<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, 1998
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 ($18.50 per share) at which the
stock was sold on March 30, 1999, was approximately $57,832,036. 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 31, 1999, 5,148,138 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, 1998.
Part III:
Portions of the definitive proxy statement for the Annual Meeting of the
Shareholders to be held on April 13, 1999.
<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.
2
<PAGE>
ACQUISITIONS
On March 6, 1998, BancTrust 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 $20,085,000 in cash for the outstanding
shares of common stock of Bancshares. The acquisition was accounted for as a
purchase. The results of operations of Bancshares subsequent to the acquisition
date are included in the Company's consolidated results of operations.
On July 31, 1998, Elmore County Bancshares, Inc. ("Elmore County"),
the holding company for The Bank of Tallassee, headquartered in Tallassee,
Alabama, was merged with and into the Company. Under the terms of the merger,
the Company issued 1,711,794 shares of Common Stock to Elmore County
shareholders. As of July 31, 1998, Elmore County's total consolidated assets
were $91,023,000. The acquisition was accounted for as a pooling of interests
and the consolidated financial statements of the Company have been restated
accordingly.
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,
------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial and industrial................. $116,783 $103,090 $ 91,808 $ 70,950 $ 56,201
Real estate - mortgage(1)................. 120,918 106,222 88,090 73,415 66,079
Personal.................................. 110,306 89,807 86,491 87,295 79,992
Overdrafts and credit line................ 10,786 7,367 5,261 5,158 4,500
-------- -------- -------- -------- --------
Total loans.............................. $358,793 $306,486 $271,650 $236,818 $206,772
======== ======== ======== ======== ========
Less:
Unearned discount........................ $ 2,154 $ 753 $ 2,349 $ 6,389 $ 7,624
Allowance for loan losses................ 4,291 3,446 3,173 2,687 2,722
-------- -------- -------- -------- --------
Total loans, net........................ $352,348 $302,287 $266,128 $227,742 $196,426
======== ======== ======== ======== ========
</TABLE>
__________________
(1) Includes real estate-construction loans.
The above loans include agricultural loans totaling approximately
$21.9 million, $17.1 million, $16.6 million, $15.8 million and $13.7 million at
December 31, 1998, 1997, 1996, 1995 and 1994, 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 6 of Notes to Consolidated Financial
Statements in BancTrust's Annual Report to Stockholders for the year ended
December 31, 1998, which is incorporated herein by reference.
3
<PAGE>
Loan Maturities. The following table reflects at December 31, 1998
---------------
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........... $ 67,384 $17,481 $ 30,325 $ 1,593 $116,783
Real estate-mortgage (1)............ 28,863 19,406 49,131 23,519 120,918
Personal, overdrafts and
credit lines....................... 20,121 23,901 67,645 9,425 121,092
-------- ------- -------- ------- --------
$116,368 $60,788 $147,100 $34,537 $358,793
======== ======= ======== ======= ========
Loans with fixed interest rates..... $ 66,298 $32,300 $126,965 $11,133 $201,783
Loans with variable interest rates.. 50,070 28,488 20,135 23,404 157,010
-------- ------- -------- ------- --------
$116,368 $60,788 $147,100 $34,537 $358,793
======== ======= ======== ======= ========
</TABLE>
(1) Includes real estate-construction loans of $14.7 million, all of which
mature within one year.
Note 6 of Notes to Consolidated Financial Statements in BancTrust's
Annual Report to Stockholders for the year ended December 31, 1998 (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, 1998, commercial and industrial loans outstanding totaled $116.8
million, or 32.55% 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 consist of loans secured by owner-occupied, single-family
residences. At December 31, 1998, BancTrust had $120.9 million, or 33.70% of
its total net loan portfolio, in real estate mortgage loans.
Personal Loans. At December 31, 1998, BancTrust's personal loan
--------------
portfolio totaled $110.3 million, or 30.74% 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.
4
<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, 1998, there were no material amounts of potential problem loans which were
not included in the other three categories of problem loans.
When management determines that a loan no longer meets the criteria
for performing loans and that collection of interest appears doubtful, the loan
is placed on nonaccrual status. All loans which are 90 days past due are
considered nonaccrual, unless they are adequately secured and there is
reasonable assurance of full collection of principal and interest. Management
closely monitors all loans which are contractually 90 days past due,
restructured or on nonaccrual status. These loans are summarized as follows:
<TABLE>
<CAPTION>
At December 31,
------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis................ $3,888 $1,733 $2,048 $1,651 $1,432
Accruing loans which are contractually past due 90 days
or more as to interest or principal payments............ -- -- -- -- --
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...................... 187 69 294 301 275
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...................................... 162 57 77 105 76
The amount of interest income on nonaccrual and
restructured loans that was included in net income for
the period.............................................. 58 26 27 40 22
</TABLE>
Management of BancTrust has identified certain loans totaling
approximately $9.1 million at December 31, 1998 (including loans identified in
the above table) which it has determined require special attention due to
potential weaknesses. The largest five loans aggregated approximately $3.5
million and ranged in size from $574,572 to $799,105. 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.
5
<PAGE>
The following table sets forth BancTrust's potential problem loans at
December 31, 1998 by loan category and the amount and type of collateral
securing such loans.
<TABLE>
<CAPTION>
Loan Category/Collateral Amount
------
(In thousands)
<S> <C>
Commercial and Industrial:
Collateralized by Real Estate................ $3,773
Collateralized by Other (1).................. 2,415
Unsecured.................................... 521
------
Total Commercial and Industrial.............. 6,709
------
Real Estate-Mortgage
Personal:
Collateralized by Real Estate................ 2,168
Collateralized by Other...................... 209
Unsecured.................................... --
------
Total Real Estate-Mortgage................... 2,377
------
Total.................................... $9,086
======
</TABLE>
_________________
(1) Includes approximately $1.9 million of loans collateralized by accounts
receivable, inventory, furniture and fixtures and automobile dealer floor
plans.
Loan Loss Experience. Notes 1 and 6 of Notes to Consolidated
--------------------
Financial Statements contained in BancTrust's Annual Report to Stockholders for
the year ended December 31, 1998 (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.
6
<PAGE>
The following is a summary of activity in the allowance for loan
losses for the periods:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of year.............. $ 3,445,539 $ 3,173,350 $ 2,700,982 $2,721,578 $2,886,807
Charge-offs:
Commercial and industrial................ 1,621,624 345,871 389,700 454,115 387,455
Real estate-mortgage (1)................. 18,887 66,231 39,907 20,300 34,256
Personal................................. 1,738,791 1,974,978 1,892,439 1,355,805 1,086,959
Overdraft and credit line................ 68,083 29,919 56,826 14,226 22,302
----------- ----------- ----------- ---------- ----------
Total charge-offs....................... 3,447,385 2,416,999 2,378,872 1,844,446 1,530,972
Recoveries:
Commercial and industrial................ 523,623 70,831 64,270 86,359 176,259
Real estate-mortgage..................... 96,345 38,182 45,285 20,763 21,747
Personal................................. 737,718 702,026 621,770 785,156 634,000
Overdraft and credit line................ 6,669 11,388 5,725 1,571 4,737
----------- ----------- ----------- ---------- ----------
Total recoveries........................ 1,364,355 822,427 737,050 893,849 836,743
Net charge-offs........................... (2,083,030) (1,594,572) (1,641,822) (964,688) (694,229)
Additions charged to operations........... 2,335,699 1,866,761 2,114,190 930,001 529,000
Addition due to acquisition............... 592,937 -- -- -- --
----------- ----------- ----------- ---------- ----------
Balance at end of year.................... $ 4,291,135 $ 3,445,539 $ 3,173,350 $2,700,982 $2,721,578
=========== =========== =========== ========== ==========
Ratio of net charge-offs to average loans
outstanding, net of unearned
discounts, during the period............. .67% .59% .69% .45% .39%
=========== =========== =========== ========== ==========
</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,
---------------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------- ---------------------------
(Dollars in thousands)
% Amount % Amount % Amount
-- ------ -- ------ -- ------
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial....... 28% $1,201 33% $1,138 26% $ 817
Real estate-mortgage (1)........ 5% 215 16% 552 17% 553
Personal........................ 65% 2,789 50% 1,724 55% 1,752
Overdraft and credit line....... 2% 86 1% 32 2% 51
--- ------ --- ------ --- ------
Total allowance................ 100% $4,291 100% $3,446 100% $3,173
=== ====== === ====== === ======
</TABLE>
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------
1995 1994
------------------ --------------------
(Dollars in thousands)
% Amount % Amount
-- ------ -- ------
<S> <C> <C> <C> <C>
Commercial and industrial....... 34% $ 924 35% $ 959
Real estate-mortgage (1)........ 23% 614 22% 589
Personal........................ 41% 1,103 41% 1,130
Overdraft and credit line....... 2% 45 2% 45
--- ------ --- ------
Total allowance................ 100% $2,687 100% $2,722
--- ====== === ======
</TABLE>
(1) Includes real estate-construction loans.
7
<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, 1998, 1997 and 1996. The following table
sets forth the amount of securities available-for-sale by major categories held
by BancTrust at December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------
1998 1997 1996
---- ---- ----
Securities Available for Sale (In thousands)
- -----------------------------
<S> <C> <C> <C>
U.S. Treasury, U.S. Agencies and corporations.............. $102,781 $ 72,193 $ 79,448
Obligations of states and political subdivisions........... 4,582 12,885 12,553
Corporate and other securities............................. 30,208 22,414 31,827
-------- -------- --------
$137,571 $107,492 $123,828
======== ======== ========
</TABLE>
Corporate and other securities as of December 31, 1998, were comprised
of the following:
<TABLE>
<CAPTION>
Securities Available
For Sale
-----------------------
(In thousands)
<S> <C>
Corporate notes................................. $ 1,116
Collateralized mortgage obligations............. 13,307
Mortgage backed securities...................... 9,851
Mutual funds.................................... 1,952
Common stock.................................... 3,982
$30,208
=======
</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, 1998, 1997 and 1996, see Note 5 of Notes to
Consolidated Financial Statements contained in BancTrust's Annual Report to
Stockholders for the year ended December 31, 1998 (Exhibit No. 13) which is
incorporated herein by reference.
8
<PAGE>
Maturity Distributions of Securities. The following table sets forth the
------------------------------------
distributions of maturities of securities at amortized cost as of December
31, 1998.
<TABLE>
<CAPTION>
Maturity (in years)
------------------------------------------------------------------
No Specific
0-3 Months 4-12 Months Over 1 to 5 Over 5 to 10 Over 10 Due Date
----------- ------------ ------------ ------------- --------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury, U.S. agencies and
corporations.................... $1,785 $7,973 $67,819 $ 7,012 $ -- $ --
Obligations of states and
political subdivisions.......... -- 83 1,940 1,776 57 --
Corporate and other securities... 1,245 605 2,503 11,207 28,322 4,291
------ ------ ------- ------- ------- ------
Total............................ $3,030 $8,661 $72,262 $19,995 $28,378 $4,291
====== ====== ======= ======= ======= ======
Weighted average yield (%)(1).... 5.65% 6.52% 5.91% 5.88% 5.63% 8.40%
====== ====== ======= ======= ======= ======
</TABLE>
(1) Yields on tax-exempt obligations have been computed on a tax-equivalent
basis using an incremental rate of 34%.
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties. For information regarding the amortized cost and
approximate market value of securities at December 31, 1998, by contractual
maturity, see Note 5 of Notes to Consolidated Financial Statements contained in
BancTrust's Annual Report to Stockholders for the year ended December 31, 1998
(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, 1998, BancTrust's total deposits were $460.8 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, 1998.
<TABLE>
<CAPTION>
Certificates of Other Time
Maturity Period Deposit Deposits
- --------------- --------------- -------------
(In thousands)
<S> <C> <C>
Three months or less................................ $ 42,306 $86,807
Over three through six months....................... 34,009 1,994
Over six through twelve months...................... 34,689 2,033
Over twelve months.................................. 36,712 2,152
-------- -------
Total.............................................. $147,716 $92,986
======== =======
</TABLE>
9
<PAGE>
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,
1998 1997 1996
------------------------------------------------------------------
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............................ $ 64,735 --% $ 59,389 --% $ 55,665 --%
Interest bearing demand deposits..... 96,687 2.88% 80,605 3.47% 79,525 3.50%
Savings deposits..................... 44,281 3.00% 35,769 2.86% 37,092 2.85%
Time deposits........................ 228,347 5.43% 184,890 5.44% 173,972 5.49%
-------- -------- --------
Total deposits...................... $434,050 3.80% $360,653 3.85% $346,254 3.87%
======== ======== ========
</TABLE>
COMPETITION
In order to compete effectively, BancTrust relies substantially on local
commercial activity; personal contacts by its directors, officers, other
employees and shareholders; personalized services; and its reputation in the
communities it serves.
BancTrust is presently competing in its market area with four Alabama
holding companies. It also competes with four independent banks, several credit
unions, and various other nonbank financial companies.
The banking business in Alabama generally, and BancTrust's primary service
areas specifically, are highly competitive with respect to both loans and
deposits. BancTrust competes with many larger banks and other financial
institutions which have offices over a wide geographic area. These larger
institutions have certain inherent advantages, such as the ability to finance
wide ranging advertising campaigns and promotions and to allocate their
investment assets to regions offering the highest yield and demand. They also
offer services such as international banking, which are not offered directly by
BancTrust (but could be offered indirectly through correspondent institutions);
and by virtue of their larger total capitalization (legal lending limits to an
individual consumer or corporation are limited to a percentage of BancTrust's
total capital accounts), such banks have substantially higher lending limits
than does BancTrust. Other entities, both governmental and in private industry,
raise capital through the issuance and sale of debt and equity securities and
thereby indirectly compete with BancTrust in the acquisition of deposits.
Under the federal Bank Holding Company Act of 1956 (the "Holding Company
Act"), as amended by the Riegle-Neal Interstate Banking and Branching Efficiency
Act of 1994 (the "Riegle-Neal Act"), Alabama banks and their holding companies
may be acquired by out-of-state banks or their holding companies, and Alabama
banks and their holding companies may acquire out-of-state banks without regard
to whether the transaction is prohibited by the laws of any state. Under the
Riegle-Neal Act and Alabama law, the FRB may not approve the acquisition of a
bank in Alabama if such bank has not been in existence for at least five years
or, if following the acquisition, the acquiring bank holding company and its
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.
10
<PAGE>
EMPLOYEES
As of December 31, 1998, BancTrust employed 314 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, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1998 1997* 1996*
---------------- ---------------- --------------
<S> <C> <C> <C>
Return on assets:
Net income/average total assets.................. 1.02% 1.31% 1.20%
Return on equity:
Net income/average equity........................ 9.68% 11.00% 10.84%
Dividend payout ratio:
Dividends declared per share/net income
per share....................................... 31.86% 28.44% 27.84%
Equity to assets ratio:
Average equity/average total assets.............. 10.50% 11.88% 11.09% m
</TABLE>
* Earnings per share has been restated to reflect 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.
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.
11
<PAGE>
The Change in Bank Control Act and the regulations of the FRB thereunder
require any person or persons acting in concert (except for companies required
to make application under the Holding Company Act), to file a written notice
with the FRB before such person or persons may acquire control of the BancTrust
or Peoples Bank. The Change in Bank Control Act defines "control" as the power,
directly or indirectly, to vote 25% or more of any voting securities or to
direct the management or policies of a bank holding company or an insured bank.
The Holding Company Act also prohibits, with certain exceptions, a bank
holding company from acquiring direct or indirect ownership or control of more
than 5% of the voting shares of a company that is not a bank or a bank holding
company, or from engaging directly or indirectly in activities other than those
of banking, managing or controlling banks, or providing services for its
subsidiaries. The principal exceptions to these prohibitions involve certain
non-bank activities which, by statute or by FRB regulation or order, have been
identified as activities closely related to the business of banking or managing
or controlling banks. The activities of BancTrust and of its non-bank
subsidiaries are subject to these legal and regulatory limitations under the
Holding Company Act and the FRB's regulations thereunder. Notwithstanding the
FRB's prior approval of specific nonbanking activities, the FRB has the power to
order a holding company or its subsidiaries to terminate any activity, or to
terminate its ownership or control of any subsidiary, when it has reasonable
cause to believe that the continuation of such activity or such ownership or
control constitutes a serious risk to the financial safety, soundness or
stability of any bank subsidiary of that holding company.
The FRB has adopted guidelines regarding the capital adequacy of bank
holding companies, which require bank holding companies to maintain specified
minimum ratios of capital to total assets and capital to risk-weighted assets.
See "-- Capital Requirements."
The FRB has the power to prohibit dividends by bank holding companies if
their actions constitute unsafe or unsound practices. The FRB has issued a
policy statement on the payment of cash dividends by bank holding companies,
which expresses the FRB's view that a bank holding company should pay cash
dividends only to the extent that the company's net income for the past year is
sufficient to cover both the cash dividends and a rate of earning retention that
is consistent with the company's capital needs, asset quality, and overall
financial condition.
Bank Regulation. As an Alabama banking institution, Peoples Bank is
---------------
subject to regulation, supervision and regular examination by the Banking
Department. Peoples Bank is a member of the Federal Reserve System and thus is
subject to supervision and regular examination by the FRB under the applicable
provisions of the Federal Reserve Act and the FRB's regulations. The deposits
of Peoples Bank are insured by the FDIC to the maximum extent provided by law (a
maximum of $100,000 for each insured depositor). Alabama and federal banking
laws and regulations control, among other things, Peoples Bank's required
reserves, investments, loans, mergers and consolidations, issuance of
securities, payment of dividends, and establishment of branches and other
aspects of Peoples Bank's operations.
The approval of regulatory authorities is required if the total of all the
dividends declared by the Bank in any calendar year exceeds the Bank's net
income as defined for that year combined with its retained net income for the
preceding two calendar years. The Bank obtained regulatory approval as
applicable for the payment of dividends in 1996.
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
12
<PAGE>
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
1998 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, 1998.
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. 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
13
<PAGE>
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 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,
1998, Peoples Bank was categorized as "well-capitalized."
14
<PAGE>
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, 1998 (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.
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 31, 1999, Peoples Bank maintained 22 branches in Dallas, Autauga,
Butler, Bibb, Elmore, Shelby and Tallapoosa counties, of which 6 are leased.
Peoples Bank operates a loan production office in Lee county, which is leased.
Peoples Bank has applied for and received regulatory approval for the
establishment of a branch located at 1431 Gateway Drive in Opelika, Alabama. It
is anticipated that the aforementioned branch will open in mid 1999.
ITEM 3. LEGAL PROCEEDINGS [TO BE UPDATED]
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:
15
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
Management currently is not aware of any material legal proceedings to
which BancTrust or Peoples Bank is a party or to which any of their property is
subject, except as follows:
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. 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 is seeking unspecified compensatory and punitive damages. Peoples Bank
denies the allegations of the complaint. The owner and contractor were in
separate litigation over the same issues, and this case was put on
administrative hold pending the outcome of that case. This litigation has not
been resumed.
Raymond Lee Moseley, et al. 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 in 1997. The complaint alleged that Peoples
Bank improperly sold credit life insurance and accidental death insurance to the
plaintiff, and sought compensatory and punitive damages in unspecified amounts.
The causes of action alleged included 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
sought 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 denied the allegations of the complaint.
This suit was settled among the parties on a class action basis, subject to
final approval of the court. On November 9, 1998, as 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 on February 5, 1999, at which time the class action settlement
was confirmed by the court. The total cost of the settlement, based on claims
filed and costs of administration to date, as well as anticipated additional
costs, are within the amount reserved in the financial statements.
Certain persons elected to be excluded from the settlement (the "optouts")
and filed separate claims or lawsuits. All of these claims and lawsuits have
been settled for a total cost to Peoples Bank within the amount reserved in
the financial statements. One other optout, George E. Marsh, has filed a lawsuit
which is described below.
George Edward Marsh v. The Peoples Bank and Trust Company, et al., Circuit
----------------------------------------------------------------
Court of Jefferson County, Alabama, Civil Action No. CV-99-1153. This suit was
filed on February 26, 1999, against Peoples Bank and certain other defendants.
The allegations of the complaint are similar to those in the Moseley case
-------
described above, and claim compensatory and punitive damages in unspecified
amounts. In addition to allegations relating to credit life insurance, and
accidental death insurance, the complaint alleges that Peoples Bank wrongfully
issued a writ of garnishment against the plaintiff, after the plaintiff had
taken a Chapter 7 bankruptcy. Peoples Bank denies the allegations of the
complaint.
While Peoples Bank denies liability in each of these cases, 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.
16
<PAGE>
See Note 10 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
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Richard P. Morthland, 57, 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., 48, 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., 52, is currently Executive Vice President -
Operations/Finance Division of Peoples Bank and Executive Vice President and
Chief Financial Officer of BancTrust. Prior to assuming his position as manager
of Operations/Finance Division, Mr. Bearden served as manager of
Retail/Operations Division of Peoples Bank since 1994. Between 1991 and 1994,
Mr. Bearden served as Senior Vice President and Retail Division manager of
Peoples Bank, having served as Vice President and Trust Officer prior to 1991.
Mr. Bearden was in private practice as a certified public accountant prior to
his employment with Peoples Bank in 1985.
JOHN G. CHISOLM, 50, 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, 56, 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.
LYNN W. SWINDAL, 45, is currently Executive Vice President-Retail Division
Manager of Peoples Bank. Mrs. Swindal has been employed with Peoples Bank since
1978, and has held her current position since December of 1998. Prior to coming
to Peoples Bank, Mrs. Swindal was employed at National Bank & Trust Co. in St.
Petersburg, Florida.
VIRGINIA L. SELLERS, 65, 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, 49, 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, 50, 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., 37, 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.
17
<PAGE>
MICHAEL A. TRUELOVE, 36, is currently Regional President of the Shelby
County Division of Peoples Bank. Mr. Truelove joined Peoples Bank in November
of 1996, and assumed his current position in March of 1998. Before joining
Peoples Bank, Mr. Truelove served as Consumer Loan Product Manager for Compass
Bank in Birmingham, Alabama.
DAVID W. BAGGETT, JR., 34, is currently Regional President of the
Tallassee Division of Peoples Bank. Mr. Baggett joined Peoples Bank in July of
1998. Prior to joining Peoples Bank, Mr. Baggett served as President of The
Bank of Tallassee, Tallassee, Alabama.
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", which is incorporated herein by reference to
BancTrust's Annual Report to Stockholders for the year ended December 31, 1998
(Exhibit No. 13).
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 13 of Notes
to Consolidated Financial Statements contained in BancTrust's Annual Report to
Stockholders for the year ended December 31, 1998 (Exhibit 13), which is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Five Year Comparison of
Selected Financial Data" in BancTrust's Annual Report to Stockholders for the
year ended December 31, 1998 (Exhibit No. 13) 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, 1998 (Exhibit No. 13) is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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
18
<PAGE>
December 31, 1998 (Exhibit No. 13) is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
BancTrust's Consolidated Financial Statements together with the related
notes and the report of PricewaterhouseCoopers LLP, independent public
accountants, all as set forth in BancTrust's Annual Report to Stockholders for
the year ended December 31, 1998 (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 24, 1999, and the
information included therein under "Proposal I - 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 24, 1999,
and the Item 405 disclosure therein under "Section 16(a) Beneficial Ownership
Reporting Compliance" 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 24, 1999, and the
information included therein under "Proposal I - Election of Directors" 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 24, 1999, and the information
included therein under "Stock Ownership of Management" and "Principal Holders of
Common Stock" 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 24, 1999, and the information
included therein under "Proposal I - Election of Directors--Compensation
Committee Interlocks and Insider Participation" and "--Certain Transactions" 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,
1998, are incorporated herein by reference in Item 8 of this Report.
19
<PAGE>
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, 1998 and 1997.
3. Consolidated Statements of Income for the Years Ended December
31, 1998, 1997 and 1996.
4. Consolidated Statements of Comprehensive Income for the Years
Ended December 31, 1998, 1997 and 1996.
5. Consolidated Statements of Changes in Stockholders' Equity for
the Years Ended December 31, 1998, 1997 and 1996.
6. Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996.
7. 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 - incorporated herein by reference to
Exhibit 3(i) to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997.
(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 the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992.
20
<PAGE>
Exhibit No. 13. Annual Report to Stockholders
-----------------------------
Except for those portions of the Annual Report to Stockholders for the
year ended December 31, 1998, 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 PricewaterhouseCoopers LLP
Exhibit No. 27. Financial Data Schedule (SEC use only)
(b) None.
(c) Exhibits to this Form 10-K are attached or incorporated by reference
as stated above.
(d) None.
21
<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: April 13, 1999 By: /s/ Richard P. Morthland
--------------------------------
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.
DATE: SIGNATURE AND TITLE:
/s/ Richard P. Morthland
- ------------------------- April 13, 1999
Richard P. Morthland
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ Andrew C. Bearden, Jr.
- ------------------------- April 13, 1999
Andrew C. Bearden, Jr.
Executive Vice President and
Chief Financial Officer
/s/ Virginia L. Sellers
- ------------------------- April 13, 1999
Virginia L. Sellers
Vice President and Treasurer
(Principal Accounting Officer)
*
- ------------------------- April 13, 1999
Julius R. Brown
Director
/s/ Clyde B. Cox, Jr.
- ------------------------- April 13, 1999
Clyde B. Cox, Jr.
Director
/s/ John Crear
- ------------------------- April 13, 1999
John Crear
Director
<PAGE>
/s/ Arnold B. Dopson
- ------------------------- April 13, 1999
Arnold B. Dopson
Director
/s/ Harry W. Gamble, Jr.
- ------------------------- April 13, 1999
Harry W. Gamble, Jr.
Director
/s/ Ted M. Henry
- ------------------------- April 13, 1999
Ted M. Henry
Director
/s/ Elam P. Holley, Jr.
- ------------------------- April 13, 1999
Elam P. Holley, Jr.
Director, President and
Chief Operating Officer
/s/ Edith M. Jones
- ------------------------- April 13, 1999
Edith M. Jones
Director
/s/ A.D. Lovelady
- ------------------------- April 13, 1999
A.D. Lovelady
Director
/s/ Thomas E. Newton
- ------------------------- April 13, 1999
Thomas E. Newton
Director
/s/ Walter Owens
- ------------------------- April 13, 1999
Walter Owens
Director
/s/ David Y. Pearce
- ------------------------- April 13, 1999
David Y. Pearce
Director
- ------------------------- April 13, 1999
C. Ernest Smith
Director
/s/ Julius E. Tactor
- ------------------------- April 13, 1999
<PAGE>
Julius E. Talton
Director
/s/ Daniel P. Wilbanks
- ------------------------- April 13, 1999
Daniel P. Wilbanks
Director
<PAGE>
EXHIBIT 13
ANNUAL REPORT TO STOCKHOLDERS
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Letter to Stockholders....................2
Management's Discussion and Analysis......5
Five Year Comparison of Selected Financial
Data....................................16
Selected Quarterly Financial Data 1998-
1997....................................16
Corporate Information....................17
Stock Dividend and Price Information.....17
Report of Independent Accountants........18
Consolidated Balance Sheets..............19
Consolidated Statements of Income........20
Consolidated Statements of Changes in
Stockholders' Equity....................22
Consolidated Statements of Cash Flows... 23
Notes to Consolidated Financial State-
ments...................................24
Officers and Directors...................41
</TABLE>
<PAGE>
LETTER TO STOCKHOLDERS
The annual report for 1998 follows this letter. Though it is an annual report,
it really is the culmination of the planning of the people at Peoples over the
last decade and a half. 1998 brings to a successful level our Strategic Plan to
have a presence in each of the growth areas of Central Alabama. We now have 23
offices in 8 counties--Dallas, Elmore, Butler, Autauga, Shelby, Bibb, Lee, and
Tallapoosa.
The major mergers in 1998 increased our bank by about 50%. The numbers are sig-
nificant as are the locations in Shelby, Elmore, and Tallapoosa Counties. The
work of all our people is just as noteworthy. I'll itemize some of the accom-
plishments so the magnitude of the year can be appreciated:
. Bought Merchants and Planters Bank, Montevallo
. Merged with Bank of Tallassee
. Opened new office in Woodstock (North Bibb County)
. Began construction of new Centreville Main Office
. Opened loan production office in Opelika (new branch under construction
now)
. Started Call Center, Selma
. Built new Selma warehouse/workshop
. Started new parking lot at Selma Main Office
. Remodeled office building at Selma Main Office
. Developed new products including 30-year fixed rate home mortgages
. Started First Time Home Buyer Program
. Relocated Trust Department, Selma
. Major employee programs included revamped health plans, Peoples First, and
Peoples News
. Installed WAN (Wide Area Network)
. Installed new phone network
. Added ATMs
. Planned for Y2K preparedness
So you see, 1998 was the year of accomplishment and success. I am very proud of
our people and I commend this annual report to you.
/s/ RICHARD P. MORTHLAND
Richard P. Morthland
Chairman of The Board of Directors & Chief
Executive Officer
2
<PAGE>
The Peoples Bank and Trust Company
Board of Directors
[GROUP PICTURE APPEARS HERE]
Sitting left to right; W. Owens, J. Brown, E. Holley, R. Morthland, A.
Dopson, E. Jones, J. Talton Standing left to right; E. Smith, J.
Crear, H. Gamble, D. Pearce, T. Henry, D. Wilbanks, D. Lovelady, C.
Cox, not pictured; T. Newton
EXECUTIVE MANAGEMENT TEAM
[PICTURE OF RICHARD P. MORTHLAND [PICTURE OF ELAM P. HOLLEY, JR.]
APPEARS HERE] APPEARS HERE]
Richard P. Morthland Chairman Elam P. Holley, Jr. President & Chief
& Chief Executive Officer Operating Officer
<TABLE>
[PICTURE OF ANDREW C. [PICTURE OF JOHN. G. [PICTURE OF M. SCOTT [PICTURE OF LYNN W. SWINDAL
BEARDEN, JR. APPEARS HERE] CHISOLM APPEARS HERE] PATTERSON APPEARS HERE] APPEARS HERE]
<S> <C> <C> <C>
Andrew C. John G. Chisolm M. Scott Lynn W. Swindal
Bearden, Jr. Executive Vice Patterson Executive Vice
Executive Vice President Loan Executive Vice President
President & Division President & Retail
Chief Financial Manager Investment Division Manager
Officer Officer
Operations/Finance Financial Services
Division Division
Manager Manager
</TABLE>
3
<PAGE>
The Peoples Bank and Trust Company
Regional Presidents
[PICTURE OF DAVID W. BAGGETT, [PICTURE OF JAMES B. HURST
JR. APPEARS HERE] APPEARS HERE]
David W. Baggett, Jr. James B. Hurst
Tallassee Division Lee County Division
[PICTURE OF WILLIAM S. JOHNSON [PICTURE OF BOBBY LEACH
APPEARS HERE] APPEARS HERE]
William S. Johnson Bobby Leach
Butler County Division Bibb County Division
[PICTURE OF JEFFERSON G. [PICTURE OF MICHAEL A. TRUELOVE
RATCLIFFE, JR. APPEARS HERE] APPEARS HERE]
Jefferson G. Ratcliffe, Jr. Michael A. Truelove
Prattville/Millbrook Division Shelby County Division
4
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
The following is a discussion and analysis of the consolidated financial condi-
tion of The Peoples BancTrust Company, Inc. ("Company"), the holding company
for The Peoples Bank & Trust Company ("Peoples Bank"), and results of opera-
tions as of the dates and for the periods indicated. It is intended to be read
in conjunction with the consolidated financial statements, and notes thereto,
along with various other financial data disclosures, both current and histori-
cal, contained in this annual report.
On March 6, 1998 Merchants & Planters Bancshares, Inc. ("M&P"), the parent com-
pany of Merchants & Planters Bank, Montevallo, Alabama was merged with and into
the Company. The Company paid $20,085,000 for the outstanding shares of M&P
common stock. The acquisition was accounted for as a purchase. The results of
operations of M&P subsequent to the acquisition date are included in the
Company's results of operations.
On July 31, 1998 Elmore County Bancshares, Inc. ("Elmore County"), the holding
company for The Bank of Tallassee, Tallassee, Alabama, was merged with and into
the Company. Under the terms of the merger, the Company issued 1,711,794 shares
of common stock to Elmore County shareholders. The merger of Elmore County and
the Company was accounted for using the pooling of interests method of account-
ing. In accordance with the pooling of interests method, the historical consol-
idated financial statements of the Company, along with all other historical fi-
nancial data contained in this annual report, have been restated as if the
merger had occurred at the beginning of the earliest period presented. Conse-
quently, the historical consolidated financial statements and other historical
financial data contained in this annual report differ from previous annual re-
ports.
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 in-
clude: substantial changes in interest rates and changes in the general econo-
my, as well as changes in the Company's strategies for credit-risk management,
interest-rate risk management and investment activities. Accordingly, any for-
ward-looking statements included herein do not purport to be predictions of fu-
ture 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 the unearned discount, for 1998, had an average balance of
$312,935,000. Which represented a 15.75% increase over the 1997 average of
$270,359,000. Continued emphasis on loan generation, and year-end loan demand,
coupled with a healthy economy and the acquisition of M&P caused loans net of
the unearned discount to rise from a December 31, 1997 total of $305,733,000 to
a December 31, 1998 total of $356,640,000. The largest single component of this
increase was the loan portfolio of M&P, which totaled $28,153,000 on March 6,
1998, net of its unearned discount. The Company's loan to deposit ratio at De-
cember 31, 1998 fell to 77.5%, as compared to the December 31, 1997 ratio of
81.6%.
The largest segmental growth in the loan portfolio was in commercial and indus-
trial loans, which increased $13,693,000, from $103,090,000 at December 31,
1997 to $116,783,000 at December 31, 1998. At December 31, 1998, the major in-
dustry segments and their approximate respective loan amounts were: health
care--$29,400,000; construction--$28,700,000 and timber--$25,200,000. No other
single industry segment accounted for greater than $25,000,000 of loans at De-
cember 31, 1998.
Real estate loans at December 31, 1998 were $120,918,000, an increase of
$14,696,000 over December 31, 1997. The expanding economies in the counties
where the Company concentrates its business contributed to an increased
5
<PAGE>
demand for new home financing that, when coupled with real estate loans ob-
tained in the M&P acquisition, accounted for most of the growth in this loan
category. The personal loan portfolio increased by $20,499,000, to a balance of
$110,306,000 at December 31, 1998. This rise was primarily due to the M&P ac-
quisition, and to a lesser degree by increased demand for automobile financing.
Credit lines and overdrafts on checking increased from $7,367,000 at December
31, 1997 to $10,786,000 at December 31, 1998, or $3,419,000.
Allowance for Loan Losses
Management's estimate of the uncollectable 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 and levels of non-accruing loans and delinquencies,
determine the appropriate level at which to maintain the allowance for loan
losses. Because the allowance is based on assumptions and subjective judgement,
it is not necessarily reflective of the charge-offs that may ultimately occur.
At December 31, 1998, the Company's allowance for loan losses had a balance of
$4,291,000 as compared to $3,446,000 at December 31, 1997. As a result, the ra-
tio of the allowance to total loans net of unearned interest was 1.20% and
1.13% at December 31, 1998 and 1997, respectively. Loans requiring special at-
tention because of potential weaknesses fell from $10,900,000 at December 31,
1997 to $9,086,000 at December 31, 1998. As a percentage of total loans net of
unearned interest, non-accruing loans increased to 1.09% at December 31, 1998
as compared to .57% at December 31, 1997. The current level of allowance for
loan losses exceeds the minimum requirements set forth by 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. Refer to the Notes to Consolidated Financial Statements of the Com-
pany for further information regarding allowance for loan losses.
Investments
The Company's investment portfolio increased 27.98% or $30,079,000, to
$137,572,000 at December 31, 1998, as compared to $107,493,000 at December 31,
1997. This increase was partially attributable to an influx of deposit funds,
but was primarily the result of the M&P merger. On the date of acquisition,
M&P's investment securities portfolio was valued at $29,319,000.
The entire investment portfolio is classified as "available-for-sale", causing
it to be marked-to-market with the unrealized gains/losses reflected directly
to stockholder's equity. The portfolio had a net unrealized gain of $708,000
(net of tax) at December 31, 1998, compared to a net unrealized gain of
$277,000 (net of tax) at December 31, 1997. Refer to the Notes to Consolidated
Financial Statements of the Company for further information regarding Invest-
ment Securities.
Short-Term Investments
Federal funds sold and securities purchased under agreements to resell consti-
tute most of the short-term investments. These investments are used extensively
in the Company's liquidity management. The utilization of short-term invest-
ments also produces interest income on funds that might otherwise lay dormant.
Management watches short-term investments closely and is always looking for al-
ternative uses for these funds.
Short-term investments totaled $12,598,000 at December 31, 1998, as compared to
$9,477,000 at December 31, 1997, which was an increase of $3,121,000.
Deposits
The funding of loans and investments is primarily achieved with deposits. At
December 31, 1998, total deposits amounted to $460,809,000, as compared to
$374,881,000 at December 31, 1997, representing an increase of $85,928,000 or
22.92%. This increase is accounted for in a $45,095,000 rise in time deposits,
a $28,366,000 increase in demand deposits and a $12,467,000 increase in sav-
ings. When purchased, the deposits of M&P totaled
6
<PAGE>
$56,151,000, thereby constituting over half of the increase in total deposits
during 1998. The Company's strategy is to price deposits competitively to at-
tract 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.
Liquidity management is crucial in ensuring that the Company is able to conduct
its day to day business. Without proper liquidity management, the Company would
be restricted in its activities as a financial institution, thereby being un-
able to meet the needs of the communities it serves.
To increase liquidity in a typical interest rate environment generally results
in decreasing profits by investing in earning assets with shorter maturities.
Estimating liquidity needs is made more complex by the fact that certain bal-
ance sheet components are, by nature, more controllable by management than oth-
ers. For example, the maturity frequency of the investment portfolio is very
predictable and controllable at the time investment decisions are made. On the
other hand, deposits flowing into and out of the Company are much less predict-
able and controllable by management.
The asset items that are the Company's primary sources of liquidity are federal
funds sold and securities purchased under agreements to resell, and cash and
due from banks. As of December 31, 1998 federal funds sold and securities pur-
chased under agreements to resell, and cash and due from banks totaled
$12,598,000 and $23,669,000 respectively. At December 31, 1997, they totaled
$9,477,000 and $16,322,000 respectively.
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, 1998, 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 $137,572,000.
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 meet its cash needs. Borrowed funds
amounted to $34,265,000 at December 31, 1998, compared to $21,939,000 at year-
end 1997. Generally higher demand for loan funding, along with several large
short-term loans issued to customers at year-end are the primary reasons for
this increase. The Company's sources of external funds are believed by manage-
ment to be adequate for both current and projected needs.
Stockholders' Equity
Stockholders' equity indicates the Company's net worth. Stockholders' equity
was $56,720,000 at December 31, 1998, compared to $52,326,000 at December 31,
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). The Company's and Peoples
Bank's capital ratios at December 31, 1998 were well above the minimum regula-
tory requirements. Refer to the Notes to Consolidated Financial Statements of
the Company for further information regarding stockholders' equity.
7
<PAGE>
INCOME SUMMARY
Net Income
The Company reported net income of $5,281,000 for the year ended December 31,
1998. This represented a 5.6% decrease from the 1997 net income figure of
$5,594,000. Net income for 1996 was $4,942,000. Respectively, for the years
ended 1998, 1997 and 1996, diluted net income per share was $1.02, $1.09 and
$.97.
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 make
up net interest income. The next table, "Average Balance Sheets and Analysis of
Net Interest Income," is a presentation of the average balance sheet, along
with the income or expense realized or incurred with each of its components.
Only earning assets and interest bearing liabilities have income and expense
associated with them.
ANALYSIS OF CHANGES IN INTEREST INCOME AND EXPENSE
for the years ended December 31, 1998, 1997 and 1996
(In Thousands)
<TABLE>
<CAPTION>
1998 Compared to 1997 1997 Compared to 1996
-------------------------------------------------
Changes Changes
Changes in Changes in
Total in Volume Rates Total in Volume Rates
<S> <C> <C> <C> <C> <C> <C>
-------------------------------------------------
Interest income on:
Loans $4,545 $4,299 $246 $2,541 $3,250 $(709)
Taxable investment
securities 979 1,184 (205) (747) (965) 218
Nontaxable investment
securities 10 35 (25) 31 10 21
Federal funds sold and
securities purchased
under agreements to
resell 320 405 (85) (27) (55) 28
-------------------------------------------------
Total interest income $5,854 $5,923 $(69) $1,798 $2,240 $(442)
- -----------------------------------------------------------------------------
Interest expense on:
Interest bearing demand
deposits $ (14) $ (96) $ 82 $ 12 $ 38 $ (26)
Savings deposits 307 253 54 (33) (38) 5
Time deposits 2,335 2,359 (24) 511 593 (82)
Federal funds purchased
and securities sold under
agreements to repurchase 58 31 27 (19) 618 (637)
Other borrowed funds 528 574 (46) 51 35 16
-------------------------------------------------
Total interest expense $3,214 $3,121 $ 93 $ 522 $1,246 $(724)
Net changes in net
interest income before
loan losses $2,640 $1,276
- -----------------------------------------------------------------------------
</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 in-
dicated. For each category of interest-earning assets and interest-bearing lia-
bilities, 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 $3,888,000 and $1,733,000
in 1998 and 1997, respectively. The $2,155,000 increase in non-accrual loans is
attributable to various personal and business loans of The Company falling into
non-accrual status, along with the fact that upon the merger with Elmore Coun-
ty, the Company's credit standards were applied to the loan portfolio of Elmore
County. The result was the application of non-accrual status to substantially
more loans than the Company held at December 31, 1997.
8
<PAGE>
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
for the years ended December 31, 1998, 1997, and 1996
(Dollars in Thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---------------------------------------------------------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
ASSETS
Interest Earning Assets:
Loans, net (1) $312,935 $31,608 10.10% $270,359 $27,063 10.01% $237,612 $24,522 10.32%
Taxable investment
securities 120,986 7,852 6.49% 101,535 6,441 6.34% 116,621 7,189 6.16%
Nontaxable investment
securities 16,111 608 3.77% 12,013 599 4.99% 11,805 567 4.80%
Federal funds sold and
securities purchased
under agreements to
repurchase 20,594 829 4.03% 9,564 510 5.33% 10,560 537 5.09%
---------------------------------------------------------------------------
Total interest earning
assets $470,626 $40,467 8.60% $393,471 $34,613 8.80% $376,598 $32,815 8.71%
Non-Interest Earning
Assets:
Cash and due from banks $ 20,638 $ 16,385 17,979
Bank premises &
equipment (net) 9,526 7,644 7,371
Other assets 19,293 10,554 9,072
---------------------------------------------------------------------------
Total non-interest
earning assets 49,457 34,583 34,422
---------------------------------------------------------------------------
Total Assets $520,083 $428,054 $411,020
- -----------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDER'S
EQUITY
Interest bearing
Liabilities:
Interest bearing demand
deposits $ 96,687 $ 2,783 2.88% $ 80,605 $ 2,797 3.47% $ 79,525 $ 2,785 3.50%
Savings deposits 44,281 1,330 3.00% 35,769 1,023 2.86% 37,092 1,056 2.85%
Time deposits 228,347 12,397 5.43% 184,890 10,063 5.44% 173,972 9,552 5.49%
Federal funds purchased
and securities sold
under agreements to
repurchase 6,462 244 3.78% 5,592 186 3.33% 8,164 205 2.51%
Other borrowed funds 14,976 1,044 6.97% 6,672 516 7.73% 6,223 465 7.47%
---------------------------------------------------------------------------
Total interest bearing
liabilities $390,753 $17,798 4.56% $313,528 $14,585 4.65% $304,976 $14,063 4.61%
Non-interest bearing
demand deposits 64,735 59,389 55,665
Other liabilities 10,012 4,301 4,786
---------------------------------------------------------------------------
Total non-interest
bearing liabilities 74,747 63,690 60,451
---------------------------------------------------------------------------
Total liabilities $465,500 $377,218 $365,427
Stockholder's equity 54,583 50,836 45,593
---------------------------------------------------------------------------
Total liabilities and
stockholder's equity $520,083 $428,054 $411,020
- -----------------------------------------------------------------------------------------------------
Net interest income $22,669 $20,028 $18,752
Net yield on interest
earning assets 4.82% 5.09% 4.98%
</TABLE>
(1) Average balances include non-accruing loans of approximately $3,888,000,
$1,733,000 and $2,048,000 in 1998, 1997, and 1996
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.
1998 versus 1997
1998 saw total interest income in the amount of $40,467,000 compared to the
1997 total of $34,613,000. This increase was largely attributable to higher
loan demand coupled with the effects of M&P, raising average loans from a 1997
total of $270,359,000 to a 1998 total of $312,935,000. The loan volume increase
was funded both by borrowed funds and by an influx of deposits. The yield on
the loan portfolio rose from a 1997 rate of 10.01% to its 1998 rate of 10.10%.
The Company ended 1998 with average earning assets of $470,626,000 as compared
to $393,471,000 at December 31, 1997, representing a 19.61% increase in average
earning assets.
The investment portfolio experienced a 20.17% increase in interest income in
1998. Interest income on the investment portfolio totaled $8,460,000 in 1998 as
opposed to $7,040,000 in 1997. This rise was mostly due to an increase
9
<PAGE>
in the average balance of the investment portfolio, mainly the result the M&P
acquisition and to a lesser degree the result of higher levels of deposit
funds. The rise in the investment volume was slightly offset by a decrease in
their yields. The investment portfolio yielded 5.86% in 1998, and 6.20% in
1997.
Federal funds sold and securities purchased under agreements to resell earned
$830,000 in 1998, whereas $510,000 was earned in 1997. The increase was en-
tirely the result of an increase in the average balance of short-term invest-
ments from $9,564,000 in 1997 to $20,594,000 in 1998. The significant rise in
the average balance of these instruments was slightly offset by a drop in their
yields from 5.33% in 1997 to 4.03% in 1998.
Interest expense increased in 1998 to $17,799,000 from the 1997 total of
$14,585,000. A 22.6% increase in the average balance of interest-bearing depos-
its and a 74.8% increase in the average balance of federal funds purchased and
securities sold under agreements to repurchase and other borrowed funds,
brought on by the M&P acquisition, attributed to the increase in interest ex-
pense. In order to fund loan growth, and otherwise provide for liquidity, spe-
cific term and short-term borrowings increased in 1998. Average interest-bear-
ing deposits in 1998 totaled $369,315,000, compared to an average balance in
1997 of $301,264,000. The average balance of the interest-bearing deposits grew
in all three major groupings as follows: Time deposits; $43,457,000 interest-
bearing demand deposits; $16,082,000 and savings deposits; $8,512,000. The av-
erage balance of other borrowed funds increased by $8,304,000 from the 1997 av-
erage balance of $6,672,000 to the 1998 average balance of $14,976,000.
The Company's total cost of funds decreased to 4.56% in 1998 from 4.65% in
1997. This decrease in the Company's cost of funds was consistent with the de-
crease in the general level of interest rates during 1998.
Net interest income for 1998 was $22,669,000 as compared to the 1997 total of
$20,028,000, for an increase of 13.2%. The increase was entirely the result of
an increase in the Company's earning assets over its interest-bearing liabili-
ties, evidenced by a reduction in the net interest margin of the Company at De-
cember 31, 1997 of 5.09% to 4.82% at December 31, 1998.
1997 versus 1996
The Company's total interest income for the year 1997 amounted to $34,613,000,
compared to a 1996 total of $32,815,000. The increase was primarily the result
of increased loan demand driving the average volume of loans from a 1996 aver-
age of $237,612,000 to a 1997 average volume of $270,359,000. This increased
loan volume was partially funded through a shift of funds from the investment
security portfolio into the loan portfolio and thereby earning a higher rate of
interest. Interest yields on the loan portfolio decreased from 10.32% in 1996
to 10.01% for 1997. Total average earning assets increased from $376,598,000 in
1996 to an average of $393,471,000 in 1997 for an increase of 4.48% in average
earning assets.
Interest income on the investment securities portfolio decreased 9.2%, from
$7,756,000 in 1996 to $7,040,000 in 1997. This decrease in interest income was
primarily attributable to a 11.6% decline in average volume of the investment
securities portfolio offset by an increase in the average yield on the portfo-
lio of 6.04% in 1996 to 6.20% in 1997.
Interest income from federal funds sold and securities purchased under agree-
ments to resell totaled $510,000 in 1997 as compared to $537,000 in 1996. The
decrease was primarily attributable to a decrease in the average balance of
short-term investments from $10,560,000 in 1996 to $9,564,000 in 1997 offset by
an increase in the average yield from 5.09% in 1996 to 5.33% in 1997.
Interest expense increased from $14,063,000 in 1996 to $14,585,000 in 1997. The
increase was primarily due to an increase in both the average balance of inter-
est-bearing liabilities, and the overall cost of funds from 1996 to 1997. While
the average balance of federal funds purchased and securities purchased under
agreements to resell dropped from a 1996 total of $8,164,00, to a 1997 total of
$5,592,000, the cost of these instruments rose to 3.33% in 1997 from 2.51% in
1996. The average balance of other borrowed funds increased to $6,672,000 in
1997 from $6,223,000 in 1996. The cost of other borrowed funds increased from
7.47% in 1996 to 7.73% in 1997.
10
<PAGE>
Average interest-bearing deposits grew by 3.67% during 1997 from an average
balance in 1996 of $290,589,000 to an average balance in 1997 of $301,264,000.
The primary growth was recorded in time deposits with a slight decrease in sav-
ings, offset by a slight increase in interest-bearing demand deposits. As a re-
sult of slightly higher interest rates during 1997, the Company's cost of funds
rose to 4.65% in 1997 from 4.61% in 1996.
Net interest income for 1997 was $20,028,000 as compared to the 1996 total of
$18,752,000, an increase of 6.8%.
Provision For Loan Losses
The provision for loan losses is an expense item that allows for systematic ap-
plication of the fact that some loans will not be paid back in full. It offsets
the effect of net charge-offs in the allowance for loan loss account, while
also providing for estimated defaults incurred but not yet charged off. The
provision for loan losses in 1998 equaled $2,336,000, compared with the 1997
provision of $1,867,000. The $469,000 increase in the provision was the result
of an increase in the provision for loan losses, coupled with the effect of net
charge offs during 1998. The allowance for loan losses is monitored closely by
management, with adjustments to charges to the provision for loan losses made
as deemed necessary. See Note 1 of Notes to Consolidated Financial Statements
of the Company.
Non-interest Income
Additional fee income is generated for the Company through a variety of finan-
cial services offered. With continued pressure on net interest income, the Com-
pany views the expansion of fee income and the development of new services as
major sources of future earnings. The Company's primary sources of non-interest
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.
1998 versus 1997
In 1998, non-interest income totaled $6,626,000 as compared to $5,294,000 for
1997. The increase was primarily attributable to a rise in deposit service
charges, with the balance of the increase spread over the remaining non-inter-
est income items.
1997 versus 1996
For 1997, non-interest income totaled $5,294,000 as compared to $4,694,000 for
1996. The increase of $600,000 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.
Non-interest Expense
1998 versus 1997
Total non-interest expense for 1998 was $19,241,000 as compared to $15,419,000
for 1997. Salaries and benefits, are the largest segments in this category, and
rose from $8,150,000 in 1997 to $9,397,000 in 1998. This increase was the re-
sult of routine salary increases and the hiring of additional staff, most of
whom were employed by M&P. As a result of the acquisition of M&P, the Company
recognized in excess of $8,000,000 of intangible assets. The amortization of
those intangible assets during 1998 accounted for $788,000 of additional non-
interest expense. Additionally, the Company incurred various non-recurring fees
and expenses, along with increased internal expenses associated with its merger
with Elmore County during 1998. Automations, fixed assets and computer expense,
along with other expense categories rose in direct relation to the addition of
two new branches, and the personnel necessary to staff them.
1997 versus 1996
The total non-interest expense for 1997 was $15,419,000 as compared to a total
of $14,286,000 for 1996. Salaries and benefits increased slightly from
$7,977,000 in 1996 to $8,150,000 in 1997 primarily the result of routine salary
increases. Certain other expense categories such as automations and computer
expense exceeded 1996 levels due to the impact and cost of maintaining the
proper levels of technology. Additionally, total Federal Deposit Insurance Cor-
poration premiums, paid for deposit insurance, decreased in 1997 from 1996. The
decrease in premiums was made possible by the 1996 enactment of federal legis-
lation to recapitalize the Savings Association Insurance Fund ("SAIF"). The
Company was assessed a one-time recapitalization fee on its SAIF deposits in
the amount of $41,000 during 1996. The cost of occupancy and fixed asset depre-
ciation and maintenance increased $95,000 during 1997 versus 1996.
11
<PAGE>
Provision for Income Taxes
1998 versus 1997
Net income before the charge for income taxes equaled $7,719,000 at December
31, 1998, compared to $8,037,000 at December 31, 1997, a decrease of 4%. The
provision for income tax totaled $2,438,000 for 1998, and $2,443,000 for 1997.
The effective tax rates for 1998 and 1997 were 31.6% and 30.4%, respectively.
The Company participates in several low-income housing projects, which provide
tax credits, thus reducing its effective tax rate.
1997 versus 1996
Income before the charge for income tax was $8,037,000 for 1997 as compared to
$7,046,000 for 1996, an increase of 14.1%. The provision for income tax, which
includes both federal and state taxes, amounted to $2,443,000 for 1997, and
$2,104,000 for 1996. The effective tax rates for 1997 and 1996 were 30.4% and
30.3%, respectively. The Company's participation in multiple issues of low in-
come housing credits reduced the effective tax rate.
Impact of Inflation and Changing Prices
The financial statements and accompanying data herein have been prepared ac-
cording to generally accepted accounting principles. Those principles dictate
that financial position and operating results be measured in terms of histori-
cal dollars, with no consideration made for changes in the relative purchasing
power of money over time due to inflation.
The nature of a financial institution's assets and liabilities differs greatly
from that of most commercial concerns. They are monetary in nature, whereas
those of most commercial and industrial entities are concentrated in fixed as-
sets or inventories. Inflation does, however, affect the growth of total as-
sets, creating the need for more equity capital in order to maintain appropri-
ate ratios of capital to assets. Inflation also affects non-interest expenses,
which tend to rise during periods of inflation.
Interest Rate Risk
The profitability of most financial institutions, including the Company, is
greatly dependent on net interest income. Given this, management believes
changes in interest rates impact the Company's profitability to a greater ex-
tent 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 in-
terest-earning assets are repricing to market rate levels at a different pace
than interest-bearing liabilities, net interest income is affected either posi-
tively or negatively, depending on the direction market rates are moving. When
interest rates are volatile, liquidity and maturity of the Company's assets and
liabilities is crucial in maintaining desired performance levels. Management is
unable to predict the future of interest rate movements; therefore, management
attempts to strike a relative balance between rate sensitive assets and liabil-
ities. This strategy is designed to protect the Company's profitability against
radical shifts in interest rate levels. Management believes the current rela-
tionship between rate sensitive assets and rate sensitive liabilities is well
matched, indicating a minimal exposure to interest-rate risk. For a quantita-
tive expression of interest-rate risk, see the table titled "Interest Rate Sen-
sitivity Position."
12
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC.
INTEREST RATE SENSITIVITY POSITION
December 31, 1998
<TABLE>
<CAPTION>
Expected Maturity/Repricing Time Frame
----------------------------------------------------------------
Between three Between one Over
Less than three months and one year and three three
months year years years Total
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------
ASSETS:
Earning assets:
Loans $115,658 $ 60,417 $ 87,673 $ 93,192 $356,940
Securities 4,578 13,086 46,966 72,942 137,572
Interest-bearing
deposits in other banks 676 -- -- -- 676
Funds sold 12,598 -- -- -- 12,598
----------------------------------------------------------------
Total interest-earning
assets $133,510 $ 73,503 $134,639 $166,134 $507,786
- ------------------------------------------------------------------------------------------
LIABILITIES:
Interest-bearing
liabilities:
Interest-bearing
deposits:
Demand deposits $ -- $ -- $ -- $105,660 $105,660
Savings and money market
deposits 46,285 46,285
Time deposits 129,113 71,356 37,399 2,834 240,702
Funds purchased 11,811 -- -- -- 11,811
Long-term debt -- -- -- 22,454 22,454
----------------------------------------------------------------
Total interest-bearing
liabilities $187,209 $ 71,356 $ 37,399 $130,948 $426,912
- ------------------------------------------------------------------------------------------
Period gap $(53,699) $ 2,148 $ 97,239 $ 35,186 $ 80,874
Cumulative gap $(53,699) $(51,552) $ 45,688 $ 80,874
Ratio of cumulative gap
to total earning assets -10.58% -10.15% 9.00% 15.93%
- ------------------------------------------------------------------------------------------
</TABLE>
On December 31, 1998, the Company had a negative cumulative one-year gap posi-
tion of $51,552,000, indicating that while $207,012,000 in assets would reprice
during 1999, $258,565,000 in liabilities would reprice in the same time frame.
The above table reflects a positive cumulative gap position in all maturity
classifications other than those less than one year. This is the result of core
deposits being used to fund short-term interest earning assets, such as loans
and investment securities. A positive cumulative gap position implies that in-
terest earning assets (loans and investments) will reprice at a faster rate
than interest-bearing liabilities (deposits and debt). In a rising rate envi-
ronment, this position will generally have a positive effect on earnings, while
in a falling rate environment this position will generally have a negative ef-
fect on earnings. Other factors, however, including the speed at which assets
and liabilities reprice in response to changes in market rates and the inter-
play of competitive factors, can also influence the overall impact on net in-
come of changes in interest rates. Management believes that a rapid, signifi-
cant and prolonged increase or decrease in rates could have a substantial im-
pact on the Company's net interest margin. The actual interest rate sensitivity
of the Company's assets and liabilities could vary significantly from the in-
formation set forth in this table due to market and other factors.
13
<PAGE>
The following table illustrates the results of simulation analysis used by the
Company to determine the extent to which market risk would have effected the
net interest margin if prevailing interest rates differed from actual rates
during 1998. Because of the use of estimates and assumptions in the simulation
model used to derive this information, the actual results for 1998 and, cer-
tainly, the future impact of market risk on the Company's net interest margin,
may differ from that found in the table.
<TABLE>
<CAPTION>
Change in Change from
Prevailing Interest Net Interest 1998 Net Interest
Rates Income Amount Income Amount
---------------------------------------------------------------------------
(thousands)
<S> <C> <C>
+200 basis points 22,686 0.08%
+100 basis points 23,091 1.86%
0 basis points 22,669 0.00%
-100 basis points 22,329 -1.50%
-200 basis points 22,522 -0.65%
---------------------------------------------------------------------------
</TABLE>
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 de-
termined to be critical to the ongoing operations of the Company. Programming
changes and listing of critical systems, affiliates and equipment were com-
pleted by December 31, 1998. Of the eight critical systems identified, six have
been thoroughly and successfully tested for Year 2000 compliance. The remaining
two systems are scheduled for replacement with certified Year 2000 compliant
systems in early 1999.
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 perfor-
mance of third parties as to which it has material relationships. The Company
has completed the initial assessment of worst case scenarios resulting from the
Year 2000 issue, and continues to develop contingency plans to maintain the
Company's operational capacity after January 1, 2000. These plans include cus-
tomers, suppliers and business partners.
As of December 31, 1998 the Company had incurred approximately $71,000 in di-
rect compliance costs associated with the Year 2000 Problem. The Company esti-
mates that $375,000 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.
The oversight committee for the Year 2000 project consists of upper management
and mission critical personnel. This committee monitors the progress of the
Year 2000 project, and reports their findings to the operations committee of
the board of directors.
14
<PAGE>
The Company has developed Business Resumption Contingency Plans to deal with
potential interruptions related to the Year 2000 event affecting banking func-
tions (cash delivery, deposit/loan servicing etc.). Elements of the this Plan
include, among other detailed plans, the installation of a self-contained power
plant in the event of non-compliance by the Company's electricity provider and
the implementation of security procedures not dependant on automatic devices.
Manual systems are being established that will allow the Company to provide its
customers with a basic level of service in the event of major systems failures.
New Accounting Standards
Reporting of Comprehensive Income -- In June 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income (SFAS 130) which establishes standards for
the 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.
Under SFAS 130, the Company has reported changes in unrealized gains and losses
attributable to securities available-for-sale as a component of comprehensive
income. The 1997 and 1996 financial information has been reclassified to con-
form to the requirements of the statement.
Segment Reporting -- In June 1997, the FASB issued SFAS No. 131, Disclosures
About Segments of a Business Enterprise and Related Information. SFAS 131,
which establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and re-
quires that those enterprises report selected information about operating seg-
ments in interim financial reports issued to stockholders. This statement also
establishes standards for related disclosures about products and services, geo-
graphic areas, and major customers. This statement requires the reporting of
financial and descriptive information about an enterprise's reportable operat-
ing segments.
Effective January 1, 1998, the Company adopted SFAS 131. However, separate seg-
ment information is not presented as the Company operates in only one report-
able segment--commercial banking.
Pensions and Other Postretirement Benefits -- In February 1998, the FASB issued
SFAS No. 132, Employers' Disclosures About Pensions and Other Postretirement
Benefits. SFAS 132, which standardizes the disclosure requirements for pensions
and other postretirement benefits, requires additional disclosures regarding
changes in the benefit obligation and fair value of plan assets and eliminates
certain other disclosures. As a result of implementing SFAS 132, the Company
has restated prior year disclosures to conform to the requirements of the
statement.
Accounting for Derivatives and Hedging Activities -- In June 1998, FASB issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
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, by re-
quiring that an entity recognize all derivatives as either assets or liabili-
ties 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 disclo-
sures, as it does not currently possess any derivative instruments.
Mortgage-Backed Securities -- In October 1998, the FASB issued SFAS No. 134,
Accounting for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise, an amendment of
FASB Statement No. 65. SFAS 134 requires that after an entity securitizes mort-
gage loans held for sale, it must classify the resulting retained mortgage-
backed securities or other retained interests based on its ability and
15
<PAGE>
intent to sell or hold those investments. However, a mortgage banking enter-
prise 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. This statement is
effective for the first fiscal quarter after December 15, 1998. However, since
the Company does not securitize mortgage loans, it does not anticipate any fi-
nancial statement impact from adopting this statement.
SELECTED FINANCIAL AND OTHER DATA OF THE COMPANY
The following tables set forth certain historical financial information for the
Company. This information is based on the consolidated financial statements of
the Company including applicable notes incorporated by reference elsewhere
herein.
Results of Operations
FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
(dollars in thousands, except for per share amounts)
<TABLE>
<CAPTION>
1998 1997(1) 1996(1) 1995(1) 1994(1)
--------------------------------------------
<S> <C> <C> <C> <C> <C>
Net interest income $ 22,669 $ 20,029 $ 18,752 $ 17,152 $ 15,863
Provision for loan losses 2,336 1,867 2,114 920 564
Income before income tax 7,719 8,037 7,046 6,073 5,281
Provision for income tax 2,438 2,443 2,104 1,820 1,631
Net income 5,281 5,594 4,942 4,253 3,650
Net income per share, (diluted) 1.02 1.09 0.97 0.81 0.69
Cash dividend declared and paid 0.325 0.31 0.27 0.255 0.24
--------------------------------------------
Total assets, December 31 $557,809 $453,990 $431,790 $405,297 $384,422
- -----------------------------------------------------------------------------
</TABLE>
Selected Quarterly Information
SELECTED QUARTERLY FINANCIAL DATA 1998-1997
(dollars in thousands, except for per share amounts)
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------------------------------------
Jun. Mar. Dec. Sep. Jun. Mar.
Dec. 31 Sep. 30 30(1) 31(1) 31(1) 30(1) 30(1) 31(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
-----------------------------------------------------------------------
Net interest income $ 5,789 $ 6,143 $ 5,475 $ 5,262 $ 5,523 $ 5,006 $ 4,819 $ 4,681
Provision for loan
losses 644 745 671 276 676 385 372 434
Income before income tax 1,795 2,067 1,752 2,105 1,837 2,362 1,871 1,967
Provision for income tax 567 636 575 660 589 719 551 584
Net income 1,228 1,431 1,177 1,445 1,247 1,642 1,320 1,384
Net income per share** 0.24 0.28 0.23 0.28 0.24 0.32 0.26 0.27
Cash dividends declared
per share** 0.085 0.08 0.08 0.08 0.08 0.08 0.075 0.075
-----------------------------------------------------------------------
Total assets $557,809 $525,557 $531,317 $419,612 $453,990 $436,027 $425,639 $417,903
- -------------------------------------------------------------------------------------------------
</TABLE>
** Restated to show effect of a 2-for-1 stock split in the form of a stock
dividend paid June 16, 1997.
(1) Restated to reflect the July 31, 1998 merger with Elmore County Bancshres,
Inc., which was accounted for as a pooling of interests.
16
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC. -- CORPORATE INFORMATION
The Peoples BancTrust Company, Inc. is a bank holding company incorporated un-
der the laws of the State of Alabama. The Company is registered under the Bank
Holding Company Act of 1965 and is the holding company for its wholly owned
subsidiary, The Peoples Bank and Trust Company, Selma, Alabama. Peoples Bank
operates a full service retail and general commercial banking business in Dal-
las, Butler, Autauga, Elmore, Bibb, Shelby, Tallapoosa and Lee counties and
surrounding areas in the State. Peoples bank also offers Financial Management
and Trust services along with an array of financial products through its Bro-
kerage Department and Insurance Agency.
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, AL 36702-0799 Commission, contact:
INDEPENDENT ACCOUNTANTS M. Scott Patterson, Secretary
PricewaterhouseCoopers LLP 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. Historical dividend in-
formation has not been restated for the effects of the pooling of interests
treatment of the acquisition of Elmore County Bancshares, Inc. in July of 1998.
<TABLE>
<CAPTION>
Dividends Declared
1997 High Low (per common share)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
January-March 17.00 13.50 .075
April-June 18.50 17.00 .075
July-September 19.00 18.00 .08
October-December 31.00 17.00 .08
<CAPTION>
Dividends Declared
1998 High Low (per common share)
-------------------------------------------------------------------------------
<S> <C> <C> <C>
January-March 31.25 27.00 .08
April-June 31.88 28.25 .08
July-September 29.00 19.00 .08
October-December 20.50 18.00 .085
</TABLE>
See Note 13 of Notes to Consolidated Financial Statements regarding regulatory
approval for the payment of dividends to the Company by The Peoples Bank &
Trust Company. The Bank expects to be subject to such dividend restrictions as
discussed in Note 13 of Notes to Consolidated Financial Statements in 1999.
As of March 12, 1999, The Peoples BancTrust Company, Inc. had 1,051 stockhold-
ers of record and 5,148,138 shares of common stock outstanding.
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
The Peoples BancTrust Company, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, comprehensive income, stockholders' equity,
and cash flows present fairly, in all material respects, the financial position
of The Peoples BancTrust Company, Inc. and its subsidiary (the Company) at De-
cember 31, 1998 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our responsibil-
ity is to express an opinion on these financial statements based on our audits.
We conducted our audits of these statements in accordance with generally ac-
cepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
March 18, 1999
/s/ PriceWaterhouseCoopers LLP
18
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Cash and due from banks $ 23,669,101 $ 16,321,640
Federal funds sold and securities purchased under
agreements to resell 12,598,351 9,477,487
--------------------------
Cash and cash equivalents 36,267,452 25,799,127
Available-for-sale securities 137,571,513 107,492,585
Loans, net of unearned discount 356,639,547 305,733,244
Allowance for loan losses (4,291,135) (3,445,539)
--------------------------
Loans, net 352,348,412 302,287,705
Bank premises and equipment, net 10,806,013 8,022,766
Other real estate, net 530,005 398,125
Interest receivable 4,792,436 4,143,580
Intangible assets acquired, net of accumulated
amortization of $1,418,171 and $665,565 at
December 31, 1998 and 1997, respectively 9,803,178 665,565
Deferred income taxes 500,042
Other assets 5,690,150 4,680,949
--------------------------
$557,809,159 $453,990,444
- ------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand--noninterest bearing $ 68,162,445 $ 64,285,379
Demand--interest bearing 105,659,720 81,171,412
Savings 46,285,258 33,817,840
Time 240,701,899 195,606,706
--------------------------
Total deposits 460,809,322 374,881,337
Federal funds purchased and securities sold under
agreements to repurchase 11,810,658 13,642,411
Other borrowed funds 22,454,426 8,297,433
Deferred income taxes 1,070,475
Interest payable 2,129,205 1,689,643
Dividends payable 27,849 154,499
Income taxes payable 425,542 740,081
Other liabilities 2,361,263 2,258,874
--------------------------
Total liabilities 501,088,740 401,664,278
--------------------------
Commitments and contingencies (Note 9)
Stockholders' equity:
Common stock, $.10 par value; 9,000,000 shares
authorized; 5,186,940 authorized shares issued 518,694 518,694
Additional paid-in capital 6,286,399 6,567,423
Accumulated other comprehensive income, net of
tax 708,512 276,839
Retained earnings 49,843,652 46,099,175
Treasury stock, 38,802 and 71,410 shares,
respectively (636,838) (1,135,965)
--------------------------
Total stockholders' equity 56,720,419 52,326,166
--------------------------
$557,809,159 $453,990,444
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
19
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Interest income:
Interest and fees on loans and bankers
acceptances $31,607,591 $27,063,476 $24,521,158
Interest and dividends on investment
securities:
U.S. Treasury securities 1,171,961 1,256,206 1,750,188
Obligations of other U.S. Government
agencies and corporations 5,734,698 4,263,080 3,905,325
Obligations of state and political
subdivisions and industrial development
bonds:
Nontaxable 607,577 598,443 566,527
Taxable 78,190 47,951 55,476
Other securities and interest-bearing
deposits 436,653 874,369 1,479,054
Interest on federal funds sold and
securities purchased under agreements to
resell 830,027 509,890 537,039
-----------------------------------
Total interest income 40,466,697 34,613,415 32,814,767
-----------------------------------
Interest expense:
Interest on deposits 16,510,918 13,882,612 13,393,062
Interest on federal funds purchased,
securities sold under agreements to
repurchase, and other borrowed funds 1,287,177 701,971 669,961
-----------------------------------
Total interest expense 17,798,095 14,584,583 14,063,023
-----------------------------------
Net interest income 22,668,602 20,028,832 18,751,744
Provision for loan losses 2,335,699 1,866,761 2,114,190
-----------------------------------
Net interest income after provision for
loan losses 20,332,903 18,162,071 16,637,554
-----------------------------------
Noninterest income:
Trust department income 363,282 335,865 296,287
Service charges on deposit accounts 4,297,201 3,716,190 3,419,897
Net securities gains 556,155 88,888 52,408
Other 1,409,740 1,153,023 925,831
-----------------------------------
Total noninterest income 6,626,378 5,293,966 4,694,423
-----------------------------------
Noninterest expenses:
Salaries and wages 7,721,933 6,521,684 6,347,064
Pensions and other employee benefits 1,674,608 1,627,875 1,629,353
Occupancy and furniture and equipment
expenses 2,391,374 1,949,085 1,728,655
Other operating expenses 7,452,606 5,320,265 4,581,038
-----------------------------------
Total noninterest expenses 19,240,521 15,418,909 14,286,110
-----------------------------------
Income before provision for income
taxes 7,718,760 8,037,128 7,045,867
Provision for income taxes 2,437,705 2,443,492 2,104,108
-----------------------------------
Net income $ 5,281,055 $ 5,593,636 $ 4,941,759
-----------------------------------
Earnings per share (Notes 4 and 12):
Basic net income per share $ 1.03 $ 1.10 $ 0.97
-----------------------------------
Diluted net income per share $ 1.02 $ 1.09 $ 0.97
-----------------------------------
Basic weighted average number of shares
outstanding 5,141,885 5,099,227 5,099,293
-----------------------------------
Diluted weighted average number of shares
outstanding 5,161,658 5,137,257 5,120,349
-----------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
20
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $5,281,055 $5,593,636 $4,941,759
Other comprehensive income:
Unrealized gains (losses) on securities
available for sale during the period 1,210,205 390,805 (476,154)
Less: reclassification adjustment for net
gains included in net income 556,155 88,888 52,408
--------------------------------
Other comprehensive income (loss) 654,050 301,917 (528,562)
Income tax provision (benefit) related to
items of other comprehensive income (loss) 222,377 102,652 (179,711)
--------------------------------
Other comprehensive income (loss), net of
tax 431,673 199,265 (348,851)
--------------------------------
Comprehensive income, net of tax $5,712,728 $5,792,901 $4,592,908
- ------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
21
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Accumulated
Other
Additional Comprehensive
Common Paid-In Income (Loss), Retained Treasury
Stock Capital Net of Tax Earnings Stock Total
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1995 $518,694 $6,719,043 $426,425 $38,082,605 $(1,287,585) $44,459,182
Net income 4,941,759 4,941,759
Change in unrealized
gains (losses), net of
income taxes (348,851) (348,851)
Cash dividends declared
($.54 per share) (1,191,665) (1,191,665)
-------------------------------------------------------------------------
Balance, December 31,
1996 518,694 6,719,043 77,574 41,832,699 (1,287,585) 47,860,425
Net income 5,593,636 5,593,636
Change in unrealized
gains (losses), net of
income taxes 199,265 199,265
Cash dividends declared
($.31 per share) (1,327,160) (1,327,160)
Options exercised (151,620) 151,620 0
-------------------------------------------------------------------------
Balance, December 31,
1997 518,694 6,567,423 276,839 46,099,175 (1,135,965) 52,326,166
Net income 5,281,055 5,281,055
Change in unrealized
gains (losses), net of
income taxes 431,673 431,673
Cash dividends declared
($.325 per share) (1,536,578) (1,536,578)
Options exercised (281,024) 499,127 218,103
-------------------------------------------------------------------------
Balance, December 31,
1998 $518,694 $6,286,399 $708,512 $49,843,652 $ (636,838) $56,720,419
- ---------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
22
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
- ---------------------------------------------------------------------------
Operating activities:
Net income $ 5,281,055 $ 5,593,636 $ 4,941,759
Adjustments to reconcile net income
to net cash provided by operating
activities:
Provision for loan losses 2,335,699 1,866,761 2,114,190
Depreciation, amortization, and
accretion 1,833,104 1,149,719 1,216,596
Increase (decrease) in unearned
discount 1,400,381 (1,595,758) (3,464,345)
Deferred income taxes, net (166,854) (357,433) (60,971)
Gain on sale of securities (556,155) (88,888) (52,408)
Write down of other real estate 32,536 48,543
Decrease (increase) in assets:
Interest receivable (149,499) 34,398 (14,171)
Other assets (1,559,234) (1,167,656) 175,927
Increase (decrease) in
liabilities:
Interest payable 194,545 187,566 (207,513)
Income taxes payable (380,506) 496,781 (146,252)
Other liabilities 772,438 1,501,367 84,121
-------------------------------------
Net cash provided by operating
activities 9,037,510 7,620,493 4,635,476
-------------------------------------
Investing activities:
Proceeds from sales of available-
for-sale securities 58,912,181 20,955,802 20,550,491
Proceeds from maturities and calls
of available for sale securities 41,249,655 30,040,655 38,074,240
Purchase of available-for-sale
securities (99,524,543) (34,344,261) (44,206,787)
Net increase in loans (26,094,481) (36,777,980) (36,422,300)
Purchases of bank premises and
equipment (2,890,786) (2,100,505) (1,095,660)
Proceeds from sale of other real
estate and equipment 720,939 1,139,804 311,562
Acquisition of bank, net of cash
received (10,317,083)
Investment in low income housing
projects (675,852) (675,852) (247,000)
-------------------------------------
Net cash used in investing activ-
ities (38,619,970) (21,762,337) (23,035,454)
-------------------------------------
Financing activities:
Net increase in deposits 29,777,081 12,614,837 14,998,932
Increase in short-term borrowings 11,718,829 3,602,407 7,102,694
Dividends paid (1,663,228) (1,324,399) (1,197,489)
Exercise of stock options 218,103
-------------------------------------
Net cash provided by financing
activities 40,050,785 14,892,845 20,904,137
-------------------------------------
Increase in cash and cash equiva-
lents 10,468,325 751,001 2,504,159
Cash and cash equivalents, beginning
of year 25,799,127 25,048,126 22,543,967
-------------------------------------
Cash and cash equivalents, end of
year $36,267,452 $25,799,127 $25,048,126
-------------------------------------
Supplemental disclosure of cash flow
information:
Cash paid during the year for:
Interest $17,603,550 $14,397,017 $14,270,536
-------------------------------------
Income taxes $ 2,985,065 $ 2,304,144 $ 2,311,331
-------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
23
<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 twenty three offices in rural and
suburban communities in south-central Alabama. The Company's primary source of
revenue is providing loans to customers, who are predominately small and 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 premiums
and accretion of discounts to the earlier of the maturity or call date.
Investment securities available-for-sale represent those securities intended to
be held for an indefinite period of time, including securities that management
intends to use as part of its asset/liability strategy, or that may be sold in
response to changes in interest rates, changes in prepayment risk, the need to
increase regulatory capital or other similar factors. Securities available-for-
sale are recorded at market value with unrealized gains and losses, net of any
tax effect, added or deducted directly from stockholders' equity.
Securities carried in trading accounts are carried at market value with
unrealized gains and losses reflected in income.
At December 31, 1998 and 1997, 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, 1998 and 1997, the recorded investment in loans for which im-
pairment has been recognized totaled $2,377,000 and $2,902,000, respectively.
These loans had a corresponding valuation allowance of $819,000 at December 31,
1998 and $609,000 at December 31, 1997. 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 1998 and 1997 was approximately $2,640,000 and $2,661,000, respec-
tively. The Company recognized approximately $122,000 and $119,000 of interest
on impaired loans during the period that they were impaired during 1998 and
1997, respectively.
24
<PAGE>
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.
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-five years.
25
<PAGE>
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.
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. 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 consider-
ation of approximately $20,085,000). The combination was accounted for as a
purchase, with the purchase price allocated as follows:
<TABLE>
<CAPTION>
(in thousands)
- ------------------------------------------------
<S> <C>
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
- ------------------------------------------------
</TABLE>
The results of operations of M&P subsequent to the acquisition date are in-
cluded in the Company's consolidated statements of income. The following pro
forma information reflects the Company's consolidated results of operations as
if the acquisition occurred at January 1, 1997:
<TABLE>
<CAPTION>
(in thousands,
except per share data)
- ------------------------------------------------------
1998 1997
- ------------------------------------------------------
<S> <C> <C>
Net interest income $ 22,873 $ 21,300
Net income $ 5,074 $ 5,013
Diluted earnings per share $ 0.98 $ 0.98
- ------------------------------------------------------
</TABLE>
26
<PAGE>
On July 31, 1998, Elmore County Bancshares, Inc. ("Elmore County"), headquar-
tered in Tallassee, Alabama, was merged with and into the Company. Under the
terms of the merger, the Company issued 1,711,794 of the Company's common stock
to Elmore County shareholders. Elmore County and its wholly owned subsidiary,
The Bank of Tallassee, had total assets of $91,023,000, deposits of
$75,107,000, and stockholders' equity of $15,768,000 as of July 31, 1998. This
merger was accounted for as a pooling of interests and the financial statements
have been restated accordingly. The Company's consolidated financial data for
the years ended December 31, 1997 and 1996 have been restated as follows (in
thousands, except for per share data):
<TABLE>
<CAPTION>
As As
Previously Effect of Currently
Reported Pooling Reported
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
As of and for the year ended December 31,
1997:
Net interest income $15,653 $ 4,376 $20,029
Net income $ 4,003 $ 1,591 $ 5,594
Stockholders' equity $37,233 $15,093 $52,326
Net income per share (diluted) $ 1.17 $ (0.08) $ 1.09
As of and for the year ended December 31,
1996:
Net interest income $14,444 $ 4,308 $18,752
Net income $ 3,583 $ 1,359 $ 4,942
Stockholders' equity $34,185 $13,675 $47,860
Net income per share (diluted) $ 1.05 $ (0.08) $ 0.97
- ----------------------------------------------------------------------------
</TABLE>
3. Restricted Cash Balances
Aggregate reserves in the form of deposits with the Federal Reserve Bank of
$3,430,000 and $2,300,000 were maintained to satisfy federal regulatory re-
quirements at December 31, 1998 and 1997, respectively.
4. Capital Stock
The Board of Directors declared a two-for-one stock split on May 20, 1997 which
was effected in the form of a 100 percent stock dividend to all shareholders of
record as of June 6, 1997, the ex-dividend date. Common shares totaling
1,693,690 were distributed on June 16, 1997 in connection with the split. The
stated par value of each share was not changed from $0.10. Accordingly, all
prior period information has been restated to reflect the reclassification from
additional paid-in capital to common stock. All share and per share amounts in
earnings per share calculations have been restated to retroactively reflect the
stock split.
27
<PAGE>
5. Investment Securities
The amortized cost and approximate market values of available-for-sale securi-
ties at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998
- -------------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Type Cost Gains Losses Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 14,887,812 $ 295,443 $ 15,183,255
Obligations of other U.S.
government agencies and
corporations 86,915,820 782,818 $(100,172) 87,598,466
Obligations of state and
political subdivisions 4,428,622 157,039 (3,765) 4,581,896
Collateralized mortgage
obligations 24,070,919 25,751 (66,306) 24,030,364
Corporate and other
securities 6,314,510 579 (137,557) 6,177,532
------------------------------------------------
$136,617,683 $1,261,630 $(307,800) $137,571,513
- -------------------------------------------------------------------------------
<CAPTION>
1997
- -------------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Type Cost Gains Losses Value
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U. S. Treasury securities $ 15,872,529 $ 132,413 $ (3,496) $ 16,001,446
Obligations of other U.S.
government agencies and
corporations 55,949,218 290,458 (47,631) 56,192,045
Obligations of state and
political subdivisions 12,576,014 324,542 (15,978) 12,884,578
Collateralized mortgage
obligations 13,014,683 6,885 (85,685) 12,935,883
Mortgage-backed securities 1,965,799 21,409 (6,909) 1,980,299
Corporate and other
securities 7,692,960 38 (194,664) 7,498,334
------------------------------------------------
$107,071,203 $ 775,745 $(354,363) $107,492,585
- -------------------------------------------------------------------------------
</TABLE>
The amortized cost and approximate market value of available-for-sale securi-
ties at December 31,, 1998, by contractual maturity, are shown below. Expected
maturities may differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment pen-
alties.
<TABLE>
<CAPTION>
Available-for-
Sale Securities
- --------------------------------------------------------------------
Amortized Market
Cost Value
- --------------------------------------------------------------------
<S> <C> <C>
Due in one year or less $ 11,691,129 $ 11,756,654
Due after one year through five years 71,397,172 72,314,194
Due after five years through ten years 16,185,386 16,343,030
Due after ten years 8,981,986 8,971,241
CMO's 24,070,919 24,030,364
Equity securities 4,291,091 4,156,030
-------------------------
$136,617,683 $137,571,513
- --------------------------------------------------------------------
</TABLE>
Included within corporate and other securities are $1,952,379 and $874,820 in
marketable equity securities at December 31, 1998 and 1997, respectively. Also
included within corporate and other securities are $2,585,200 of Federal Home
Loan Bank stock at December 31, 1998 and 1997, respectively, and $1,397,200 and
$240,550 of Federal Reserve Bank stock at December 31, 1998 and 1997, respec-
tively.
28
<PAGE>
Proceeds from sales of debt securities during 1998, 1997, and 1996 were
$58,912,181, $25,564,818, and $21,773,727, respectively. Gross gains of
$707,059, $132,446, and $61,247, and gross losses of $150,904, $43,558, and
$8,839 were realized on those sales for 1998, 1997, and 1996, respectively.
Securities with a par value of $61,146,000 and $54,419,446 were pledged as col-
lateral for public funds deposits and repurchase agreements at December 31,
1998 and 1997, respectively.
6. Loans
The major categories of loans at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------
<S> <C> <C>
Commercial and industrial $116,782,753 $103,090,406
Real estate mortgage 120,917,730 106,222,162
Personal 110,306,200 89,807,294
Overdrafts and credit line 10,786,421 7,366,558
-------------------------
358,793,104 306,486,420
-------------------------
Less:
Unearned discount 2,153,557 753,176
Allowance for loan losses 4,291,135 3,445,539
-------------------------
$352,348,412 $302,287,705
- --------------------------------------------------------
</TABLE>
The Bank's lending is concentrated throughout Dallas, Autauga, Butler, Bibb,
Elmore, Shelby, Tallapoosa, and Lee counties in Alabama; the repayment of these
loans is, in part, dependent on the economic conditions in this region of the
state. Management does not believe the loan portfolio contains concentrations
of credit either geographically, or by borrower, which would expose the Bank to
unacceptable amounts of risk. The above loans included agricultural loans to-
taling approximately $21,888,000 and $17,064,000 for 1998 and 1997, respective-
ly. Management continually evaluates the potential risk in this segment of the
portfolio in determining the adequacy of the allowance for possible loan loss-
es.
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, 1998.
Loans on which the accrual of interest has been discontinued or reduced
amounted to approximately $3,888,000 and $1,733,000 for 1998 and 1997, respec-
tively. If these loans had been current throughout their terms, interest income
would have increased approximately $162,000, $57,000, and $77,000 in 1998,
1997, and 1996, respectively.
Changes in the allowance for possible loan losses were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year $ 3,445,529 $ 3,173,350 $ 2,700,982
Additions due to acquisition 592,937
Provision charged to operation 2,335,699 1,866,761 2,114,190
Loans charged off (3,447,385) (2,416,999) (2,378,872)
Recoveries 1,364,355 822,427 737,050
-------------------------------------
Balance, end of year $ 4,291,135 $ 3,445,539 $ 3,173,350
- -------------------------------------------------------------------------
</TABLE>
29
<PAGE>
7. Bank Premises and Equipment
Bank premises and equipment and accumulated depreciation at December 31, 1998
and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Buildings $10,478,743 $8,238,168
Furniture and equipment 11,030,462 10,267,550
Land improvements 254,190 254,190
-----------------------------
21,763,395 18,759,908
Less accumulated depreciation 12,602,034 11,765,524
-----------------------------
9,161,361 6,994,384
Land 1,644,652 1,028,382
-----------------------------
$10,806,013 $8,022,766
- ----------------------------------------------------------------------------
</TABLE>
8. 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>
1998:
Current $2,616,812 $290,517 $2,907,329
Deferred (479,680) 10,056 (469,624)
-------------------------------------------------------------------------
$2,137,132 $300,573 $2,437,705
- -------------------------------------------------------------------------------------------------
1997:
Current $2,339,349 $296,725 $2,636,074
Deferred (153,358) (39,224) (192,582)
-------------------------------------------------------------------------
$2,185,991 $257,501 $2,443,492
- -------------------------------------------------------------------------------------------------
1996:
Current $1,951,877 $242,490 $2,194,367
Deferred (88,488) (1,771) (90,259)
-------------------------------------------------------------------------
$1,863,389 $240,719 $2,104,108
- -------------------------------------------------------------------------------------------------
</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>
1998 1997
- ----------------------------------------------------------------------------
<S> <C> <C>
Allowance for possible loan losses $ 955,159 $686,550
Other real estate owned writedowns 103,123 107,244
Other liabilities and reserves 371,659 263,374
Intangible assets (773,146) 81,472
Bank premises and equipment (1,085,804) (462,924)
Investment securities (713,849) (271,900)
Other 72,383 96,226
----------------------------
Deferred tax asset, net $(1,070,475) $500,042
- ----------------------------------------------------------------------------
</TABLE>
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:
30
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax statutory rate 34.0% 34.0% 34.0%
Nontaxable income on obligations of state and political
subdivisions (3.2) (2.8) (2.6)
Amortization of intangible assets 1.1 0.8 0.3
State income taxes 2.3 2.2 2.0
Acquisition expenses 1.3
Low income housing credit (6.8) (3.8) (3.4)
Other 2.9
--------------------------
Effective tax rate 31.6% 30.4% 30.3%
- -----------------------------------------------------------------------------------------------
</TABLE>
9. 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.
The reconciliation of the beginning and ending balances of the projected bene-
fit obligation and plan assets, as well as disclosure of the plan's funded sta-
tus for the year ended December 31, 1998, 1997, and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at end of prior year $ 5,493,708 $ 5,587,213
Service cost 316,344 331,059
Interest cost 394,531 382,969
Remeasurement 263,861
Amendments (528,078)
Actuarial loss 132,986 4,427
Benefits paid (260,834) (234,956)
Expenses paid (37,034) (48,926)
--------------------------------
Benefit obligation, end of year $ 6,303,562 $ 5,493,708
- ------------------------------------------------------------------------------------------------------
Changes in plan assets:
Fair value of plan assets, end of year $ 5,484,121 $ 5,014,254
Actual return 897,140 53,749
Benefits paid (260,834) (234,956)
Expenses paid (37,034) (48,926)
--------------------------------
Fair value of plan assets, end of year $ 6,083,393 $ 4,784,121
- ------------------------------------------------------------------------------------------------------
Reconciliation of funded status:
Vested benefit obligation $(4,973,149) $(3,598,973)
Accumulated benefit obligation (5,203,043) (4,679,833)
Projected benefit obligation (6,303,562) (5,493,708)
Plan assets at fair value 6,083,393 5,484,121
--------------------------------
Funded status (220,169) (9,587)
Unrecognized net gain (112,923) (55,356)
Unrecognized prior service costs (321,164) (333,777)
Unrecognized net transition asset (113,949) (173,162)
--------------------------------
Accrued benefit liability (768,205) (571,882)
--------------------------------
Net amount recognized $ (768,205) $ (571,882)
- ------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE>
The components of net pension expense for the years ended December 31, 1998,
1997, and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net periodic benefit cost:
Service cost $316,344 $331,059 $263,143
Interest cost 394,531 382,969 320,410
Expected return on assets (427,417) (391,842) (324,135)
Transition asset recognition (59,213) (59,213) (59,213)
Prior service cost amortization (27,922) 38,011 38,011
-----------------------------------
Net periodic benefit cost $196,323 $300,984 $238,216
- --------------------------------------------------------------------------------
</TABLE>
Primary assumptions used to actuarially determine net pension expense are as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 7.00% 7.00% 7.00%
Expected long-term return on assets 8.00% 8.00% 7.00%
Compensation increase rate 5.00% 5.00% 3.50%
- ----------------------------------------------------------------------------
</TABLE>
The Company has deferred compensation agreements with certain key officers of
Elmore County. The agreements are funded through life insurance policies on the
participants. The Company has accrued a deferred compensation liability of
$460,509 and $341,794 as of December 31, 1998 and 1997, respectively. Expenses
incurred relating to these agreements were approximately $204,000, $27,000, and
$24,000 during 1998, 1997, and 1996, respectively.
Effective January 1, 1998, the Company established a qualified employee benefit
plan under Section 401(k) of the Internal Revenue Code covering substantially
all employees. Employees can contribute up to 15% of their salary to the plan
on a pre-tax basis and the Company matches participants' contributions up to
the first 1.5% of each participant's salary. The Company's matching contribu-
tion charged to operations related to this plan was $58,213 for the year ended
December 31, 1998. For the years ended December 31, 1997 and 1996, the Company
charged $426,200 and $346,546, respectively, to operations for matching contri-
butions related to the former plan of Elmore County.
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, 1998 and 1997, the ESOP holds 69,799 and 62,344 shares (re-
stated for stock split) of common stock in the Company, respectively.
10. 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, 1998 under the leases is as
follows:
<TABLE>
<S> <C>
1999 $ 512,350
2000 201,322
2001 144,313
2002 127,354
2003 99,158
Thereafter 30,566
----------
$1,115,063
----------
</TABLE>
The total rental expense was approximately $495,000, $130,000, and $98,000 in
1998, 1997, and 1996, respectively.
32
<PAGE>
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, 1998 will have a materially
adverse effect on the Company's financial statements.
11. 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 $6,060,707 and $8,474,863 at December 31, 1998 and
1997, respectively. A summary of the loan activity with these related parties
during 1998 is shown below:
<TABLE>
<S> <C>
Balance, beginning of year $ 8,474,863
Additions 2,009,445
Payments (4,423,601)
-----------
Balance, end of year $ 6,060,707
-----------
</TABLE>
During 1998, 1997, and 1996, the Company paid legal fees of approximately
$141,000, $143,000, and $105,000, respectively, to a law firm in which a part-
ner of the firm serves on the board of directors of the Company. In addition,
the Company paid $418,058 in construction fees to a construction company owned
by a director of the Company.
12. 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, 1998
<TABLE>
<CAPTION>
Per-
Income Shares share
(Numerator) (Denominator) Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $5,281,055 5,141,885 $1.03
-------------------------------
Effect of dilutive securities
Stock options 19,773
-------------------------------
Diluted EPS $5,281,055 5,161,658 $1.02
- ------------------------------------------------------------------------------
For the year ended December 31, 1997
<CAPTION>
Per-
Income Shares share
(Numerator) (Denominator) Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $5,593,636 5,099,227 $1.10
-------------------------------
Effect of dilutive securities
Stock options 38,030
-------------------------------
Diluted EPS $5,593,636 5,137,257 $1.09
- ------------------------------------------------------------------------------
For the year ended December 31, 1996
<CAPTION>
Per-
Income Shares share
(Numerator) (Denominator) Amount
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS
Income available to common stockholders $4,941,759 5,099,293 $0.97
-------------------------------
Effect of dilutive securities
Stock options 21,056
-------------------------------
Diluted EPS $4,941,759 5,120,349 $0.97
- ------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
13. 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 1998, 1997, and 1996.
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 1 capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier 1 capital (as defined) to average as-
sets (as defined). Management believes, as of December 31, 1998, that the Com-
pany meets all capital adequacy requirements to which it is subject.
As of December 31, 1998, 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 1 risk-
based, and Tier 1 capital ratios as set forth in the table. There are no condi-
tions or events since that notification that management believes have changed
the institution's category.
The Company's and the Bank's actual capital amounts and ratios are also pre-
sented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
- -------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Company
As of December 31, 1998
Total Capital (to Risk
Weighted Assets) $50,297 13.39% $ 30,061 8.00% $ 37,576 10.00%
Tier 1 Capital (to Risk
Weighted Assets) 46,006 12.24% 15,030 4.00% 22,545 6.00%
Tier 1 Capital (to
Average Assets) 46,006 8.85% 20,803 4.00% 26,004 5.00%
As of December 31, 1997
Total Capital (to Risk
Weighted Assets) $54,912 16.97% $ 25,885 8.00% $ 32,356 10.00%
Tier 1 Capital (to Risk
Weighted Assets) 51,467 15.91% 12,942 4.00% 19,414 6.00%
Tier 1 Capital (to
Average Assets) 51,467 12.04% 17,101 4.00% 21,376 5.00%
</TABLE>
34
<PAGE>
<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 Bank
As of December 31, 1998
Total Capital (to Risk
Weighted Assets) $50,771 13.59% $ 29,893 8.00% $ 37,366 10.00%
Tier 1 Capital (to Risk
Weighted Assets) 46,480 12.44% 14,946 4.00% 22,419 6.00%
Tier 1 Capital (to
Average Assets) 48,480 9.16% 21,175 4.00% 26,469 5.00%
As of December 31, 1997
Total Capital (to Risk
Weighted Assets) $54,156 17.10% $ 25,331 8.00% $ 31,664 10.00%
Tier 1 Capital (to Risk
Weighted Assets) 50,724 16.02% 12,666 4.00% 18,998 6.00%
Tier 1 Capital (to
Average Assets) 50,724 11.51% 17,627 4.00% 22,034 5.00%
</TABLE>
14. 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.
15. 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 $40,535,000 and
$29,839,000 in commitments to extend credit at December 31, 1998 and 1997, re-
spectively. The Bank evaluates each customer's credit worthiness on a case-by-
case basis. The amount of collateral obtained if deemed necessary by the Bank
upon extension of credit is based on management's credit evaluation of the cus-
tomer. Collateral held varies, but may include accounts receivable, inventory,
property, plant and equipment, residential real estate and income-producing
commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements, includ-
ing commercial paper, bond financing and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The collateral varies but may in-
clude accounts receivable, inventory, property, plant and equipment and resi-
dential real estate for those commitments for which collateral is deemed neces-
sary. The Bank had approximately $864,000 and $2,391,000 in irrevocable standby
letters of credit at December 31, 1998 and 1997, respectively.
35
<PAGE>
16. Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and Cash Equivalents -- For those short-term instruments, the carrying
amount is a reasonable estimate of fair value.
Investment Securities: Available for Sale -- For debt securities and market-
able equity securities, fair values are based on quoted market prices or
dealer quotes.
Loans -- The fair value of loans is estimated by discounting the future cash
flows using the current rates at which similar loans would be made to bor-
rowers with similar credit ratings and for the same remaining maturities.
Deposits -- The fair value of demand deposits, savings accounts, and certain
money market deposits is the amount payable on demand at the reporting date.
The fair value of fixed-maturity certificates of deposit is estimated using
the rates currently offered for deposits of similar remaining maturities.
Securities Sold Under Agreements to Repurchase and Other Borrowed Funds --
The carrying amount is a reasonable estimate of fair value.
Commitments to Extend Credit and Standby Letters of Credit -- The value of
these unrecognized financial instruments is estimated based on the fee in-
come associated with the commitments. Such fee income is not material to the
Company's financial statements at December 31, 1998 and 1997 and, therefore,
the fair value of these commitments is not presented.
The estimated fair values of the Company's financial instruments at December
31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash
equivalents $ 36,267,452 $ 36,267,452 $ 25,799,127 $ 25,799,127
Investment securities:
available for sale 137,571,513 137,571,513 107,492,585 107,492,585
Loans, net 352,348,412 361,407,083 302,287,705 306,026,991
---------------------------------------------------
$526,187,377 $535,246,048 $435,579,417 $439,318,703
- --------------------------------------------------------------------------------
Financial liabilities:
Deposits $460,809,322 $464,570,590 $374,881,337 $376,092,320
Securities sold under
agreements to
repurchase 5,810,658 5,810,658 4,642,411 4,642,411
Other borrowed funds 28,454,426 28,454,426 17,297,433 17,297,433
---------------------------------------------------
$495,074,406 $498,835,674 $396,821,181 $398,032,164
- --------------------------------------------------------------------------------
</TABLE>
17. Financial Accounting Developments
Reporting of Comprehensive Income -- In June 1997, the Financial Accounting
Standards Board (FASB) issued Statement of Financial Accounting Standards No.
130, Reporting Comprehensive Income (SFAS 130) which establishes standards for
the 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.
36
<PAGE>
Under SFAS 130, the Company has reported changes in unrealized gains and losses
attributable to securities available-for-sale as a component of comprehensive
income. The 1997 and 1996 financial information has been reclassified to con-
form to the requirements of the statement.
Segment Reporting -- In June 1997, the FASB issued SFAS No. 131, Disclosures
About Segments of a Business Enterprise and Related Information. SFAS 131,
which establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and re-
quires that those enterprises report selected information about operating seg-
ments in interim financial reports issued to stockholders. This statement also
establishes standards for related disclosures about products and services, geo-
graphic areas, and major customers. This statement requires the reporting of
financial and descriptive information about an enterprise's reportable operat-
ing segments.
Effective January 1, 1998, the Company adopted SFAS 131. However, separate seg-
ment information is not presented as the Company operates in only one report-
able segment--commercial banking.
Pensions and Other Postretirement Benefits -- In February 1998, the FASB issued
SFAS No. 132, Employers' Disclosures About Pensions and Other Postretirement
Benefits. SFAS 132, which standardizes the disclosure requirements for pensions
and other postretirement benefits, requires additional disclosures regarding
changes in the benefit obligation and fair value of plan assets and eliminates
certain other disclosures. As a result of implementing SFAS 132, the Company
has restated prior year disclosures to conform to the requirements of the
statement.
Accounting for Derivatives and Hedging Activities -- In June 1998, FASB issued
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.
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, by re-
quiring that an entity recognize all derivatives as either assets or liabili-
ties 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 disclo-
sures, as it does not currently possess any derivative instruments.
Mortgage-Backed Securities -- In October 1998, the FASB issued SFAS No. 134,
Accounting for Mortgage-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise, an amendment of
FASB Statement No. 65. SFAS 134 requires that after an entity securitizes mort-
gage loans 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 ac-
counting for securities that have been retained after the securitization of
mortgage loans by a mortgage banking enterprise with (2) the accounting for se-
curities that have been retained after the securitization of other types of as-
sets by a non-mortgage banking enterprise. This statement is effective for the
first fiscal quarter after December 15, 1998. However, since the Company does
not securitize mortgage loans, it does not anticipate any financial statement
impact from adopting this statement.
18. Stock Option Plan
As of December 31, 1998, 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.
37
<PAGE>
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>
1998 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income As reported $5,281,055 $5,593,636 $4,941,759
Pro forma $5,085,818 $5,512,150 $4,889,433
Basic earnings per share As reported $ 1.03 $ 1.10 $ 0.97
Pro forma $ 0.99 $ 1.08 $ 0.96
Diluted earnings per share As reported $ 1.02 $ 1.09 $ 0.97
Pro forma $ 0.99 $ 1.07 $ 0.95
- -------------------------------------------------------------------------------------
</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 1998: dividend yield of 1.88%; expected
volatility of 41.49%; risk-free interest rate of 5.22%; and expected life of
4.02 years. For options granted during 1997, the following weighted-average as-
sumptions were used: 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 1996, the following weighted average assumptions were used: div-
idend yield of 1.76%; expected volatility of 31.2%; risk-free interest rate of
5.02%; and expected life of 8.76 years.
A summary of the status of the Company's plan as of December 31, 1998, 1997,
and 1996, and changes during the years ending on those dates (restated for
stock split--see Note 4) is presented below:
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------------------------------------
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 58,100 $10.44 62,900 $ 8.05 46,700 $ 7.31
Granted 18,900 30.09 16,200 15.88 16,200 10.18
Exercised (34,700) 8.12 (21,000) 7.48
--------------------------------------------------------------------------------
Outstanding at end of
year 42,300 21.13 58,100 10.44 62,900 8.05
--------------------------------------------------------------------------------
Options exercisable at
year-end 7,200 9.40 25,700 7.17 30,500 7.11
Weighted-average per
share fair value of
options granted during
the year $ 10.33 $ 5.03 $ 3.23
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about the Plan's stock options at
December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------------------------------------
Weighted-
Average Weighted Weighted
Number Remaining Average Number Average
Outstanding Contractual Exercise Exercisable Exercise
Range of Exercise Prices at 12/31/98 Life Price at 12/31/98 Price
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$7.50 1,600 6.05 $ 7.50 1,600 $7.50
$9.94 - 10.93 5,600 7.05 9.94 5,600 9.94
$15.50 - 17.05 16,200 6.83 15.88
$29.25 - 32.18 18,900 7.63 30.09
--------------------------------------------------------------------------
Total 42,300 $21.13 7,200 $9.40
- --------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
19. The Peoples BancTrust Company, Inc. (Parent Company Only)
Presented below and on the following pages are the financial statements of The
Peoples BancTrust Company, Inc.
BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks * $ 285,258 $ 290,415
Investment in subsidiary bank, The Peoples Bank
and Trust Company * 57,164,629 51,346,290
Other assets 399,921 1,176,358
------------------------
Total assets $57,849,808 $52,813,063
- --------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividends payable $ 27,849 $ 154,499
Other liabilities 1,101,540 332,398
------------------------
Total liabilities 1,129,389 486,897
------------------------
Common stock, $.10 par value; 9,000,000 shares
authorized; 5,186,940 shares issued 518,694 518,694
Additional paid-in capital 6,286,399 6,567,423
Net unrealized gain (loss) on investments (net
of tax benefits of $222,377 and $102,652,
respectively) 708,512 276,839
Retained earnings 49,843,652 46,099,175
Treasury stock, 38,802 and 71,410 shares,
respectively (636,838) (1,135,965)
------------------------
Total liabilities and stockholders' equity $57,849,808 $52,813,063
- --------------------------------------------------------------------------
</TABLE>
* Eliminated in consolidation
39
<PAGE>
STATEMENTS OF INCOME AND RETAINED EARNINGS
for the years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash dividends received or receivable
from subsidiary* $ 21,861,500 $ 2,180,045 $ 1,916,000
Equity in subsidiary's undistributed
net income* 4,273,689 3,649,786
Dividends received in excess of
subsidiary's net income* (15,270,901)
Other income 82,795 55,627 58,644
Other expense (1,392,339) (915,725) (682,671)
--------------------------------------
Net income 5,281,055 5,593,636 4,941,759
Retained earnings, beginning of period 46,099,175 41,832,699 38,082,605
Less: cash dividends declared 1,536,578 1,327,160 1,191,665
--------------------------------------
Retained earnings, end of year $ 49,843,652 $46,099,175 $41,832,699
- -------------------------------------------------------------------------------
</TABLE>
* Eliminated in consolidation
STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities:
Net income $ 5,281,055 $ 5,593,636 $ 4,941,759
Adjustments to reconcile net income
to net cash provided by operating
activities:
Subsidiary income less than (in
excess of) dividends 15,270,901 (4,273,689) (3,649,786)
Depreciation, amortization, and
accretion 24,699 26,303
Decrease (increase) in other assets 522,842 (121,829) (207,229)
Increase (decrease) in other
liabilities 450,170 93,510 68,852
--------------------------------------
Net cash provided by operating
activities 21,524,968 1,316,327 1,179,899
--------------------------------------
Investing activities:
Acquisition of bank (20,085,000)
--------------------------------------
Net cash used in investing
activities (20,085,000) 0 0
--------------------------------------
Financing activities:
Dividends paid (1,663,228) (1,324,353) (1,197,002)
Stock options exercised 218,103
--------------------------------------
Net cash used in financing
activities (1,445,125) (1,324,353) (1,197,002)
--------------------------------------
Decrease in cash and cash
equivalents (5,157) (8,026) (17,103)
Cash and cash equivalents, beginning of
year 290,415 298,441 315,544
--------------------------------------
Cash and cash equivalents, end of year $ 285,258 $ 290,415 $ 298,441
--------------------------------------
Supplemental schedule of noncash
investing activities:
Contribution of acquired bank to
subsidiary $ 20,085,000
- --------------------------------------------------------------------------------
</TABLE>
* Eliminated in consolidation
40
<PAGE>
THE PEOPLES BANCTRUST COMPANY, INC.
CORPORATE OFFICERS
Richard P. Morthland Andrew C. Bearden, M. Scott Patterson
Chairman, Chief Jr. Executive Vice
Executive Officer and Executive Vice President Secretary
Director President and Chief Virginia L. Sellers
Financial Officer Vice President and
Elam P. Holley, Jr. Assistant Secretary Treasurer
President, Chief John G. Chisolm
Operating Officer, Executive Vice
and Director President Assistant
Secretary
THE PEOPLES BANCTRUST COMPANY, INC. AND THE PEOPLES BANK AND TRUST COMPANY --
DIRECTORS
Dr. Julius R. Brown A. D. Lovelady
President Chairman Directors Emeritus
Wallace Community Lovelady Construction Wallace A. Buchanan
College - Selma Company, Inc. President
Richard P. Morthland Buchanan Hardwoods,
Dr. Clyde B. Cox, Jr. Chairman and Chief Inc.
Executive Officer W. Russell Buster,
Surgeon Jr.
The Peoples Bank and Retired - Bush Hog
Johnny Crear Trust Company Division Allied
President Thomas E. Newton Products
James A. Minter, Jr.
Crear, Inc. d/b/a Senior Partner and Farmer & Ginner
Lighthouse Chairman
Convalescence Newton, Oldacre, Dr. Rex J. Morthland
McDonald Real Estate Chairman Emeritus
Arnold B. Dopson
Chairman Walter Owens
The Peoples Bank and State Farm Agent Dr. C. S. Wilkinson,
Trust Company Jr.
The Bank of Tallassee David Y. Pearce Dentist
Branch Catfish Farmer
B. Frank Wilson
Harry W. Gamble, Jr. Chairman Emeritus
Attorney at Law C. Ernest Smith
Member - Gamble, Mayor of Greenville
Gamble, Calame, and Greenville Shoe Shop
Wilson L.L.C.
Ted M. Henry
Chairman of the Board Julius E. Talton
Henry Brick Company, Chief Executive
Inc. Officer
Network Services,
Elam P. Holley, Jr. Inc.
President and Chief Dr. Daniel P.
Operating Officer Wilbanks
The Peoples Bank and Dentist
Trust Company
Edith Morthland Jones
Film Liaison
THE PEOPLES BANK AND TRUST COMPANY -- ADVISORY BOARDS
Daniel W. McDonald Edward Patridge
Greenville Board Teacher - Auburn Retired - Bank
Barry E. Boan University Montgomery President
Robert T. Wasden Kermit Stephens, Jr.
President - Boan Principal - Cahaba Pressure
Contracting, Inc. Meadowview Christian Treated Timber
Vice President - Boan School
Enterprises, Inc. Robert L. Wilson, Sr. Royce Willie
Vice President - Retired Teacher Brent Industries
Lightwave
Technologies, Inc.
Vice President -
Energies, Inc. McKenzie Board Prattville/Millbrook
J. Earl Bozeman Board
P. Richard Hartley Farmer John L. Boutwell
Partner - Hartley & Farmer, Boutwell
Hickman Attorneys Farms
Grant Brown J. N. Buckner, Jr.
William S. Johnson Plant Manager - Union Attorney at Law
Regional President Camp
Clayton L. Campbell W. Ray Gilliland
William V. Lewis Vice President - Agriculture Broker
President - Southern Amco, Inc.
Generators
Owner - Radio Shack John E. Fischer Jeannie R. Johnson
Retired - John E. Farmer/Historian
Dexter McLendon Fisher Company
McLendon Medical Billy Lowery Reginald Phillips
Supply Owner - McKenzie Bell South
Western Auto
Charles O. Newton
Newton Oil Company & Dwight S. Vickery Eddie E. Pope
State Representative Farmer and Retired Resident Mill
Principal Manager, Union Camp
Frank E. Thigpen
Pharmacist Bibb County Board Daniel N. Power
John Downs Power Building
Allin Whittle Systems
Alabama Power Company Jefferson G.
Principal - W. O. Ratcliffe, Jr.
Parmer Elementary Regional President
School
Warren J. Williamson,
Jr. George P. Walthall,
Attorney at Law Jr.
Partner Williamson Steven Q. Edmonds Attorney at Law
and Williamson Windwood Inns/Edmond
Enterprises
Bobby Leach
Directors Emeritus Regional President
Eric O. Cates Jr. Directors Emeritus
Retired Farmer & Debbie Martin W. Floyd Gilliland
State Representative Mayor of Centreville Retired Farmer
W. J. Williamson William Mayfield George P. Walthall,
Attorney at Law Mayfield Oil Company Sr.
Senior Partner - Retired - USDA Soil
Williamson and J. W. Oakley, Jr. Conservation Service
Williamson Director of
Admissions &
Georgiana Board Placement Director
W. Bryant Blackmon College of
Owner - Nightingale Communications
Uniform Co., Inc. University of Alabama
Audrey M. Gruenwald
Retired Teacher
41
<PAGE>
Lloyd Frank Emfinger, David G. Scott
Shelby County Board Jr. Controller - Boan
Retired Contracting, Inc.
Dan L. Howard
Manager, Dave's Carl W. Fuller Landon K. Smith
Construction & Owner - Fuller City Inspector - City
Builders Warehouse & Gin, Inc. of Greenville
Charles B. Funderburk Cody Wesley
Dr. Phillip C. Retired - Pharmacist President - Harold
Hubbard Wesley Company, Inc.
Owner/CEO -
Countryside Animal
Hospital
O. C. Harden, Jr. Women's Advisory
Harden's True Value Committee
Hardware & Building Betty Brown
James A. Kelly, Sr. Material Elizabeth K. Buchanan
Retired - Chairman of Hollis Mann Betty B. Buster
the Board, Merchants Plant Manager, Mount Carolyn R. Cox
& Planters Bank Vernon Mills, Inc. Shirley Crear
Molly F. Gamble
John P. Kelly Debe D. Henry
Retired - President, Teddy O. Taylor Sandra B. Holley
Merchants & Planters President of Taylor Dorothy B. Lovelady
Bank Petroleum, Inc. Anne Minter
Ann P. Morthland
Dr. Robert M. Greenville Young Bobbie M. Morthland
McChesney Advisory Board Fran W. Pearce
President - Pearle L. Talton
University of Carol C. Lee Doris Plant Thomas
Montevallo Asst. Executive Dorothy R. Wilkinson
Director - Greenville
James D. Seaman Chamber of Commerce
THE PEOPLES BANK AND TRUST COMPANY - OFFICERS
President, Seaman *Virginia L. Sellers
Timber Company
DALLAS COUNTY Vice President and Wal-Mart Branch
DIVISION Treasurer Shirley U. Holmes
Michael A. Truelove
Selma Main Office Julie M. Simmons Assistant Cashier and
Regional President Vice President and Branch Manager
Investment Officer BIBB COUNTY DIVISION
*Richard P. Morthland Centreville Main
Tallassee Board Terry Mosley Office
Chairman and Chief
Executive Officer Phillip R. Wheat
Marketing Engineer -
David W. Baggett, Jr. Boothe, Hinson &
Noack
Vice President and
Automations Officer
J. McDonald Russell
Regional President Probate Judge, Butler
*Elam P. Holley, Jr. County
President and Chief Dawn S. Bastarache *Bobby Leach
Operating Officer
John I. Cottle, III Assistant Vice Regional President
Attorney at Law - President
Bowles & Cottle
*Andrew C. Bearden,
Jr. C. Todd Dawson
Executive Vice Assistant Vice Faye M. Brazier
President and Chief President Vice President/Branch
Financial Officer Manager
Operations/Finance Wesley R. Heaton
Division Manager Marketing Officer
*John G. Chisolm Martha S. Hughes Steve Cottingham
Executive Vice Assistant Vice Assistant Vice
President President and President & Loan
Loan Division Manager Personnel Officer Officer
J. Gregory Suttle
Deborah W. Assistant Vice
*M. Scott Patterson Middlebrooks President & Loan
Executive Vice- Assistant Vice Officer
President and President/Loan Review Woodstock Branch
Investment Officer Officer
Financial Services Linda S. Roberts
Division Manager and Assistant Vice
Secretary President and Rhonda K. Cook
Assistant Trust Assistant Vice
*Lynn D. Swindal Officer President/Branch
Executive Vice John H. Seale Manager & Loan
President Assistant Vice Officer
Retail Division President BUTLER COUNTY
Manager DIVISION
Thomas P. Wilbourne Greenville Main
Thomas J. Gay Assistant Vice Office
Senior Vice President President and
Financial Officer
James C. Harris Jan S. Williamson
Senior Vice President Assistant Vice *William S. Johnson
and Operations President and Retail Regional President
Officer Banking Officer
Peggy M. Allison
W. Forrest Hatfield Camellia Club
Senior Vice Joseph R. Norman, Jr.
President, Credit Vice President
Officer and CRA
Officer Janice P. Barton
Real Estate
Gary M. Pierson Operations Officer Al Landwehr
Senior Vice President Vice President and
and Trust Officer Mortgage Loan Officer
Wanda H. Burns
C. Crenshaw Assistant Personnel
Pritchett, III Officer Margie B. Kelley
Senior Vice President Assistant Vice
President and Branch
Terry L. Pritchett P. Sue Burnside Administration
Senior Vice President Recovery Officer Michael L. Spivey
and Auditor Assistant Vice
President & Consumer
Thomas R. Brumley Kathryn T. Harrison Loan Officer
Butler Square Branch
Vice President Brokerage Officer
Gary L. Lewis
N. P. Chesnut Beverly W. Ingram Consumer Loan Officer
Vice President Administrative
Officer
J. Ronald Edwards Sharon W. Raybon
Vice President and A. Cooper Leach Assistant Cashier and
Loan Review Officer Assistant Automations Branch Manager
Officer
Troy C. Harvill Mac W. Martin Georgiana Branch
Vice President Training Officer Harry D. Poole, Jr.
Assistant Vice
B. Wayne Middlebrooks Sharon Morrison President and Branch
Vice President Manager
Loan Operations Nell M. Lee
Officer Assistant Vice
William C. Porter President/Loan
Officer
Vice President and Mall Branch
Mortgage Loan Officer McKenzie Branch
Clyde E. Rivers Fran Barrett Myra L. Fischer
Vice President and Branch Manager & Loan Vice President and
Trust Officer Officer Branch Manager
*Executive Officer
42
<PAGE>
PRATTVILLE/MILLBROOK Millbrook Branch TALLASSEE DIVISION
DIVISION Joseph J. Lott Tallassee Main Office
Prattville Main Of- Vice
fice President/Business Arnold B. Dopson
Development & Lending
Officer
Tonya Maynard
Consumer Loan Officer Chairman
*Jefferson G.
Ratcliffe, Jr.
*David W. Baggett,
SHELBY COUNTY DIVI- Jr.
Regional President SION Regional President
Montevallo Main Of-
M. Paul Daffin fice John T. Kirby
Vice President & Real Vice President &
Estate Loan Officer *Michael A. Truelove Consumer Loan Officer
Regional President
Sara F. Lolley Jean Price
Vice President Mary Hughes Regional Operations
Vice President and Officer
William M. Patterson, Loan Officer Rodney R. Baker
III Assistant Vice
Vice President and President & Consumer
Commercial Loan Jeannette Morgan Loan Officer
Officer Vice President, Loan
Collector & Loan Jason Griffith
Lawrence D. Vickers Review Consumer Loan Officer
Vice President and Jean Murray
Consumer Loan Officer Vice President and
Branch Manager Mary Hammock
Donald E. Clayton Administrative
Assistant Vice Agnes Niven Officer
President and
Mortgage Loan Officer
Vice President
Eclectic Branch
Kenny F. Hubbard
Assistant Vice
President and
Investments
Prattville East Lana Terrell Harold Patillo
Branch Assistant Vice Vice President and
President and Branch Manager
David W. Lewis Investment Officer Minnie S. Johnson
Consumer Loan Officer Assistant Branch
Manager
LEE COUNTY
Loan Production Of-
fice
James B. Hurst
Regional President
Kevin H. Eason
Vice President
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 Prattville/Millbrook
Bibb County Shelby County Bank of Tallassee
Selma Main Office
Prattville Main Office
Centreville Main Office
The Peoples Tallassee Main
310 Broad Street Bank and Office
148 East Main Street Trust
Company -
Montevallo
44 Peoples Bank Drive
Selma, Alabama 36703 304 Barnett Blvd.
Prattville, Alabama 36067
Centreville, Alabama 35042
334/875-1000 334/365-8806 205/926-4810 P. O. Box 780607
Fax 334/875-1010 Tallassee, Alabama
Fax 334/361-3022 36078-0607
Fax 205/926-7058
Prattville East Branch 835 Main Street
Woodstock Branch
Selma Mall Branch Montevallo, Alabama 35115
1805 East Main Street
28827 Highway 5
1309 Highway 80 East East Tallassee
Prattville, Alabama 36066 Branch
P. O. Box 304
Selma, Alabama 36703 Lee County
334/365-8806
Woodstock, Alabama 35188
605 Central Blvd.
334/418-8400
P. O. Box 780607
Prattmont Branch Opelika /Auburn
Butler County
Tallassee, Alabama
36078-0607
Loan Production Office
Satterfield Plaza Branch Shopping Center
801 South Memorial Drive Branch
1805 West Dallas Avenue P. O. Box 4168 -
Prattville, Alabama 36066
Greenville Main Office
1431 Gateway Drive
Selma, Alabama 36701 605 Roosevelt St.
334/365-8806 300 East Commerce Street
Opelika, Alabama 36803
334/875-1011 P. O. Box 780607
Greenville, Alabama 36037 Tallaweka Branch
Winn Dixie Marketplace Branch Tallassee, Alabama
Plantersville Branch 36078-0607
334/382-6623 1411 Gilmer Ave.
699 East Main Street P.O. Box 780607
Fax 334/382-5048
Highway 22 North
Prattville, Alabama 36067 Tallassee, Alabama
Plantersville, Alabama 36758 36078-0607
334/361-3210 Butler Square Branch
334/366-5544 122 Greenville Bypass Eclectic Branch
Millbrook Office 15 Kowaliga Road P.
Greenville, Alabama 36037 O. Box 222
Wal-Mart Branch3891 Highway 14334/382-6623
1501 Highland Avenue Eclectic, Alabama
Grandview Pines Shopping Center 36024-0222
Selma, Alabama 36703
Millbrook, Alabama 36054
Georgiana Branch
334/418-8462 334/285-0169 230 Miranda Street
Georgiana, Alabama 36033
334/376-2273
McKenzie Branch
Intersection Hwy. 31 and 55
McKenzie, Alabama 36456
*Executive Officer 334/374-2361
43
<PAGE>
MISSION STATEMENT
The Peoples Bank and Trust Company is a community
based retail financial services provider. Meeting and
exceeding the expectations of our customers, our
employees and our stockholders is Our Goal. This can
only be achieved through the dedicated efforts of all
bank employees. To achieve this goal, we must all
strive to provide each other with a fulfilling and
rewarding work environment and act in accordance with
our Core Values. Through these actions we can and will
demonstrate that "People Make the Difference."
44
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Subsidiaries Percentage Owned (1) State of Incorporation
- ------------ --------------------- ----------------------
The Peoples Bank and Trust Company 100% Alabama
The Peoples Agency, Inc. (2) 100% Alabama
Loan Express, Inc. (2) 100% Alabama
___________________
(1) At December 31, 1998.
(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 March 18, 1999, on our audits of the
consolidated financial statements of The Peoples BancTrust Company, Inc. as of
December 31, 1998 and 1997 and for each of the three years in the period ended
December 31, 1998 which report is incorporated by reference in this Annual
Report on Form 10-K.
PricewaterhouseCoopers LLP
Birmingham, Alabama
April 12,
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 22,993
<INT-BEARING-DEPOSITS> 676
<FED-FUNDS-SOLD> 12,598
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 137,572
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 356,640
<ALLOWANCE> (4,291)
<TOTAL-ASSETS> 557,809
<DEPOSITS> 460,809
<SHORT-TERM> 11,811
<LIABILITIES-OTHER> 5,945
<LONG-TERM> 22,454
0
0
<COMMON> 519
<OTHER-SE> 56,201
<TOTAL-LIABILITIES-AND-EQUITY> 557,809
<INTEREST-LOAN> 31,608
<INTEREST-INVEST> 8,029
<INTEREST-OTHER> 830
<INTEREST-TOTAL> 40,467
<INTEREST-DEPOSIT> 16,511
<INTEREST-EXPENSE> 17,798
<INTEREST-INCOME-NET> 22,669
<LOAN-LOSSES> 2,336
<SECURITIES-GAINS> 556
<EXPENSE-OTHER> 19,241
<INCOME-PRETAX> 7,719
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,281
<EPS-PRIMARY> 1.03
<EPS-DILUTED> 1.02
<YIELD-ACTUAL> 4.82
<LOANS-NON> 3,888
<LOANS-PAST> 0
<LOANS-TROUBLED> 187
<LOANS-PROBLEM> 9,086
<ALLOWANCE-OPEN> 3,446
<CHARGE-OFFS> 3,447
<RECOVERIES> 1,367
<ALLOWANCE-CLOSE> 4,291
<ALLOWANCE-DOMESTIC> 4,291
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
