------
Trust Co., Circuit Court of Dallas County, Alabama, Case No. CV-95-295. This
- ----------
case was filed on October 18, 1995. The plaintiff, a contractor, was
constructing a house for a customer of Peoples Bank who had borrowed
construction monies for that purpose. The Peoples Bank customer sued the
contractor, alleging that he failed to complete the construction. The contractor
contends that Peoples Bank owes funds for the construction to him as a third
party beneficiary. He further alleges misrepresentation by Peoples Bank and
seeks unspecified compensatory and punitive damages. A jury trial is demanded.
Peoples Bank denies the allegations of the complaint. The owner and contractor
are in separate litigation over the same issues, and this case has been put on
administrative hold pending the outcome of that case.
Item 5. Other Information
Effective June 29. 1998, the Securities and Exchange Commission adopted
an amendment to Rule 14a-4 under the Securities Exchange Act of 1934. As
amended, Rule 14a-4(c)(1) relates to the Company's use of its discretionary
proxy voting authority with respect to a shareholder proposal which the
shareholder has not sought to include in the Company's proxy statement. If the
proponent of the proposal fails to notify the Company at least 45 days prior to
the month and day of mailing of the prior year's proxy statement, management
proxies will be allowed to use their discretionary voting authority when the
proposal is raised at the meeting, without any discussion of the matter in the
proxy statement.
With respect to the Company's 1999 Annual Meeting of Shareholders, if
the Company is not provided notice of a shareholder proposal, which the
shareholder has not proviously sought to include in the Company's proxy
statement, by February 3, 1999, management proxies will be allowed to use their
discretionary authority as outlined above.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 27 - Financial Data Schedule (SEC use only)
(b) Current Report on form 8-K dated July 31, 1998, reporting under
items 2 and 7 the acquisition of Elmore County by The Company.
(c) Current Report on form 8-K dated September 15, 1998, reporting
combined financial results of The Company and Elmore County for
eight months ended August 31, 1998.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
The Peoples BancTrust Company, Inc.
Date: November 16, 1998 /s/ Richard P. Morthland
-----------------------------------------
Richard P. Morthland
Chairman and Chief Executive Officer
Date: November 16, 1998 /s/ Andrew C. Bearden
-----------------------------------------
Andrew C. Bearden
Executive Vice President and
Chief Financial Officer
Date: November 16, 1998 /s/ Virginia L. Sellers
-----------------------------------------
Virginia L. Sellers
Vice President and Treasurer
(Principal Accounting Officer)
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 22,747
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<COMMON> 519
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