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, 1999
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
incorporation or organization) Identification No.)
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 ($12.125 per share) at which the
stock was sold on March 21, 2000, was approximately $39,316,000. 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 30, 2000, 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, 1999.
Part III:
Portions of the definitive proxy statement for the Annual Meeting of the
Shareholders to be held on April 11, 2000.
<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, Shelby, Tallapossa 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, four branches in Tallassee, three branches in
Prattville, two branches in Greenville, and one branch in each of Plantersville,
Georgiana, McKenzie, Centreville, Millbrook, Montevallo, Eclectic, North Bibb
and Opelika, 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,
----------------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Commercial and industrial $ 127,071 $ 116,783 $ 103,090 $ 91,808 $ 70,950
Real estate - mortgage(1) 200,996 120,918 106,222 88,090 73,415
Personal 99,857 110,306 89,807 86,491 87,295
Overdrafts and credit line 10,767 10,786 7,367 5,261 5,158
----------------------------------------------------------------------------
Total loans $ 438,691 $ 358,793 $ 306,486 $ 271,650 $ 236,818
============================================================================
Less:
Unearned discount $ 1,959 $ 2,154 $ 753 $ 2,349 $ 6,389
Allowance for loan losses 5,333 4,291 3,446 3,173 2,687
----------------------------------------------------------------------------
Total loans, net $ 431,399 $ 352,348 $ 302,287 $ 266,128 $ 227,742
============================================================================
</TABLE>
- ------------------
(1) Includes real estate-construction loans.
The above loans include agricultural loans totaling approximately $22.4
million, $21.9 million, $17.1 million, $16.6 million, and $15.8 million at
December 31, 1999, 1998, 1997, 1996, and 1995 respectively. Such agricultural
loans do not include other business or personal loans the proceeds of which were
used for non-agricultural purposes. The primary source of repayment these loans
is 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, 1999, which is incorporated herein by reference.
Loan Maturities. The following table reflects at December 31, 1999 the
dollar amount of loans maturing or subject to rate adjustment based on their
contractual terms. 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.
3
<PAGE>
<TABLE>
<CAPTION>
0 -3 Months 4 -12 Months 1 -5 Years After 5 Years Total
----------- ------------ ---------- ------------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Commercial and industrial $ 84,019 $ 18,708 $ 17,543 $ 6,801 $ 127,071
Real estate-mortgage 47,401 68,365 11,958 73,272 200,996
Personal, overdrafts and
credit lines 20,151 12,619 69,022 8,832 110,624
---------------------------------------------------------------------------------
$ 151,571 $ 99,692 $ 98,523 $ 88,905 $ 438,691
=================================================================================
Loans with fixed interest rates
Loans with variable interest rates $ 34,691 $ 30,515 $ 91,023 $ 88,348 $ 244,577
---------------------------------------------------------------------------------
116,880 69,177 7,500 557 194,114
=================================================================================
$ 151,571 $ 99,692 $ 98,523 $ 88,905 $ 438,691
=================================================================================
</TABLE>
Note 6 of Notes to Consolidated Financial Statements in BancTrust's Annual
Report to Stockholders for the year ended December 31, 1999 (Exhibit No. 13) is
incorporated herein by reference.
Commercial and Industrial Loans. These 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, equipment and capital expansion. At December 31, 1999, commercial and
industrial loans outstanding totaled $127 million, or 28.97% 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, 1999, BancTrust had $201 million, or 45.82% of its
total net loan portfolio, in real estate mortgage loans.
Personal Loans. At December 31, 1999, BancTrust's personal loan portfolio
totaled $100 million, or 22.77% 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 its monitoring and review
processes provide sufficient safeguards. 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, 1999,
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 that are 90 days past due are placed on
nonaccrual status, 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,
-------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(In thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a nonaccrual basis...............................$ 2,840 $ 3,888 $ 1,733 $ 2,048 $ 1,651
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............................................................... 71 187 69 294 301
The gross interest income that would have been recorded in the
period 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................................................................ 310 162 57 77 105
The amount of interest income on nonaccrual and restructured loans
that was included in net income for the period........................ 42 58 26 27 40
</TABLE>
Management of BancTrust has identified certain loans totaling approximately
$8.2 million at December 31, 1999 (including loans identified in the above
table) which it has determined require special attention due to potential
weaknesses. The largest five loans aggregated approximately $2.6 million and
ranged in size from $310,000 to $700,000. It is management's opinion that the
allowance for loan losses (see below) is adequate to absorb probable 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, 1999 by loan category and the amount and type of collateral
securing such loans.
Loan Category / Collateral Amount
-------------------------- ------
(In thousands)
Commercial and Industrial:
Collateralized by Real Estate.......... $ 2,474
Collateralized by Other (1)............ 2,527
Unsecured.............................. 1,581
--------------
Total Commercial and Industrial........ 6,582
--------------
Real Estate-Mortgage
Personal:
Collateralized by Real Estate.......... 1,321
Collateralized by Other (1)............ 178
Unsecured.............................. 99
--------------
Total Real Estate-Mortgage............. 1,598
--------------
Total......................... $ 8,180
==============
- ----------------------
(1) Includes approximately $2 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, 1999 (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 enough 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 increases the
allowance. In determining the provision for possible loan losses, management
monitors fluctuations in the allowance resulting from actual charge-offs and
recoveries. Also, management periodically reviews the size and composition of
the loan portfolio in light of economic conditions in an effort to evaluate
portfolio risks. Ultimately, the amount of the provision charged against income
is an amount sufficient to maintain the allowance at a level consistent with
management's assessment of the aforementioned portfolio risks as of the date of
such assessment.
6
<PAGE>
The following is a summary of activity in the allowance for loan losses:
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------
(in thousands)
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 4,291 $ 3,446 $ 3,173 $ 2,701 $ 2,722
Charge-offs:
Commercial and industrial 1,252 1,622 346 390 454
Real estate-mortgage (1) 129 19 66 40 20
Personal 3,062 1,739 1,974 1,892 1,357
Overdrafts and credit lines 73 68 30 57 14
---------------------------------------------------------------------------
Total charge-offs 4,516 3,448 2,416 2,379 1,845
Recoveries:
Commercial and industrial 191 524 71 64 86
Real estate-mortgage (1) 22 96 38 45 21
Personal 807 738 702 622 785
Overdrafts and credit lines 20 7 11 6 2
---------------------------------------------------------------------------
Total recoveries 1,040 1,365 822 737 894
Net charge-offs (3,476) (2,083) (1,594) (1,642) (951)
Provision charged to operations 4,520 2,336 1,867 2,114 930
Additions due to acquisition - 592 - - -
---------------------------------------------------------------------------
Balance at end of year $ 5,335 $ 4,291 $ 3,446 $ 3,173 $ 2,701
===========================================================================
Ratio of net charge-offs to average loans
outstanding, net of unearned discounts, during
the period 0.90% 0.67% 0.59% 0.69% 0.45%
===========================================================================
</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,
------------------------------------------------------------
1999 1998 1997
--------------------- ----------------- ----------------
(Dollars in thousands)
% Amount % Amount % Amount
- ------ - ------ - ------
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial 33% $ 1,771 28% $1,201 33% $1,138
Real estate mortgage (1) 3% 180 5% 215 16% 552
Personal 62% 3,292 65% 2,789 50% 1,724
Overdraft and credit line 2% 90 2% 86 1% 32
--------------------- ----------------- ----------------
Total Allowance 100% $ 5,333 100% $ 4,291 100% $3,446
===================== ================= ================
</TABLE>
7
<PAGE>
At December 31,
--------------------------------------
1996 1995
------------------- ------------------
(Dollars in thousands)
% Amount % Amount
- ------ - ------
Commercial and industrial 26% $817 34% $ 924
Real estate mortgage (1) 17% 553 23% 614
Personal 55% 1,752 41% 1,104
Overdraft and credit line 2% 51 2% 45
------------------- ------------------
Total Allowance 100% $ 3,173 100% $ 2,687
=================== ==================
(1) Includes real estate-construction loans.
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 contained in BancTrust's Annual Report to
Stockholders for the year ended December 31, 1999 (Exhibit No. 13) which is
incorporated herein by reference. There were no securities classified as
held-to-maturity or trading at December 31, 1999, 1998 and 1997. The following
table sets forth the amount of securities available-for-sale by major categories
held by BancTrust at December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
At December 31,
1999 1998 1997
---- ---- ----
Securities Available for Sale (In thousands)
- -----------------------------
<S> <C> <C> <C>
U.S. Treasury, U.S. Agencies and corporations $ 81,001 $ 102,781 $ 72,193
Obligations of states and political subdivisions 2,198 4,582 12,885
Corporate and other securities 36,360 30,208 22,414
----------------------------------------
$ 119,559 $ 137,571 $107,492
</TABLE>
Corporate and other securities as of December 31, 1999, were comprised of
the following:
Securities Available
For Sale
---------------------
(In thousands)
Corporate notes......................................... $ 2,944
Mortgage backed securities.............................. 22,876
Mutual funds............................................ 2,401
Common stock............................................ 4,075
Other securities........................................ 4,064
---------------------
$ 36,360
=====================
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 default risk.
For information regarding the amortized cost and approximate market value
of securities at December 31, 1999, 1998 and 1997, see Note 5 of Notes to
Consolidated Financial Statements contained in BancTrust's Annual Report to
Stockholders for the year ended December 31, 1999 (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,
1999.
<TABLE>
<CAPTION>
Maturity (in years)
--------------------------------------------------------------
0-3 Months 4-12 Months Over 1 to 5 Over 5 to 10 Over 10 No Specific
---------- ----------- ----------- ------------ ------- -----------
Due Date
--------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury, U.S. agencies and
corporations $ 500 $ 3,001 $ 66,034 $ 3,113 $ - $ -
Obligations of states and political
subdivisions - 150 1,201 420 453 -
Corporate and other securities - 253 6,176 4,780 29,436 6,656
--------------------------------------------------------------------------------
Total $ 500 $ 3,404 $ 73,411 $ 8,313 $29,889 $6,656
================================================================================
Weighted average yield(1) 4.92% 4.18% 5.83% 6.09% 5.39% 6.51%
================================================================================
</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, 1999, 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, 1999
(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, Certificates of Deposit and Jumbo Certificates of
Deposit. Deposits are attracted from individuals, partnerships and corporations
primarily 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. As of December 31, 1999, BancTrust's total deposits
were $489.3 million. BancTrust was in receipt of $15 million in brokered time
deposits at December 31, 1999.
The following table indicates the amount of BancTrust's certificates of
deposit and other time deposits, including brokered time deposits, of $100,000
or more by time remaining until maturity as of December 31, 1999.
Maturity Period Certificates of Other Time
--------------- Deposit Deposits
------- --------
(In thousands)
Three months or less............... $ 45,302 $ 87,103
Over three through six months...... 50,038 1,555
Over six through twelve months..... 34,551 1,074
Over twelve months................. 43,113 1,479
----------------------------------
$173,004 $ 91,211
==================================
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,
-----------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------ ------------------------
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 $ 67,193 0.00% $ 64,735 0.00% $ 59,389 0.00%
Interest bearing demand deposits 106,806 2.53% 96,687 2.88% 80,605 3.47%
Savings deposits 45,434 2.48% 44,281 3.00% 35,769 2.86%
Time deposits 249,952 5.02% 228,347 5.43% 184,890 5.44%
-------------- ------------- ------------
Total deposits $469,385 3.49% $434,050 3.80% $360,653 3.85%
============== ============= ============
</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 several other
Alabama bank holding companies. It also competes with independent banks, several
credit unions, and various other nonbank financial companies.
The banking business in Alabama generally, and in BancTrust's primary
service areas specifically, is 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).
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, 1999, BancTrust employed 337 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, 1999, 1998 and 1997.
Year Ended December 31,
------------------------------
1999 1998 1997*
---- ---- -----
Return on assets:
Net income/average total assets 0.92% 1.02% 1.31%
Return on equity:
Net income/average equity 9.30% 9.68% 11.00%
Dividend payout ratio:
Dividends declared per
share/net income per share 33.50% 31.86% 28.44%
Equity to assets ratio:
Average equity/average total assets 9.90% 10.50% 11.88%
* Per share data 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.
Financial Modernization Legislation. On November 12, 1999, the
Gramm-Leach-Bliley Act of 1999 (the "GLB Act") was signed into law. The GLB Act
includes a number of provisions intended to modernize and to increase
competition in the American financial services industry, including authority for
bank holding companies to engage in a wider range of nonbanking activities,
including securities underwriting and general insurance activities. Under the
GLB Act, a bank holding company that elects to become a financial holding
company may engage in any activity that the FRB, in consultation with the
Secretary of the Treasury, determines by regulation or order is (i) financial in
nature, (ii) incidental to any such financial activity, or (iii) complementary
to any such financial activity and does not pose a substantial risk to the
safety or soundness of depository institutions or the financial system
generally. The GLB Act specifies certain activities that are deemed to be
financial in nature, including lending, exchanging, transferring, investing for
others, or safeguarding money or securities; underwriting and selling insurance;
providing financial, investment, or economic advisory services; underwriting,
dealing in or making a market in, securities; and any activity currently
permitted for bank holding companies by the FRB under section 4(c)(8) of the
Holding Company Act. A bank holding company may elect to be treated as a
financial holding company only if all depository institution subsidiaries of the
holding company are and continue to be well-capitalized and well-managed and
have at least a satisfactory rating under the Community Reinvestment Act.
National banks are also authorized by the GLB Act to engage, through
"financial subsidiaries," in any activity that is permissible for a financial
holding company (as described above) and any activity that the Secretary of the
Treasury, in consultation with the FRB, determines is financial in nature or
incidental to any such financial activity, except (i) insurance underwriting,
(ii) real estate development or real estate investment activities (unless
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otherwise permitted by law), (iii) insurance company portfolio investments and
(iv) merchant banking. The authority of a national bank to invest in a financial
subsidiary is subject to a number of conditions, including, among other things,
requirements that the bank must be well-managed and well-capitalized (after
deducting from capital the bank's outstanding investments in financial
subsidiaries). The GLB Act also provides that state banks may invest in
financial subsidiaries (assuming they have the requisite investment authority
under applicable state law) subject to the same conditions that apply to
national bank investments in financial subsidiaries.
The GLB Act also adopts a number of consumer protections, including
provisions intended to protect privacy of bank customers' financial information
and provisions requiring disclosure of ATM fees imposed by banks on customers of
other banks.
Most of the GLB Act's provisions have delayed effective dates and require
the adoption of implementing regulations to implement the statutory provisions.
At this time, BancTrust has not determined whether it will become a financial
holding company in order to utilize the expanded powers offered by the GLB Act,
and Peoples Bank is unable to predict the impact of the GLB Act's financial
subsidiary provisions and consumer protections on its operations.
Bank Holding Company Regulation. BancTrust is registered as a bank holding
company under the Holding Company Act and, as such, is subject to supervision
and regulation by the FRB. BancTrust 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
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.
As a bank holding company, BancTrust is prohibited under the BHC Act, with
certain exceptions, 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 that, 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 GLB Act greatly expands the scope of business activities permissible
for bank holding companies by creating the new classification of "financial
holding companies." Effective March 11, 2000, the GLBA Act will permit a bank
holding company, upon classification as a financial holding company and assuming
such holding company's subsidiary banks meet certain requirements, to engage in
a broad variety of activities "financial" in nature. See "Regulation,
Supervision and Governmental Policy - Financial Modernization Legislation."
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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. In addition, 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.
There are statutory and regulatory restrictions on the ability of Peoples
Bank to pay dividends to BancTrust. Specifically, the approval of the FRB and
the Banking Department is required if the total of all the dividends declared by
Peoples Bank in any calendar year exceeds its net income for that year combined
with its retained net income for the preceding two calendar years. Peoples Bank
received approval in 1999 for the payment of its dividends to BancTrust and also
will be required to obtain regulatory approval for its dividend payments in
2000.
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 BancTrust's financial statements. See "-- Capital
Requirements."
As a federally insured bank, Peoples Bank is required to pay deposit
insurance assessments to the FDIC based on a percentage of its insured deposits.
Under the FDIC's risk-based deposit insurance assessment system, the assessment
rate for an insured bank depends on the assessment risk classification assigned
to the bank. The FDIC has set the 2000 annual insurance assessment rates
applicable to Bank Insurance Fund ("BIF") member 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, 1999. In addition
to deposit insurance assessments, FDIC-insured institutions are required to pay
assessments to the FDIC at an annual rate of approximately 0.02% of insured
deposits to fund interest payments on certain bonds issued by the Financing
Corporation, an agency of the federal government established to recapitalize the
predecessor to the Savings Institution Insurance Fund.
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.
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The regulations of the FRB require bank holding companies and state member
banks to maintain a minimum leverage ratio of "Tier 1 capital" (as defined in
the risk-based capital guidelines discussed in the following paragraphs) to
total assets of 3.0%. Although setting a minimum 3.0% leverage ratio, the
regulations state that only the strongest bank holding companies and banks, with
composite examination ratings of 1 under the rating system used by the federal
bank regulators, would be permitted to operate at or near such minimum level of
capital. All other bank holding companies and banks are expected to maintain a
leverage ratio of at least 1% to 2% above the minimum ratio, depending on the
assessment of an individual organization's capital adequacy by its primary
regulator. Any bank or bank holding company experiencing or anticipating
significant growth would be expected to maintain capital well above the minimum
levels. In addition, the FRB has indicated that whenever appropriate, and in
particular when a bank holding company is undertaking expansion, seeking to
engage in new activities or otherwise facing unusual or abnormal risks, it will
consider, on a case-by-case basis, the level of an organization's ratio of
tangible Tier 1 capital (after deducting all intangibles) to total assets in
making an overall assessment of capital.
The risk-based capital rules of the FRB require bank holding companies and
state member banks to maintain minimum regulatory capital levels based upon a
weighing of their assets and off-balance sheet obligations according to risk.
The risk-based capital rules have two basic components: a core capital (Tier 1)
requirement and a supplementary capital (Tier 2) requirement. Core capital
consists primarily of common stockholders' equity, certain perpetual preferred
stock (which must be noncumulative with respect to banks), and minority
interests in the equity accounts of consolidated subsidiaries; less intangible
assets (primarily goodwill), with limited exceptions for mortgage servicing
rights and purchased credit card relationships. Supplementary capital elements
include, subject to certain limitations, the allowance for losses on loans and
leases; perpetual preferred stock that does not qualify for Tier 1 and long-term
preferred stock with an original maturity of at least 20 years from issuance;
hybrid capital instruments, including perpetual debt and mandatory convertible
securities; and subordinated debt and intermediate-term preferred stock. The
risk-based capital regulations assign balance sheet assets and credit equivalent
amounts of off-balance sheet obligations to one of four broad risk categories
based principally on the degree of credit risk associated with the obligor. The
assets and off-balance sheet items in the four risk categories are weighted at
0%, 20%, 50% and 100%. These computations result in the total risk-weighted
assets.
The risk-based capital regulations require all banks and bank holding
companies to maintain a minimum ratio of total capital to total risk-weighted
assets of 8%, with at least 4% as core capital. For the purpose of calculating
these ratios: (i) supplementary capital will be limited to no more than 100% of
core capital; and (ii) the aggregate amount of certain types of supplementary
capital will be limited. In addition, the risk-based capital regulations limit
the allowance for loan losses includible as capital to 1.25% of total
risk-weighted assets.
In addition, the FRB's capital guidelines require the agency to take into
consideration concentrations of credit risk and risks from non-traditional
activities, as well as a bank's ability to manage those risks, when determining
a bank's capital adequacy. Such evaluation will be made as a part of the bank's
regular safety and soundness examination. The FRB's guidelines also specify that
its assessment of a bank's capital adequacy will include an assessment of the
bank's interest rate risk (that is, the bank's exposure to declines in the
economic value of its capital due to changes in interest rates) and authorizing
the agency to require a bank to hold additional capital for its interest rate
risk exposure.
The FRB has adopted 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 the 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 falls within any of the three
"undercapitalized" categories is subjected to certain severe regulatory
sanctions. As of December 31, 1999, Peoples Bank was categorized as
"well-capitalized."
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See Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and Note 13 of Notes to Consolidated Financial
Statements contained in BancTrust's Annual Report to Stockholders for the year
ended December 31, 1999 (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 that 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 30, 2000, Peoples Bank maintained 23 branches in Dallas, Autauga,
Butler, Bibb, Elmore, Shelby, Tallapoosa and Lee counties, of which 6 are
leased. Peoples Bank has applied for and received regulatory approval for the
establishment of a branch located at 4949 Highway 17 in Helena, Alabama. It is
anticipated that the aforementioned branch will open in April 2000.
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 Co., Circuit Court of Dallas County, Alabama, Case No.CV-95-295. This case
was filed on October 18,1995. The Plantiff, a contractor, was constructing a
house for a customer of the Bank who had borrowed construction monies for that
purpose. The Bank customer sued the contractor, alleging that he failed to
complete the construction. The contractor contended that the Bank owed funds for
the construction to him as a third party beneficiary. He further
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alleged misrepresentation by the Bank and sought unspecified compensatory and
punitive damages. The Bank denied 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. The Bank has
been advised that the owner and contractor, through mediation or arbitration,
have settled their disputes in this separate litigation. The attorney for the
Plantiff contractor, however, did not seek to place this case on an active
docket. The Bank is filing a motion to have the case dismissed for failure of
the Plantiff to pursue the case. If the Plantiff does intend to pursue the case,
the Bank will vigorously defend it.
See Note 10 of Notes to Consolidated Financial Statements contained in
BancTrust's Annual Report to Stockholders for the year ended December 31, 1999
(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, 58, 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., 49, 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., 53, 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 Priesident 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, 51, 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, 57, 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, 46, 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.
WILLIAM S. JOHNSON, 50, 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, 51, 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.
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JEFFERSON G. RATCLIFFE, JR., 38, 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.
MICHAEL A. TRUELOVE, 37, 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., 35, 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, inTallassee, Alabama.
JAMES B. HURST, 44, is currently Regional President of the Lee County
Division of Peoples Bank. Mr. Hurst joined Peoples Bank in September of 1998.
Prior to joining Peoples Bank, Mr. Hurst was President and Chief Executive
Officer of Eagle Bank of Alabama, in Opelika, 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 officer 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, 1999
(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, BancTrust might declare dividends 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, 1999 (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, 1999 (Exhibit No. 13) is incorporated herein by
reference.
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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, 1999 (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 December 31, 1999 (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, 1999 (Exhibit No. 13), 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 17, 2000, 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 17, 2000,
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 17, 2000, 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 17, 2000, 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 17, 2000, 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.
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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,
1999, are incorporated herein by reference in Item 8 of this Report. The
remaining information appearing in the Annual Report to Stockholders is not
deemed to be filed as part of this Report, except as expressly provided herein.
1. Report of Independent Accountants.
2. Consolidated Balance Sheets - December 31, 1999 and 1998.
3. Consolidated Statements of Income for the Years Ended December 31,
1999, 1998 and 1997.
4. Consolidated Statements of Comprehensive Income for the Years Ended
December 31, 1999, 1998 and 1997.
5. Consolidated Statements of Changes in Stockholders' Equity for the
Years Ended December 31, 1999, 1998 and 1997.
6. Consolidated Statements of Cash Flows for the Years Ended December 31,
1999, 1998 and 1997.
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,
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Exhibit No. 10. Stock Option Plans
(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.
(ii) 1999 Stock Option Plan - Incorporated herein by reference to
Exhibit 99.1 to the Registrant's Registration Statement on Form
S-8 (File No. 333-77109).
Exhibit No. 13. Annual Report to Stockholders
Except for those portions of the Annual Report to Stockholders for the
year ended December 31, 1999, 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.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
behalf by the undersigned, thereunto duly authorized.
THE PEOPLES BANCTRUST COMPANY, INC.
(Registrant)
Date: March 30, 2000 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
- ------------------------------------ March 30, 2000
Richard P. Morthland
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
/s/ Andrew C. Bearden, Jr.
- ------------------------------------ March 30, 2000
Andrew C. Bearden, Jr.
Executive Vice President and
Chief Financial Officer
/s/ Thomas P. Wilbourne
- ------------------------------------ March 30, 2000
Thomas P. Wilbourne
Assistant Vice President and Assistant Treasurer
(Principal Accounting Officer)
/s/ Clyde B. Cox, Jr.
- ------------------------------------ March 30, 2000
Clyde B. Cox, Jr.
Director
/s/ John Crear
- ------------------------------------ March 30, 2000
John Crear
Director
/s/ Arnold B. Dopson
- ------------------------------------ March 30, 2000
Arnold B. Dopson
Director
21
<PAGE>
/s/ Harry W. Gamble, Jr.
- ------------------------------------ March 30, 2000
Harry W. Gamble, Jr.
Director
/s/ Ted M. Henry
- ------------------------------------ March 30, 2000
Ted M. Henry
Director
/s/ Elam P. Holley, Jr.
- ------------------------------------ March 30, 2000
Elam P. Holley, Jr.
Director, President and
Chief Operating Officer
/s/ Edith M. Jones
- ------------------------------------ March 30, 2000
Edith M. Jones
Director
/s/ A.D. Lovelady
- ------------------------------------ March 30, 2000
A.D. Lovelady
Director
/s/ Thomas E. Newton
- ------------------------------------ March 30, 2000
Thomas E. Newton
Director
/s/ Walter Owens
- ------------------------------------ March 30, 2000
Walter Owens
Director
/s/ David Y. Pearce
- ------------------------------------ March 30, 2000
David Y. Pearce
Director
/s/ C. Earnest Smith
- ------------------------------------ March 30, 2000
C. Ernest Smith
Director
/s/ Julius E. Talton,Jr.
- ------------------------------------ March 30, 2000
Julius E. Talton, Jr.
Director
/s/ Daniel P. Wilbanks
- ------------------------------------ March 30, 2000
Daniel P. Wilbanks
Director
22
EXHIBIT 3.(II)
BYLAWS OF
THE PEOPLES BANCTRUST COMPANY, INC.
ARTICLE I
MEETING OF SHAREHOLDERS
-----------------------
SECTION 1.1 ANNUAL MEETING. The regular annual meeting of the shareholders
for the election of directors, and the transaction of whatever other business
may properly come before the meeting, shall be held at the Main Office of the
Corporation, or such other places as the Board of Directors may designate, on
the second Tuesday of May of each year. If from any cause the annual meeting is
not held on the above day or an election of directors is not made on the day of
the annual meeting, the Board of Directors shall order the annual meeting or
meeting for the election of directors to be held on some subsequent day, as soon
thereafter as practicable, and notice thereof shall be given in the manner
provided for herein.
SECTION 1.2 SPECIAL MEETINGS. Except as otherwise specifically provided by
statute, special meetings of the shareholders may be called for any purpose at
any time by the Board of Directors, the Chairman of the Board, the President, or
any shareholder or shareholders owning, in the aggregate, not less than
thirty-three and one-third percent of all of the shares of the Corporation
entitled to vote at the meeting.
SECTION 1.3 NOTICE OF SHAREHOLDERS' MEETINGS. Written notice stating the
place, day and hour of the meeting and, in case of a special meeting, the
purpose or purposes for which the meeting is called, shall be delivered either
personally, by mail, by facsimile transmission, or other form of wire or
electronic transmission as may be authorized by the Alabama Business Corporation
Act, by or at the discretion of the Chairman, President, the Secretary, or other
officer or persons calling the meeting, to each shareholder of record entitled
to vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail addressed to the shareholder at his
address as it appears on the current record of shareholders of the Corporation,
with postage thereon prepaid. Such notice shall be delivered not less than ten
or more than 60 days before the meeting date, unless the laws or Constitution of
the State of Alabama, as the same may be amended from time to time, require a
different notice period. Notice may be waived in writing, whether before or
after the time stated therein.
SECTION 1.4 PROXIES. Shareholders may vote at any meeting of the
shareholders by proxies executed in writing by the shareholder or by his duly
authorized attorney-in-fact. Proxies shall be dated and shall be filed with the
records of the meeting.
SECTION 1.5 VOTING OF SHARES. In all elections of directors, each holder of
common stock shall be entitled to one vote for each share of such stock owned by
him, and may vote either in person or by proxy. In the election of directors, no
shareholder shall have the right of cumulative voting of his shares.
SECTION 1.6 QUORUM. A majority of the outstanding capital stock,
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law; but less than a quorum may
adjourn any meeting, from time to time, and the meeting may be held, as
adjourned, without further notice. A majority of the votes cast shall decide
every
<PAGE>
question or matter submitted to the shareholders at any meeting, unless
otherwise provided by law or by the Articles of Incorporation.
SECTION 1.7 NOMINATIONS AND BUSINESS AT ANNUAL MEETING.
A. NOMINEES. Only persons who are nominated in accordance with the
procedures set forth in this paragraph A shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors of
the Corporation may be made at an annual meeting of shareholders by or at
the direction of the Board of Directors or by any shareholder of the
Corporation entitled to vote for the election of directors at the meeting
who complies with the notice procedures set forth in this paragraph A. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices of
the Corporation not less than 30 days nor more than 90 days prior to the
annual meeting; provided, however, that in the event that less than 45
days' notice or prior public disclosure of the date of the annual meeting
is given or made to shareholders, notice by the shareholder to be timely
must be so received not later than the close of business on the 15th day
following the day on which such notice of the date of the annual meeting
was mailed or such public disclosure was made. Such shareholder's notice
shall set forth (i) as to each person who the shareholder proposes to
nominate for election as a director, (a) the name, age, business address
and residence address of such person, (b) the principal occupation or
employment of such person, (c) the class and number of shares of the
Corporation which are beneficially owned by such person, and (d) any other
information relating to such person that is required to be disclosed in
solicitations or proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A, or any successor
regulation, under the Securities Exchange Act of 1934, as amended
(including without limitation such person's written consent to being named
in the proxy statement as a nominee and to serving as a director if
elected); and (ii) as to the shareholder giving notice, (a) the name and
address, as they appear on the Corporation's books, of such shareholder and
(b) the class and number of shares of the Corporation which are
beneficially owned by such shareholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a shareholder's notice of nomination which
pertains to the nominee. No person shall be eligible for election as a
director of the Corporation unless nominated in accordance with the
procedures set forth in this paragraph A. The Chairman of the annual
meeting shall, if the facts warrant, determine that a nomination was not
made in accordance with procedures prescribed herein, and if he should so
determine, he shall so declare to the annual meeting and the defective
nomination shall be disregarded.
B. BUSINESS AT ANNUAL MEETINGS. At an annual meeting of the
shareholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an
annual meeting, business must be (i) specified in the notice of meeting (or
any supplement thereto) given by or at the direction of the Board of
Directors, (ii) otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or (iii) otherwise properly brought
before the meeting by a shareholder.
For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a shareholder's
notice must be delivered to or mailed and received at the principal
executive offices of the Corporation not less than 30 days nor more than 90
days prior to the meeting; provided, however, than in the event that less
than 45 days' notice or prior public disclosure of the date of the meeting
is given or made to shareholders, notice by the stockholder to be timely
must be so received not later than the close of business on the 15th day
2
<PAGE>
following the day on which such notice of the date of the annual meeting
was mailed or such public disclosure was made. A shareholder's notice to
the Secretary shall set forth as to each matter the shareholder proposes to
bring before the annual meeting (i) a brief description of the business
desired to be brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name and address,
as they appear on the Corporation's books, of the shareholder proposing
such business, (iii) the class and number of shares of the Corporation
which are beneficially owned by the shareholder and (iv) any material
interest of the shareholder in such business. Notwithstanding anything
herein to the contrary, no business shall be conducted at an annual meeting
except in accordance with the procedures set forth in this paragraph B. The
Chairman of an annual meeting shall, if the facts warrant, determine that a
matter of business was not properly brought before the meeting in
accordance with the provisions herein, and if he should so determine, he
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
SECTION 1.8 ACTION WITHOUT A MEETING. Notwithstanding other provisions of
these bylaws, any action which may be taken at a meeting of the shareholders,
including the election of directors, may be taken without a meeting if a consent
in writing of all shareholders entitled to vote is obtained pursuant to Alabama
law.
SECTION II
DIRECTORS
---------
SECTION 2.1 BOARD OF DIRECTORS. The Board of Directors (hereinafter
referred to as the "Board") shall have the power to manage and administer the
business and affairs of the Corporation. Except as expressly limited by law, all
corporate powers of the Corporation shall be vested in and may be exercised by
said Board.
SECTION 2.2 NUMBER. The number of directors of the Corporation shall be a
variable range which is fixed at a minimum number of three and a maximum number
of eighteen (exclusive of directors, if any, to be elected by holders of
preferred stock of the Corporation, voting separately as a class). The number of
directors may be fixed or changed from time to time, within the minimum and
maximum, by the Board of Directors; provided that no action shall be taken to
decrease or increase the number of directors unless at least two-thirds of the
directors then in office, whether or not a quorum, shall concur in said action.
SECTION 2.3 REGULAR MEETINGS. The regular meetings of the Board of
Directors shall be held at least semi-annually on such dates and at such places
as the President or Secretary may designate.
SECTION 2.4 SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the President, Secretary, or at the request of one-third or
more of the directors. Each member of the Board of Directors shall be given
notice either in writing, or in person, or by telephone, stating the time and
place of such special meeting.
SECTION 2.5 QUORUM. A majority of the directors shall constitute a quorum
at any meeting, except when otherwise provided by law; but a less number may
adjourn any meeting, from time to time, and the meeting may be held, as
adjourned, without further notice.
SECTION 2.6 VACANCIES IN BOARD OF DIRECTORS. Vacancies in the Board of
Directors of the Corporation, however caused, and newly created directorships
shall be filled by a vote of two-thirds of the directors then in office, whether
or not a quorum.
3
<PAGE>
SECTION 2.7 REMOVAL OF DIRECTOR. A director, or the entire Board of
Directors, may be removed only in accordance with Section 6.2 of the Articles of
Incorporation.
SECTION 2.8 DIRECTORS EMERITUS. There is created a status known as Director
Emeritus, which shall be an honorary position for those directors who have
reached the age of 70 years or who have become incapacitated while in office.
These positions may be filled by the Board or by the shareholders. The persons
elected to this position shall not be voting members of the Board and shall not
have any of the duties or responsibilities of a director, but shall have the
right to attend meetings and be compensated for their services. No such director
emeritus shall be counted as a member of the Board for the purposes set forth
under this Article II of these bylaws, or for any other purpose.
SECTION 2.9 INCAPACITY OF DIRECTOR. In the event a director shall become
physically or mentally incapacitated, the remaining members of the Board shall
have the authority to so declare that person incapacitated and remove that
person from the office of director.
SECTION 2.10 ACTION WITHOUT A MEETING. Notwithstanding other provisions of
these bylaws, any action which may be taken at a meeting of the Board of
Directors may be taken without a meeting if a consent in writing of all
directors entitled to vote is obtained pursuant to Alabama law.
ARTICLE III
COMMITTEES OF THE BOARD
-----------------------
SECTION 3.1 COMMITTEES. The Board of Directors may appoint, from time to
time, from its own members, committees of one or more persons, for such purposes
and with such powers as the Board may determine.
ARTICLE IV
OFFICERS
--------
SECTION 4.1 PRESIDENT. The Board of Directors shall appoint one of its
members to be President of the Corporation. The President shall preside at any
meeting of the Board, unless a Chairman of the Board has been appointed and is
present to so preside. The President shall have general executive powers and
shall have and may exercise any and all other powers and duties pertaining by
law, regulation, or practice, to the Office of President, or imposed by these
bylaws. The President shall also have and may exercise such further powers and
duties as from time to time may be conferred or assigned by the Board of
Directors.
SECTION 4.2 SECRETARY. The Board of Directors shall appoint a Secretary of
the Corporation. The Secretary shall attend to the giving of all notices
required by these bylaws to be given; shall be custodian of the corporate seal,
records, documents and papers of the Corporation; shall provide for the keeping
of proper records of all transactions of the Corporation; shall have and may
exercise any and all other powers and duties pertaining by law, regulation or
practice, to the Office of Secretary, or imposed by these bylaws; and shall also
perform such other duties as may be assigned from time to time by the Board of
Directors.
SECTION 4.3 OTHER OFFICERS. The Board of Directors may also appoint a
Chairman of the Board and such other officers as from time to time may appear to
the Board of Directors to be required or desirable to transact the business of
the Corporation. Such officers shall respectively exercise such powers and
perform such duties as pertain to their several offices, or as may be
4
<PAGE>
conferred upon, or assigned to, them by the Board of Directors, the Chairman of
the Board, or the President.
SECTION 4.4 TENURE OF OFFICE. The President and all other officers shall
hold office for the current year for which the Board was elected, unless they
shall resign, become disqualified, or be removed.
ARTICLE V
STOCK AND STOCK CERTIFICATES
----------------------------
SECTION 5.1 TRANSFERS. Shares of stock shall be transferable on the books
of the Corporation, and a transfer book shall be kept in which all transfers of
stock shall be recorded. Every person becoming a shareholder by such transfer
shall, in proportion to his shares, succeed to all rights of the prior holder of
such shares.
SECTION 5.2 STOCK CERTIFICATES. The shares of the Corporation shall be
represented by certificates signed by either the President or a Vice-President
and countersigned either by the Secretary or an Assistant Vice-President and may
be sealed with the seal of the Corporation or a facsimile thereof.
ARTICLE VI
BYLAWS
------
SECTION 6.1 INSPECTION. A copy of the bylaws, with all amendments thereto,
shall at all times be kept in a convenient place at the Main Office of the
Corporation and shall be open for inspection to all shareholders.
SECTION 6.2 AMENDMENTS. Except as may be otherwise limited by the Articles
of Incorporation or by the shareholders, the bylaws may be amended, altered or
repealed at any regular or special meeting of the Board of Directors by a vote
of a majority of the total number of directors.
5
LETTER TO STOCKHOLDERS
I'm very proud of the work done by our people during 1999. It became a year of
challenges. Merging in our new markets required major resources in people and
equipment. The Y2K event required much planning and the assignment of signifi-
cant resources. A significant improvement in customer service resulted from our
establishment of our call center. We also laid the groundwork for the introduc-
tion of internet banking program "People On Line."
A major growth in 1999 occurred in our loan portfolio. This allowed us to re-
structure our liabilities. We can be more competitive for deposits, and we uti-
lized the Federal Home Loan Bank and brokered deposits. Additional challenges
were faced in the form of increased loan losses. This and the sizeable loan
growth required increasing our reserves. We have instituted a number of steps
to improve loan quality.
We expanded our business lines during 1999 by establishing a secondary market
real estate loan department. We also expanded our branch network when we opened
a full service branch in the Lee County Division in Opelika. Our Shelby County
Division is building a new office in the rapidly growing Helena market. New of-
fices are planned to replace our Millbrook and Woodstock branches.
We met our many challenges with positive responses and we took positive action
in meeting our many opportunities. I believe we are well postured for strong
earnings and continued growth as we move toward our 100th Anniversary. I con-
tinue to be proud of our employees, officers and directors, and I believe even
more that we are the bank "Where People Make the Difference."
RICHARD P. MORTHLAND SIGNATURE
Richard P. Morthland
Chairman of The Board of
Directors & Chief
Executive Officer
CONTENTS
Management's Discussion and Analysis......1
Five Year Comparison of Selected Financial
Data....................................10
Selected Quarterly Financial Data 1999-
1998....................................11
Corporate Information....................12
Stock Dividend and Price Information.....12
Report of Independent Accountants........13
Consolidated Balance Sheets..............14
Consolidated Statements of Income........15
Consolidated Statements of Comprehensive
Income..................................16
Consolidated Statements of Changes in
Stockholders' Equity....................17
Consolidated Statements of Cash Flows....18
Notes to Consolidated Financial State-
ments...................................19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANAYLSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
INTRODUCTION
The following is a discussion and analysis of the consolidated financial condi-
tion and results of operations of The Peoples BancTrust Company, Inc. ("Compa-
ny"), the holding company for The Peoples Bank and Trust Company ("Peoples
Bank"), as of the dates and for the periods indicated. It is intended to be
read in conjunction with the consolidated financial statements and notes there-
to, along with various other financial data disclosures, both current and his-
torical, contained in this Annual Report.
On March 6, 1998, Merchants & Planters Bancshares, Inc. ("M&P"), the parent
company of Merchants & Planters Bank, Montevallo, Alabama, was merged with and
into the Company. 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. The merger of Elmore
County and the Company was accounted for using the pooling-of-interests method
of accounting. The historical consolidated financial statements of the Company,
along with all other historical financial data contained in this Annual Report,
have been restated as if the merger with Elmore County had occurred at the be-
ginning of the earliest period presented.
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.
<PAGE>
BALANCE SHEET SUMMARY
Loans
The Company's largest earning asset category is its loan portfolio. Because
loans generally generate the highest yields, most other assets and liabilities
are managed to accommodate fluctuations in the loan portfolio.
Loans, net of the unearned discount, for 1999 had an average balance of
$383,093,000, which represented a 22.42% increase over the 1998 average of
$312,935,000. Strong loan demand in preexisting markets, as well as strong loan
demand in the Lee County, Alabama market, which the Company entered in late
1998, contributed to the significant loan growth in 1999. The Company's loan to
deposit ratio at December 31, 1999 increased to 89.2% from the December 31,
1998 ratio of 77.4%.
The growth in the loan portfolio was primarily in real estate loans, which in-
creased $80,078,000, from $120,918,000 at December 31, 1998 to $200,996,000 at
December 31, 1999. Significantly greater activity in real estate
development/construction financing activity coupled with favorable mortgage in-
terest rates during 1999 are the primary reasons behind the large increase in
this segment of the portfolio.
Commercial and industrial loans increased from $116,783,000 at December 31,
1998, to $127,071,000 at December 31, 1999. At December 31, 1999, the major in-
dustry concentrations and their approximate respective loan amounts were:
health care--$43,600,000; construction--$40,600,000; timber--$33,300,000. No
other single industry segment accounted for greater than $25,000,000 of loans
at December 31, 1999.
The personal loan portfolio decreased by $10,449,000, to a balance of
$99,857,000 at December 31, 1999. This decrease can be attributed to two main
factors: First, alternative sources of credit are more available to consumers
than in prior years. Major sources of alternative credit include credit cards,
finance companies and indirect automobile financing. Second, denials of per-
sonal loan applications increased in 1999, primarily attributable to the exist-
ing debt levels of personal loan applicants. Credit lines and overdrafts on
checking did not change significantly in 1999, decreasing from $10,786,000 at
December 31, 1998, to $10,767,000 at December 31, 1999.
1
<PAGE>
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. The allowance for
loan losses is established through charges to earnings in the form of a provi-
sion for loan losses. A loan is charged against the allowance for loan losses
when management determines that it is probable that the repayment of the prin-
cipal amount of a loan will not be made in accordance with the loan's terms.
Should a loan that has been charged off be recovered, either partially or en-
tirely, it is credited back to the allowance. Periodic reviews of the loan
portfolio, that include analysis of such factors as current and expected eco-
nomic conditions, historical loss experience and levels of non-accruing loans
and delinquencies, determine the appropriate level at which to maintain the al-
lowance for loan losses. Because the allowance is based on assumptions and sub-
jective judgements, it is not necessarily reflective of the charge-offs that
may ultimately occur.
At December 31, 1999, the Company's allowance for loan losses had a balance of
$5,333,000, as compared to $4,291,000 at December 31, 1998. As a result, the
ratio of the allowance to total loans net of unearned interest was 1.22% and
1.20% at December 31, 1999 and 1998, respectively. Loans requiring special at-
tention because of potential weaknesses fell from $9,086,000 at December 31,
1998, to $8,180,000 at December 31, 1999. As a percentage of total loans net of
unearned interest, non-accruing loans decreased to 0.65% at December 31, 1999,
as compared to 1.09% at December 31, 1998. The coverage of the allowance to
nonaccruing loans was 188% and 110% at December 31, 1999 and 1998, respective-
ly. The current level of allowance for loan losses exceeds the minimum require-
ments set forth by regulatory authorities. It is management's belief that, at
its current level, the allowance for loan losses is sufficient to absorb any
potential losses in the Company's loan portfolio. See notes 1 and 6 of Notes to
Consolidated Financial Statements of the Company for further information re-
garding allowance for loan losses.
Investments
The Company's investment portfolio decreased 13.1%, or $18,013,000, to
$119,559,000 at December 31, 1999, as compared to $137,572,000 at December 31,
1998. Funds were shifted out of the investment portfolio and into the higher
yielding loan portfolio in order to help meet the demand for real estate and
commercial and industrial loans.
The entire investment portfolio is classified as "available-for-sale", causing
it to be marked-to-market with the unrealized gains /losses reflected directly
in stockholders' equity. The portfolio had a net unrealized loss of $1,647,000
(net of tax) at December 31, 1999, compared to a net unrealized gain of
$709,000 (net of tax) at December 31, 1998. See notes 1 and 5 of Notes to Con-
solidated Financial Statements of the Company for further information regarding
investment 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 not produce
earnings. Management monitors short-term investments closely and is always
looking for alternatives for these funds.
Short-term investments totaled $4,663,000 at December 31, 1999, as compared to
$12,598,000 at December 31, 1998, which was a decrease of $7,935,000. Signifi-
cant increases in the loan portfolio resulted in the Company having fewer ex-
cess funds to invest on a short-term basis.
Deposits
The funding of loans and investments is primarily achieved through inflows of
deposits. At December 31, 1999, total deposits amounted to $489,341,000, as
compared to $460,809,000 at December 31, 1998, representing an increase of
$28,532,000 or 6.19%. The majority of the increase occurred in time deposits.
At December 31, 1998, time deposits totaled $240,702,000, whereas at December
31, 1999, they totaled $264,215,000, an increase of $23,513,000. The increase
in time deposits is largely attributable to management's decision to accept
$15,000,000 in deposits placed by brokers ("Brokered deposits"). Brokered de-
posits are more likely to be withdrawn from the Company than other, more tradi-
tional, types of deposits. These deposits are fully insured by the Federal De-
posit Insurance Corporation, and are deployed by management to meet short-term
funding needs.
Interest-bearing demand deposits increased from $105,660,000 at December 31,
1998, to $114,483,000 at December 31, 1999. Savings deposits decreased from
$46,285,000 at December 31, 1998, to $42,586,000 at December 31, 1999. Non-in-
terest
2
<PAGE>
bearing demand deposits decreased from $68,162,000 at December 31, 1998, to
$68,056,000 at December 31, 1999. The strategy of the Company is to competi-
tively price deposits so as to attract additional funds that can then be allo-
cated among the asset base.
Liquidity
Liquidity describes the Company's ability to meet its needs for cash. Those
needs primarily include lending, withdrawal demands of customers and the pay-
ment of 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 re-
stricted in its ability to meet the needs of the communities it serves.
Typically, increasing the liquidity of the Company would serve to reduce its
profits as a result of investing in earning assets with shorter maturities. Es-
timating liquidity needs is made more complex by the fact that certain balance
sheet components are, by nature, more controllable by management than others.
For example, the maturity frequency of the investment portfolio is generally
predictable and controllable at the time investment decisions are made. Howev-
er, deposits flowing into and out of the Company are much less predictable 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, 1999 and 1998, federal funds sold and secu-
rities purchased under agreements to resell, and cash and due from banks to-
gether totaled approximately $44,472,000 and $36,267,000, 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. At December 31, 1999, approximately 3.24% of the total investment
securities portfolio was to mature within one year. At December 31, 1999, the
entire investment portfolio, having a value of $119,559,000, was classified as
available-for-sale. These securities are generally high grade, exchange traded
securities.
The liability base provides liquidity through deposit growth, the rollover of
maturing deposits and accessibility to external sources of funds, ("Borrowed
funds"). Borrowed funds amounted to $76,893,000 at December 31, 1999, compared
to $34,265,000 at year-end 1998. This $42,628,000 increase in borrowed funds
from December 31, 1998, to December 31, 1999, was used to fund loan growth not
funded by deposit growth and investment securities maturities, as well as to
fund additional cash retained for year 2000 liquidity contingency issues. The
Company has several sources available to borrow funds. The predominant source
of borrowed funds utilized by the Company is the Federal Home Loan Bank of At-
lanta. At December 31, 1999, $68,604,000 of borrowed funds was owed to the Fed-
eral Home Loan Bank of Atlanta. The Company's sources of external funds are be-
lieved by management to be adequate for both current and projected needs.
Stockholders' Equity and Regulatory Capital Requirements
Stockholders' equity indicates the Company's net worth. Stockholders' equity
was $57,905,000 at December 31, 1999, compared to $56,720,000 at December 31,
1998.
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, 1999 were well above the minimum regula-
tory requirements. Refer to note 13 of Notes to Consolidated Financial State-
ments of the Company for further information regarding stockholders' equity and
regulatory requirements.
3
<PAGE>
INCOME SUMMARY
Net Income
The Company reported net income of $5,317,000 for the year ended December 31,
1999. This represented a .68% increase from the 1998 net income figure of
$5,281,000. Net income for 1997 was $5,594,000. For the years ended 1999, 1998
and 1997, diluted net income per share was $1.03, $1.02 and $1.09, respective-
ly.
Net Interest Income
Net interest income is the amount of total interest earned on loans and invest-
ments that remains after 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, 1999, 1998 and 1997
(In Thousands)
1999 Compared to 1998 1998 Compared to 1997
---------------------------------------------------
---------------------------------------------------
Changes Changes Changes Changes
Total in Volume in Rates Total in Volume in Rates
---------------------------------------------------
Interest income on:
Loans $4,988 $6,579 $(1,591) $4,545 $4,299 $ 246
Taxable investment
securities 122 438 (316) 979 1,184 (205)
Nontaxable investment
securities (527) (709) 182 10 35 (25)
Federal funds sold and
securities purchases
under agreements to
resell (450) (597) 147 320 405 (85)
---------------------------------------------------
Total interest income $4,133 $5,711 $(1,578) $5,854 $5,923 $ (69)
- ----------------------------------------------------------------------------
Interest expense on:
Interest bearing demand
deposits $ (84) $ 505 $ (589) $ (14) $ (96) $ 82
Savings deposits (201) 36 (237) 307 253 54
Time deposits 150 739 (589) 2,335 2,359 (24)
Federal funds purchased
and securities sold
under agreements to
repurchase 408 347 61 58 31 27
Other borrowed funds 784 897 (113) 528 574 (46)
---------------------------------------------------
Total interest expense $1,057 $2,524 $(1,467) $3,214 $3,121 $ 93
Net changes in net
interest income before
loan losses $3,076 $2,640
- ----------------------------------------------------------------------------
4
<PAGE>
AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
for the years ended December 31, 1999, 1998, and 1997
(Dollars in Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-----------------------------------------------------------------------------
ASSETS
Interest earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans, net (1) $383,093 $36,596 9.55% $312,935 $31,608 10.10% $270,359 $27,063 10.01%
Taxable investment
securities 129,774 7,542 5.81% 120,986 7,421 6.13% 101,535 6,441 6.34%
Nontaxable investment
securities 1,747 81 4.64% 16,111 608 3.77% 12,013 599 4.99%
Federal funds sold and
secuities purchased
under agreements to
repurchase 8,214 380 4.63% 20,594 830 4.03% 9,564 510 5.33%
-----------------------------------------------------------------------------
Total interest earning
assets $522,828 $44,599 8.53% $470,626 $40,467 8.60% $393,471 $34,613 8.80%
Non-Interest Earning
Assets:
Cash and due from banks 19,879 20,638 16,385
Bank premises &
equipment (net) 12,393 9,526 7,644
Other assets 22,417 19,293 10,554
-------- -------- --------
Total non-interest
earning assets 54,689 49,457 34,583
-------- -------- --------
Total Assets $577,517 $520,083 $428,054
=======================================================================================================
LIABILITIES AND
STOCKHOLDERS' EQUITY
Interest bearing
liabilities:
Interest bearing demand
deposits $106,806 $ 2,699 2.53% $ 96,687 $ 2,783 2.88% $ 80,605 $ 2,797 3.47%
Savings deposits 45,434 1,129 2.48% 44,281 1,330 3.00% 35,769 1,023 2.86%
Time deposits 249,952 12,548 5.02% 228,347 12,397 5.43% 184,890 10,063 5.44%
Federal funds purchased
and securities sold
under agreements to
repurchase 14,256 652 4.57% 6,462 244 3.78% 5,592 186 3.33%
Other borrowed funds 30,006 1,828 6.09% 14,976 1,044 6.97% 6,672 516 7.73%
-----------------------------------------------------------------------------
Total interest bearing
liabilities $446,454 $18,856 4.22% $390,753 $17,798 4.55% $313,528 $14,585 4.65%
Non-interest bearing
demand deposits 67,193 64,735 59,389
Other liabilities 6,724 10,012 4,301
-------- -------- --------
Total non-interest
bearing liabilities 73,917 74,747 63,690
-------- -------- --------
Total liabilities $520,371 $465,500 $377,218
Stockholders' equity 57,146 54,583 50,836
-------- -------- --------
Total liabilities and
stockholders' equity $577,517 $520,083 $428,054
=======================================================================================================
Net interest income $25,743 $22,669 $20,028
Net yield on interest
earning assets 4.92% 4.82% 5.09%
</TABLE>
(1) Average balances include non-accruing loans of approximately $2,840,000,
$3,888,000 and $1,733,000 in 1999, 1998, and 1997, respectively.
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.
1999 versus 1998
Total interest income for 1999 was $44,599,000, compared to the 1998 total of
$40,467,000. The increase of $4,132,000 was primarily attributable to higher
loan volumes. The loan volume increase was funded through an influx of deposit
funds, borrowed funds and investment securities maturity. The yield on the loan
portfolio fell from a 1998 rate of 10.10% to its 1999 rate of 9.55%. The Com-
pany ended 1999 with average earning assets of $522,828,000, as compared to
$470,626,000 for 1998, representing an 11.09% increase in average earning as-
sets.
Interest income from the investment portfolio decreased 5.06% in 1999, when
compared to 1998. Interest income on the investment portfolio totaled
$7,623,000 in 1999, as opposed to $8,029,000 in 1998. This decrease was due to
a reduction in both the yield earned on, and the average volume of, the invest-
ment portfolio. The investment portfolio yielded 5.80% in 1999 on an average
volume of $131,521,000. In 1998, the investment portfolio yielded 6.20% on an
average volume of $137,097,000.
5
<PAGE>
Federal funds sold and securities purchased under agreements to resell earned
$380,000 in 1999, whereas $830,000 was earned in 1998. This decrease was pri-
marily the result of a decrease in the average balance of these short-term in-
vestments from $20,594,000 in 1998 to $8,214,000 in 1999. The significant re-
duction in the average balance of these instruments was slightly offset by an
increase in their yields from 4.03% in 1998 to 4.63% in 1999.
Interest expense increased in 1999 to $18,856,000 from the 1998 total of
$17,798,000. Interest-bearing deposits had average balances in 1999 and 1998 of
$402,192,000 and $369,315,000, respectively. The average cost of interest-bear-
ing deposits in 1999 was 4.07%, whereas in 1998 it was 4.47%. Total borrowed
funds had average balances in 1999 and 1998 of $44,262,000 and $21,438,000, re-
spectively. The average cost of total borrowed funds in 1999 was 5.60%, com-
pared to 6.01% in 1998. In order to fund loan growth, and otherwise provide for
liquidity, both specific term and short-term borrowings increased in 1999.
The Company's total cost of funds decreased to 4.22% in 1999 from 4.55% in
1998. This decrease was primarily attributable to the deployment of a higher
level of borrowed funds during 1999, which bore a lower average rate of inter-
est than during 1998.
Net interest income for 1999 was $25,743,000, compared to the 1998 total of
$22,669,000, representing an increase of 13.56%. This increase was due to a
rise in total average interest-earning assets, as well as a slight increase in
the net interest margin earned on those assets. Total average interest-earning
assets in 1999 amounted to $522,828,000, and earned a net interest margin of
4.92%. In 1998, total average interest-earning assets were $470,626,000, and
earned a net interest margin of 4.82%.
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 14.05% increase in interest income in
1998. Interest income on the investment portfolio totaled $8,029,000 in 1998,
as opposed to $7,040,000 in 1997. This rise was mostly due to an increase in
the average balance of the investment portfolio, mainly the result the M&P ac-
quisition 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, an increase of 13.2%. The increase was entirely the result of an
increase in the Company's earning assets over its interest-bearing liabilities,
evidenced by a reduction in the net interest margin of the Company at December
31, 1997 of 5.09% to 4.82% at December 31, 1998.
6
<PAGE>
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 1999 equaled $4,520,000, compared with the 1998
provision of $2,336,000. This $2,184,000 increase in the provision was the re-
sult of increased charge-offs, as well as increased loan volume in 1999, for
which provision had to be made. Management does not anticipate that the charge-
off experience in 1999 will necessarily be indicative of future charge off
amounts. The allowance for loan losses is monitored closely by management, with
provision for loan losses made as deemed necessary. See Note 1 of notes to Con-
solidated Financial Statements of the Company.
Noninterest 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 noninterest
income are deposit service charges, fee-based trust services, brokerage income,
credit life commissions, and income contributions from the Company's insurance
and finance subsidiaries.
1999 versus 1998
In 1999, noninterest income totaled $7,324,000, as compared to $6,626,000 for
1998. The largest single component of non-interest income is deposit service
charges. In 1999, these service charges totaled $4,895,000, compared to
$4,297,000 in 1998, thereby accounting for the majority of the increase in non-
interest income.
1998 versus 1997
In 1998, noninterest 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 noninterest
income items.
Noninterest Expense
1999 versus 1998
Total non-interest expense for 1999 was $20,985,000, as compared to $19,241,000
for 1998. Salaries and benefits, the largest component of this category, rose
from a combined total of $9,397,000 in 1998 to $10,631,000 in 1999. This in-
crease was the result of routine salary increases, the hiring of additional
staff related to several new facilities and business lines, and an increase in
production commissions associated with the trust, brokerage and real estate
secondary mortgage operations of the Company. Automations, fixed assets, com-
puter expense, along with other expense categories rose as a result of new fa-
cilities and business lines, as well as preparation for the year 2000 event
(see "Year 2000 Impact Assessment").
1998 versus 1997
Total non-interest expense for 1998 was $19,241,000, as compared to $15,419,000
for 1997. Salaries and benefits, the largest component of this category, rose
from a combined total of $8,150,000 in 1997 to $9,397,000 in 1998. This in-
crease was the result 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 noninterest 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.
Provision for Income Taxes
The Company participates in several low-income housing projects, which provide
tax credits, and invests in certain nontaxable obligations of states and polit-
ical subdivisions, thus reducing its effective tax rate.
1999 versus 1998
Net income before the charge for income taxes equaled $7,562,000 in the year
ended December 31, 1999, compared to $7,719,000 in the year ended December 31,
1998, a decrease of 2%. The provision for income tax totaled $2,245,000 for
1999, and $2,438,000 for 1998. The effective tax rates for 1999 and 1998 were
29.7% and 31.6%, respectively.
7
<PAGE>
1998 versus 1997
Net income before the charge for income taxes equaled $7,719,000 for the year
ended December 31, 1998, compared to $8,037,000 for the year ended 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.
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."
8
<PAGE>
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY POSITION
December 31, 1999
Expected Maturity/Repricing Time Frame
-------------------------------------------------------------
Between three Between one
Less than months and year and three Over three
three months one year years years Total
-------------------------------------------------------------
(Dollars in thousands)
ASSETS:
Earning assets:
<S> <C> <C> <C> <C> <C>
Loans $155,592 $ 95,577 $48,728 $136,833 $436,731
Securities 500 3,375 30,162 85,522 119,559
Interest-bearing
deposits in other banks 11,224 -- -- -- 11,224
Funds sold 4,663 -- -- -- 4,663
-------------------------------------------------------------
Total interest-earning
assets $171,979 $ 98,952 $78,890 $222,355 $572,177
=======================================================================================
LIABILITIES:
Interest-bearing
liabilities:
Interest-bearing
deposits:
Demand deposits $ -- $ -- $ -- $114,483 $114,483
Savings and money
market deposits 42,586 42,586
Time deposits 132,405 87,218 41,879 2,713 264,215
Funds purchased 34,789 -- -- -- 34,789
Long-term debt -- -- -- 42,104 42,104
-------------------------------------------------------------
Total interest-bearing
liabilities $209,780 $ 87,218 $41,879 $159,300 $498,177
=======================================================================================
Period gap $(37,801) $ 11,734 $37,011 $ 63,055 $ 74,000
Cumulative gap $(37,801) $(26,067) $10,945 $ 74,000
Ratio of cumulative gap
to total earning assets -6.61% -4.56% 1.91% 12.93%
=======================================================================================
</TABLE>
On December 31, 1999, the Company had a negative cumulative one-year gap posi-
tion of $26,067,000, indicating that while $270,931,000 in assets could reprice
during 2000, $296,998,000 in liabilities could 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 conditions and other factors.
9
<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 1999. Because of the inherent use of estimates and assumptions in the
simulation model used to derive this information, the actual results for 1999
and the future impact of market risk on the Company's net interest margin may
differ from that found in the table.
Change in Change from
Prevailing Interest Net Interest 1999 Net Interest
Rates Income Amount Income Amount
---------------------------------------------------------------
(in thousands)
+200 basis points $26,196 1.76%
+100 basis points 25,947 .79%
0 basis points 25,743 0.00%
-100 basis points 25,515 -.89%
+200 basis points $25,311 -1.68%
===============================================================
Year 2000 Impact Assessment
Expenses incurred in preparation for year 2000 totaled approximately $285,000.
This amount was well within the $350,000 cost estimate. Upon the transition
from December 31, 1999 to January 1, 2000, members of the year 2000 contingency
team were on hand, and all contingency plans were in place and ready for imple-
mentation. The Company experienced no material adverse effects resulting from
the year 2000 event.
New Accounting Standards
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, (this date was changed by SFAS 137 to be June 15, 2000) estab-
lishes accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. It also estab-
lishes the condition under which a derivative should be designated as hedging a
specific type of exposure and requires the company to establish at the incep-
tion of the hedge the method and measurement approach used to assess its effec-
tiveness. The Company does not believe the adoption of SFAS 133 will have a
significant impact on its financial statements and disclosures, as it does not
currently possess any derivative instruments.
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.
FIVE YEAR COMPARISON OF SELECTED FINANCIAL DATA
(dollars in thousands, except for per share amounts)
1999 1998 1997 1996 1995
--------------------------------------------
Net interest income $ 25,743 $ 22,669 $ 20,029 $ 18,752 $ 17,152
Provision for loan losses 4,520 2,336 1,867 2,114 920
Income before income tax 7,562 7,719 8,037 7,046 6,073
Provision for income tax 2,245 2,438 2,443 2,104 1,820
Net income 5,317 5,281 5,594 4,942 4,253
--------------------------------------------
Diluted net income per share $ 1.03 $ 1.02 $ 1.09 $ 0.97 $ 0.81
Cash dividends declared and paid
per share 0.345 0.325 0.31 0.27 0.26
--------------------------------------------
Total assets, December 31 $629,343 $557,809 $453,990 $431,790 $405,297
==============================================================================
10
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA 1999-1998
(dollars in thousands, except for per share amounts)
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------------------------------------
Dec. 31 Sep. 30 Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30 Mar. 31
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $ 6,774 $ 6,657 $ 6,298 $ 6,014 $ 5,789 $ 6,143 $ 5,475 $ 5,262
Provision for loan
losses 1,650 1,290 848 732 644 745 671 276
Income before income tax 1,904 2,018 2,110 1,530 1,795 2,067 1,752 2,105
Net income 1,533 1,352 1,386 1,046 1,228 1,431 1,177 1,445
-----------------------------------------------------------------------
Diluted net income per
share $ 0.30 $ 0.26 $ 0.27 $ 0.20 $ 0.24 $ 0.28 $ 0.23 $ 0.28
Cash dividends declared
per share 0.09 0.085 0.085 0.085 0.085 0.08 0.08 0.08
-----------------------------------------------------------------------
Total assets $629,343 $592,767 $574,709 $561,799 $557,809 $525,557 $531,317 $419,612
=================================================================================================
</TABLE>
11
<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
Trust Department Form 10-K as filed with the
P.O. Box 799 Securities and Exchange Commission,
Selma, AL 36702-0799 contact:
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP M. Scott Patterson, Secretary
1901 6th Avenue North The Peoples BancTrust Company, Inc.
Birmingham, Alabama 35203-2690 P.O. Box 799
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 Mor-
gan Keegan & Company, Inc. and Sterne Agee & Leach, Inc.
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. Quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not reflect actual transactions. Historical
dividend information has not been restated for the effects of the pooling of
interests treatment of the acquisition of Elmore County Bancshares, Inc. in
July 1998.
Dividends Declared
1998 High Low (per common share)
-----------------------------------------------------------------
January-March $31.25 $27.00 $ 0.08
April-June 31.88 28.25 0.08
July-September 29.00 19.00 0.08
October-December $20.50 $18.00 $0.085
Dividends Declared
1999 High Low (per common share)
-----------------------------------------------------------------
January-March $20.25 $17.00 $0.085
April-June 18.50 15.00 0.085
July-September 17.00 13.88 0.085
October-December $15.00 $12.50 $ 0.09
See note 13 of Notes to Consolidated Financial Statements regarding regulatory
approval for the payment of dividends to the Company by The Peoples Bank and
Trust Company. Peoples Bank expects to be subject to such dividend restrictions
as discussed in Note 13 of Notes to Consolidated Financial Statements in 2000.
As of March 10, 2000, The Peoples BancTrust Company, Inc. had 1,056 stockhold-
ers of record and 5,148,138 shares of common stock outstanding.
12
<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, 1999 and 1998, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
These financial statements are the responsibility of the Company's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States 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 exam-
ining, 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.
/s/ PRICEWATERHOUSECOOPERS LLP
February 28, 2000
13
<PAGE>
CONSOLIDATED BALANCE SHEETS
December 31, 1999 and 1998
ASSETS
1999 1998
- -----------------------------------------------------------------------------
Cash and due from banks $ 39,808,726 $ 23,669,101
Federal funds sold and securities purchased under
agreements to resell 4,663,000 12,598,351
--------------------------
Cash and cash equivalents 44,471,726 36,267,452
Available-for-sale securities 119,559,038 137,571,513
Loans, net of unearned discount 436,731,960 356,639,547
Allowance for loan losses (5,333,424) (4,291,135)
--------------------------
Loans, net 431,398,536 352,348,412
Bank premises and equipment, net 13,880,128 10,806,013
Other real estate, net 875,566 530,005
Interest receivable 5,116,768 4,792,436
Intangible assets acquired, net of accumulated
amortization of $2,272,721 and $1,418,171 at
December 31, 1999 and 1998, respectively 8,997,245 9,803,178
Deferred income taxes 732,681
Other assets 4,311,736 5,690,150
--------------------------
$629,343,424 $557,809,159
- -----------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Demand--noninterest bearing $ 68,056,484 $ 68,162,445
Demand--interest bearing 114,483,128 105,659,720
Savings 42,585,910 46,285,258
Time 264,215,080 240,701,899
--------------------------
Total deposits 489,340,602 460,809,322
Federal funds purchased and securities sold under
agreements to repurchase 34,789,313 11,810,658
Other borrowed funds 42,103,961 22,454,426
Deferred income taxes 1,070,475
Interest payable 2,665,875 2,129,205
Dividends payable 46,413 27,849
Income taxes payable 454,651 425,542
Other liabilities 2,037,272 2,361,263
--------------------------
Total liabilities 571,438,087 501,088,740
--------------------------
Commitments and contingencies (Note 10)
Stockholders' equity:
Common stock, $.10 par value; 9,000,000 shares
authorized; 5,148,138 and 5,186,940 shares
issued, respectively 514,814 518,694
Additional paid-in capital 5,651,560 6,286,399
Accumulated other comprehensive income, net of tax (1,646,912) 708,512
Retained earnings 53,385,875 49,843,652
Treasury stock, -0- and 38,802 shares,
respectively (636,838)
--------------------------
Total stockholders' equity 57,905,337 56,720,419
--------------------------
$629,343,424 $557,809,159
- ------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements
14
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
for the years ended December 31, 1999, 1998, and 1997
1999 1998 1997
- -------------------------------------------------------------------------------
Interest income:
Interest and fees on loans and bankers
acceptances $36,407,977 $31,607,591 $27,063,476
Interest and dividends on investment
securities:
U.S. Treasury securities 749,724 1,171,961 1,256,206
Obligations of other U.S. Government
agencies and corporations 6,438,916 5,734,698 4,263,080
Obligations of state and political
subdivisions and industrial development
bonds:
Nontaxable 80,656 607,577 598,443
Taxable 86,003 78,190 47,951
Other securities and interest-bearing
deposits 456,215 436,653 874,369
Interest on federal funds sold and
securities purchased under agreements to
resell 379,622 830,027 509,890
-----------------------------------
Total interest income 44,599,113 40,466,697 34,613,415
-----------------------------------
Interest expense:
Interest on deposits 16,375,527 16,510,918 13,882,612
Interest on federal funds purchased,
securities sold under agreements to
repurchase, and other borrowed funds 2,480,179 1,287,177 701,971
-----------------------------------
Total interest expense 18,855,706 17,798,095 14,584,583
-----------------------------------
Net interest income 25,743,407 22,668,602 20,028,832
Provision for loan losses 4,520,377 2,335,699 1,866,761
-----------------------------------
Net interest income after provision for
loan losses 21,223,030 20,332,903 18,162,071
-----------------------------------
Noninterest income:
Trust department income 377,647 363,282 335,865
Service charges on deposit accounts 4,894,981 4,297,201 3,716,190
Net securities gains 203,816 556,155 88,888
Other 1,847,492 1,409,740 1,153,023
-----------------------------------
Total noninterest income 7,323,936 6,626,378 5,293,966
-----------------------------------
Noninterest expenses:
Salaries and wages 9,359,177 7,721,933 6,521,684
Pensions and other employee benefits 1,272,265 1,674,608 1,627,875
Occupancy and furniture and equipment
expenses 2,683,428 2,391,374 1,949,085
Other operating expenses 7,669,635 7,452,606 5,320,265
-----------------------------------
Total noninterest expenses 20,984,505 19,240,521 15,418,909
-----------------------------------
Income before provision for income
taxes 7,562,461 7,718,760 8,037,128
Provision for income taxes 2,245,490 2,437,705 2,443,492
-----------------------------------
Net income $ 5,316,971 $ 5,281,055 $ 5,593,636
-----------------------------------
Earnings per share (Notes 4 and 12):
Basic net income per share $ 1.03 $ 1.03 $ 1.10
-----------------------------------
Diluted net income per share $ 1.03 $ 1.02 $ 1.09
-----------------------------------
Basic weighted average number of shares
outstanding 5,148,138 5,141,885 5,099,227
-----------------------------------
Diluted weighted average number of shares
outstanding 5,150,954 5,161,658 5,137,257
-----------------------------------
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
for the years ended December 31, 1999, 1998 and 1997
1999 1998 1997
- -----------------------------------------------------------------------------
Net income $ 5,316,971 $5,281,055 $5,593,636
Other comprehensive income:
Unrealized gains (losses) on securities
available for sale during the period (3,365,008) 1,210,205 390,805
Less: reclassification adjustment for net
gains included in net income 203,816 556,155 88,888
----------------------------------
Other comprehensive income (loss) (3,568,824) 654,050 301,917
Income tax provision (benefit) related to
items of other comprehensive income
(loss) (1,213,400) 222,377 102,652
----------------------------------
Other comprehensive income (loss), net of
tax (2,355,424) 431,673 199,265
----------------------------------
Comprehensive income, net of tax $ 2,961,547 $5,712,728 $5,792,901
=============================================================================
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
for the years ended December 31, 1999, 1998, and 1997
<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,
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 --
-------------------------------------------------------------------------
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
($.325 per share) (1,536,578)
Options exercised (281,024) 499,127 218,103
-------------------------------------------------------------------------
Balance, December 31,
1998 518,694 6,286,399 708,512 49,843,652 (636,838) 56,720,419
Net income 5,316,971 5,316,971
Change in unrealized
gains (losses), net of
income tax (2,355,424) (2,355,424)
Cash dividends declared
($.345 per share) (1,776,629) (1,776,629)
Retirement of treasury
stock (3,880) (634,839) 1,881 636,838 --
-------------------------------------------------------------------------
Balance, December 31,
1999 $514,814 $5,651,560 $(1,646,912) $53,385,875 $ -- $57,905,337
==================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1999, 1998, and 1997
1999 1998 1997
- ---------------------------------------------------------------------------
Cash flows from operating
activities:
Net income $ 5,316,971 $ 5,281,055 $ 5,593,636
Adjustments to reconcile net
income to net cash provided by
operating activities:
Provision for loan losses 4,520,377 2,335,699 1,866,761
Depreciation, amortization, and
accretion 2,391,988 1,833,104 1,149,719
Increase (decrease) in unearned
discount (194,270) 1,400,381 (1,595,758)
Deferred income taxes, net (589,756) (166,854) (357,433)
Gain on sale of securities (203,816) (556,155) (88,888)
Write down of other real estate 59,729 32,536
Decrease (increase) in assets:
Interest receivable (324,332) (149,499) 34,398
Other assets 1,371,094 (1,559,234) (1,167,656)
Increase (decrease) in
liabilities:
Interest payable 536,670 194,545 187,566
Income taxes payable 29,109 (380,506) 496,781
Other liabilities (323,991) 772,438 1,501,367
----------------------------------------
Net cash provided by operating
activities 12,589,773 9,037,510 7,620,493
----------------------------------------
Cash flows from investing
activities:
Proceeds from sales of
available-for-sale securities 30,167,266 58,912,181 20,955,802
Proceeds from maturities and
calls of available for sale
securities 19,445,668 41,249,655 30,040,655
Purchase of available-for-sale
securities (34,639,574) (99,524,543) (34,344,261)
Net increase in loans (84,209,658) (26,094,481) (36,777,980)
Purchases of bank premises and
equipment (4,999,469) (2,890,786) (2,100,505)
Proceeds from sale of other real
estate and equipment 448,863 720,939 1,139,804
Acquisition of bank, net of cash
received (10,317,083)
Investment in low income housing
projects (675,852) (675,852)
----------------------------------------
Net cash used in investing ac-
tivities (73,786,904) (38,619,970) (21,762,337)
----------------------------------------
Cash flows from financing
activities:
Net increase in deposits 28,531,280 29,777,081 12,614,837
Increase in short-term
borrowings 42,628,190 11,718,829 3,602,407
Dividends paid (1,758,065) (1,663,228) (1,324,399)
Exercise of stock options 218,103
----------------------------------------
Net cash provided by financing
activities 69,401,405 40,050,785 14,892,845
----------------------------------------
Increase in cash and cash
equivalents 8,204,274 10,468,325 751,001
Cash and cash equivalents,
beginning of year 36,267,452 25,799,127 25,048,126
----------------------------------------
Cash and cash equivalents, end of
year $ 44,471,726 $ 36,267,452 $ 25,799,127
----------------------------------------
Supplemental disclosure of cash
flow information:
Cash paid during the year for:
Interest $ 18,319,036 $ 17,603,550 $ 14,397,017
----------------------------------------
Income taxes $ 2,806,137 $ 2,985,065 $ 2,304,144
----------------------------------------
The accompanying notes are an integral part of these financial statements.
18
<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, 1999 and 1998, 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 interest method as a yield adjustment over the life of the
corresponding loan.
Allowance for Loan Losses -- A loan is considered impaired, based on current
information and events, if it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. Uncollateralized loans are 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, 1999 and 1998, the recorded investment in loans for which im-
pairment has been recognized totaled $1,776,000 and $2,377,000, respectively.
These loans had a corresponding valuation allowance of $717,000 at December 31,
1999 and $819,000 at December 31, 1998. 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 1999 and 1998 was approximately $2,077,000 and $2,640,000, respec-
tively. The Company recognized approximately $95,000 and $122,000 of interest
on impaired loans during the period that they were impaired during 1999 and
1998, respectively.
The Company uses several factors in determining if a loan is impaired. The in-
ternal asset classification procedures include a thorough review of significant
loans and lending relationships and include the accumulation of related data.
This data includes loan payment status, borrowers' financial data, and borrow-
ers' operating factors such as cash flows, operating income or loss, etc.
19
<PAGE>
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.
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.
Advertising Costs -- Advertising costs are expensed as incurred.
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.
20
<PAGE>
Reclassifications -- Certain reclassifications have been made to the 1998 fi-
nancial statements to conform to the 1999 presentation.
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. The operations, assets, and liabilities of M&P were merged into the
Company as of the above date and the income and expenses have not been ac-
counted for separately since the merger. For this reason and due to the fact
that significant changes have been made to the cost structure of M&P, a sepa-
rate determination of the impact after combination on the earnings of the Com-
pany cannot reasonably be determined.
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
were restated accordingly.
3. Restricted Cash Balances
Aggregate reserves in the form of deposits with the Federal Reserve Bank of
$6,804,000 and $3,430,000 were maintained to satisfy federal regulatory re-
quirements at December 31, 1999 and 1998, 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.
5. Investment Securities
The amortized cost and approximate market values of available-for-sale securi-
ties at December 31, 1999 and 1998 are as follows:
1999
- -------------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Type Cost Gains Losses Value
- -------------------------------------------------------------------------------
U. S. Treasury securities $ 11,249,852 $4,805 $ (56,442) $ 11,198,215
Obligations of other U.S.
government agencies and
corporations 71,536,361 1,043 (1,734,370) 69,803,034
Obligations of state and
political subdivisions 2,224,781 657 (27,208) 2,198,230
Mortgage backed
securities 23,282,694 (407,072) 22,875,622
Corporate and other
securities 13,879,342 757 (396,162) 13,483,937
-------------------------------------------------
$122,173,030 $7,262 $(2,621,254) $119,559,038
===============================================================================
21
<PAGE>
1998
- -------------------------------------------------------------------------------
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Type Cost Gains Losses Value
- -------------------------------------------------------------------------------
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
Mortgage backed securities 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
===============================================================================
The amortized cost and approximate market value of available-for-sale securi-
ties at December 31, 1999, 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.
Available-for-Sale
Securities
- --------------------------------------------------------------------
Market
Cost Value
- --------------------------------------------------------------------
Due in one year or less $ 3,650,897 $ 3,622,948
Due after one year through five years 73,306,773 71,816,280
Due after five years through ten years 4,296,452 4,171,389
Due after ten years 10,981,033 10,596,284
Mortgage backed securities 23,282,694 22,875,622
Equity securities 6,655,181 6,476,515
-------------------------
$122,173,030 $119,559,038
====================================================================
Included within corporate and other securities are $2,401,347 and $1,952,379 in
marketable equity securities at December 31, 1999 and 1998, respectively. Also
included within corporate and other securities are $3,430,900 and $2,585,200 of
Federal Home Loan Bank stock at December 31, 1999 and 1998, respectively, and
$644,268 and $1,397,200 of Federal Reserve Bank stock at December 31, 1999 and
1998, respectively.
Gross gains of $205,196, $707,059, and $132,446, and gross losses of $1,381,
$150,904, and $43,558 were realized on the sales of debt securities for 1999,
1998, and 1997, respectively.
Securities with a par value of approximately $71,618,000 and $61,146,000 were
pledged as collateral for public funds deposits and repurchase agreements at
December 31, 1999 and 1998, respectively.
6. Loans
The major categories of loans at December 31, 1999 and 1998 are as follows:
1999 1998
- --------------------------------------------------------
Commercial and industrial $127,070,907 $116,782,753
Real estate mortgage 200,996,149 120,917,730
Personal 99,856,955 110,306,200
Overdrafts and credit line 10,767,236 10,786,421
-------------------------
438,691,247 358,793,104
-------------------------
Less:
Unearned discount 1,959,287 2,153,557
Allowance for loan losses 5,333,424 4,291,135
-------------------------
$431,398,536 $352,348,412
========================================================
22
<PAGE>
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 risk either geographically, or by borrower, which would expose the
Bank to unacceptable amounts of risk. The above loans included agricultural
loans totaling approximately $22,400,000 and $21,888,000 for 1999 and 1998, re-
spectively. Management continually evaluates the potential risk in this segment
of the portfolio in determining the adequacy of the allowance for possible loan
losses.
The Bank evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Bank, upon exten-
sion of credit is based on management's credit evaluation of the customer. Col-
lateral held varies, but may include accounts receivable, inventory, property,
plant and equipment, residential real estate and income-producing commercial
properties. No additional credit risk exposure relating to outstanding loan
balances exists beyond the amounts shown in the consolidated balance sheets as
of December 31, 1999.
Loans on which the accrual of interest has been discontinued or reduced
amounted to approximately $2,840,000 and $3,888,000 for 1999 and 1998, respec-
tively. If these loans had been current throughout their terms, interest income
would have increased approximately $310,000, $162,000, and $57,000 in 1999,
1998, and 1997, respectively.
Changes in the allowance for possible loan losses were as follows:
1999 1998 1997
- --------------------------------------------------------------------------
Balance, beginning of year $ 4,291,135 $ 3,445,529 $ 3,173,350
Additions due to acquisition 592,937
Provision charged to operations 4,520,377 2,335,699 1,866,761
Loans charged off (4,516,590) (3,447,385) (2,416,999)
Recoveries 1,038,502 1,364,355 822,427
-------------------------------------
Balance, end of year $ 5,333,424 $ 4,291,135 $ 3,445,539
=========================================================================
7. Bank Premises and Equipment
Bank premises and equipment and accumulated depreciation at December 31, 1999
and 1998 are summarized as follows:
1999 1998
- ---------------------------------------------------------
Buildings $11,516,797 $10,478,743
Furniture and equipment 14,090,887 11,030,462
Land improvements 540,084 254,190
-----------------------
26,147,768 21,763,395
Less accumulated depreciation 14,537,502 12,602,034
-----------------------
11,610,266 9,161,361
Land 2,269,862 1,644,652
-----------------------
$13,880,128 $10,806,013
=========================================================
23
<PAGE>
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:
Federal State Total
- --------------------------------------------------------------------------
1999:
Current $2,635,633 $352,193 $2,987,826
Deferred (635,734) (106,602) (742,336)
---------------------------------------------------
$1,999,899 $245,591 $2,245,490
===========================================================================
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
===========================================================================
Temporary differences and carryforwards which give rise to a significant por-
tion of deferred tax assets and liabilities at December 31 are as follows:
1999 1998
- ---------------------------------------------------------------------------
Allowance for possible loan losses $1,505,916 $ 955,159
Intangible assets (589,404) (773,146)
Bank premises and equipment (905,423) (1,085,804)
Unrealized (gain) loss on Investment securities 967,080 (245,318)
Other (245,488) 78,634
-----------------------
Deferred tax asset (liability), net $ 732,681 $(1,070,475)
===========================================================================
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:
1999 1998 1997
- ---------------------------------------------------------------------
Federal income tax statutory rate 34.0 % 34.0 % 34.0 %
Nontaxable income on obligations of state and
political subdivisions (0.5)% (3.2)% (2.8)%
Amortization of intangible assets 1.5 % 1.1 % 0.8 %
State income taxes 1.9 % 2.3 % 2.2 %
Acquisition expenses 1.3 %
Low income housing credit (0.7)% (6.8)% (3.8)%
Other (0.2)% 2.9 %
------------------
Effective tax rate 29.7 % 31.6 % 30.4 %
=====================================================================
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.
24
<PAGE>
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, 1999, 1998, and 1997 is as follows:
1999 1998
- ---------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation at end of prior year $ 6,303,562 $ 5,493,708
Service cost 409,813 316,344
Interest cost 437,525 394,531
Remeasurement 263,861
Actuarial gain (loss) (595,624) 132,986
Benefits paid (274,161) (260,834)
Expenses paid (53,012) (37,034)
-------------------------
Benefit obligation, end of year $ 6,228,103 $ 6,303,562
- ---------------------------------------------------------------------------
Changes in plan assets:
Fair value of plan assets, beginning of year $ 6,083,393 $ 5,484,121
Actual return on plan assets 695,337 897,140
Benefits paid (274,161) (260,834)
Expenses paid (53,012) (37,034)
------------------------
Fair value of plan assets, end of year $ 6,451,557 $ 6,083,393
- ---------------------------------------------------------------------------
Reconciliation of funded status:
Vested benefit obligation $(4,900,485) $(4,973,149)
-------------------------
Accumulated benefit obligation $(5,154,637) $(5,203,043)
-------------------------
Projected benefit obligation $(6,228,103) $(6,303,562)
Plan assets at fair value 6,451,557 6,083,393
-------------------------
Funded status 223,454 (220,169)
Unrecognized net gain (929,556) (112,923)
Unrecognized prior service costs (293,242) (321,164)
Unrecognized net transition asset (54,736) (113,949)
-------------------------
Accrued benefit liability at December 31 $(1,054,080) $ (768,205)
===========================================================================
Primary assumptions used to actuarially determine net pension expense are as
follows:
1999 1998 1997
- ----------------------------------------------------------------------
Discount rate 7.00% 7.00% 7.00%
Expected long-term return on assets 8.00% 8.00% 8.00%
Compensation increase rate 5.00% 5.00% 5.00%
======================================================================
The components of net pension expense for the years ended December 31, 1999,
1998, and 1997 are as follows:
1999 1998 1997
- ------------------------------------------------------------------------
Components of net annual benefit cost:
Service cost $409,813 $316,344 $331,059
Interest cost 437,525 394,531 382,969
Expected return on assets (474,328) (427,417) (391,842)
Transition asset recognition (59,213) (59,213) (59,213)
Prior service cost amortization (27,922) (27,922) 38,011
----------------------------
Net annual benefit cost $285,875 $196,323 $300,984
=======================================================================
25
<PAGE>
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
$376,483 and $460,509 as of December 31, 1999 and 1998, respectively. Expenses
incurred relating to these agreements were approximately $7,681, $204,000, and
$27,000 during 1999, 1998, and 1997, 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 $84,844 for the year ended
December 31, 1999. For the year ended December 31, 1997, the Company charged
$426,200, respectively, to operations for matching contributions 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, 1999 and 1998, the ESOP holds 67,596 and 69,799 shares of com-
mon 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, 1999 under the leases is as
follows:
2000 $ 355,034
2001 325,734
2002 226,581
2003 159,776
2004 44,205
Thereafter 34,205
----------
$1,145,535
==========
The total rental expense was approximately $523,000, $495,000, and $130,000 in
1999, 1998, and 1997, respectively.
The Company is from time to time a defendant in legal actions from normal busi-
ness activities. Management does not anticipate that the ultimate liability
arising from litigation outstanding at December 31, 1999 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 $7,582,477 and $6,060,707 at December 31, 1999 and
1998, respectively. A summary of the loan activity with these related parties
during 1999 is shown below:
Balance, beginning of year $ 6,060,707
Additions 5,685,297
Payments (4,163,527)
-----------
Balance, end of year $ 7,582,477
===========
During 1999, 1998, and 1997, the Company paid legal fees of approximately
$197,000, $141,000, and $143,000, respectively, to a law firm in which a part-
ner of the firm serves on the board of directors of the Company. In addition,
during 1999 and 1998, the Company paid approximately $895,000 and $418,000, re-
spectively, in construction fees to a construction company owned by a director
of the Company.
26
<PAGE>
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, 1999
Per-
Share
Income Shares Amount
- -------------------------------------------------------------------------------
Basic EPS
Income available to common stockholders $5,316,971 5,148,138 $1.03
Effect of dilutive securities
Stock options 2,816
--------------------------------
Diluted EPS $5,316,971 5,150,954 $1.03
==============================================================================
For the year ended December 31, 1998
Per-
Share
Income Shares Amount
- -------------------------------------------------------------------------------
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
Per-
Share
Income Shares Amount
- -------------------------------------------------------------------------------
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
==============================================================================
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 1999, 1998, and 1997.
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory--and possibly additional discretionary--actions
by regulators that, if undertaken, could have a direct material effect on the
Company's financial statements. Under capital adequacy guidelines and the regu-
latory framework for prompt corrective action, the Company must meet specific
capital guidelines that involve quantitative measures of the Company's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Company's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy re-
quire the Company to maintain minimum amounts and ratios (set forth in the ta-
ble below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as
27
<PAGE>
defined), and of Tier I capital (as defined) to average assets (as defined).
Management believes, as of December 31, 1999, that the Company meets all capi-
tal adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the Federal Deposit
Insurance Corporation categorized the Company as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Company must maintain minimum total risk-based, Tier I risk-
based, and Tier I capital ratios as set forth in the table. There are no condi-
tions or events since that notification that management believes have changed
the institution's category.
The Company's and the Bank's actual capital amounts and ratios are also pre-
sented in the table.
To Be Well
Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
- -------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------
The Company
As of December 31, 1999
Total Capital (to Risk
Weighted Assets) $55,847 12.67% $35,253 8.00% $44,066 10.00%
Tier 1 Capital (to Risk
Weighted Assets) $50,514 11.47% $17,627 4.00% $26,440 6.00%
Tier 1 Capital (to
Average Assets) $50,514 8.75% $23,101 4.00% $28,876 5.00%
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%
To Be Well
Capitalized
Under Prompt
For Capital Corrective Action
Actual Adequacy Purposes Provisions
- -------------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
- -------------------------------------------------------------------------------
The Bank
As of December 31, 1999
Total Capital (to Risk
Weighted Assets) $55,889 12.79% $34,953 8.00% $43,691 10.00%
Tier 1 Capital (to Risk
Weighted Assets) $50,556 11.57% $17,477 4.00% $26,215 6.00%
Tier 1 Capital (to
Average Assets) $50,556 8.48% $23,851 4.00% $29,814 5.00%
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%
14. Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock, par
value $0.10 per share.
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.
28
<PAGE>
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 $42,586,000 and
$40,535,000 in commitments to extend credit at December 31, 1999 and 1998, 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 certificates of deposit, market-
able securities, real estate, and other collateral.
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 certificates of deposit, marketable securities, real estate, and other
collateral for those commitments for which collateral is deemed necessary. The
Bank had approximately $6,413,000 and $864,000 in irrevocable standby letters
of credit at December 31, 1999 and 1998, respectively.
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, 1999 and 1998 and, therefore,
the fair value of these commitments is not presented.
29
<PAGE>
The estimated fair values of the Company's financial instruments at December
31, 1999 and 1998 are as follows:
1999 1998
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
- --------------------------------------------------------------------------------
Financial assets:
Cash and cash
equivalents $ 44,471,726 $ 44,471,726 $ 36,267,452 $ 36,267,452
Investment securities:
Available for sale 119,559,038 119,559,038 137,571,513 137,571,513
Loans, net 431,398,536 422,415,576 352,348,412 361,407,083
---------------------------------------------------
$595,429,300 $586,446,340 $526,187,377 $535,246,048
================================================================================
Financial liabilities:
Deposits $489,340,602 $488,513,962 $460,809,322 $464,570,590
Securities sold under
agreements to
repurchase 34,789,313 34,789,313 5,810,658 5,810,658
Other borrowed funds 42,103,961 42,103,961 28,454,426 28,454,426
---------------------------------------------------
$566,233,876 $565,407,236 $495,074,406 $498,835,674
================================================================================
17. Financial Accounting Developments
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 (this date was changed by SFAS 137 to be June 15, 2000), estab-
lishes accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts, by requiring that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. It also estab-
lishes the condition under which a derivative should be designated as hedging a
specific type of exposure and requires the company to establish at the incep-
tion of the hedge the method and measurement approach used to assess its effec-
tiveness. The Company does not believe the adoption of SFAS 133 will have a
significant impact on its financial statements and disclosures, as it does not
currently possess any derivative instruments.
18. Stock Option Plan
As of December 31, 1999, the Company had one stock option plan (the Plan) under
which 500,000 shares of common stock have been reserved for issue to certain
employees and officers through incentive stock options and board members
through nonqualified stock options. Options granted under the Plan may have
vesting provisions based upon continued service from the date of grant. Options
issued under the Plan will have an exercise price not less than fair market
value of the stock at the date of grant. Upon a change in control, as defined
in the Plan, options become fully exercisable.
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:
1999 1998 1997
- ---------------------------------------------------------------------------
Net income As reported $5,316,971 $5,281,055 $5,593,636
Pro forma $5,230,761 $5,085,818 $5,512,150
Basic earnings per share As reported $ 1.03 $ 1.03 $ 1.10
Pro forma $ 1.02 $ .99 $ 1.08
Diluted earnings per share As reported $ 1.03 $ 1.02 $ 1.09
Pro forma $ 1.02 $ .99 $ 1.07
===========================================================================
30
<PAGE>
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 1999: dividend yield of 2.82%; expected
volatility of 40.23%; risk-free interest rate of 6.50%; and expected life of 5
years. For options granted during 1998, the following weighted-average assump-
tions were used: 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 assumptions were used: div-
idend yield of 0.97%; expected volatility of 40.33%; risk-free interest rate of
5.37%; and expected life of 4.51 years. The weighted average fair value of op-
tions granted during 1999, 1998, and 1997 was $3.05, $10.33, and $5.03, respec-
tively.
A summary of the status of the Company's plan as of December 31, 1999, 1998,
and 1997, and changes during the years ending on those dates (restated for
stock split--see Note 4) is presented below:
1999 1998 1997
- --------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- --------------------------------------------------------------------------------
Outstanding at beginning
of year 42,300 $21.13 58,100 $10.44 62,900 $ 8.05
Granted 28,220 19.72 18,900 30.09 16,200 15.88
Exercised (34,700) 8.12 (21,000) 7.48
--------------------------------------------------
Outstanding at end of
year 70,520 $20.37 42,300 $21.13 58,100 $10.44
==================================================
Options exercisable at
year-end 23,400 $11.00 7,200 $ 9.40 25,700 $ 7.17
===============================================================================
The following table summarizes information about the Plan's stock options at
December 31, 1999:
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of Outstanding Contractual Exercise Exercisable Exercise
Exercise Prices at 12/31/99 Life Price at 12/31/99 Price
- --------------------------------------------------------------------------
$7.50 1,600 5.05 $ 7.50 1,600 $ 7.50
$9.94 to $10.93 5,600 6.05 $ 9.94 5,600 $ 9.94
$15.50 to $17.05 16,200 5.83 $15.88 16,200 $15.88
$19.30 to $21.23 28,220 8.16 $19.72
$29.25 to $32.18 18,900 6.63 $30.09
-----------------------------------------------------
Total 70,520 6.98 $20.37 23,400 $11.00
==========================================================================
31
<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. (parent company only).
BALANCE SHEETS
December 31, 1999 and 1998
1999 1998
- ------------------------------------------------------------------------------
ASSETS
Cash and due from banks* $ 376,132 $ 285,258
Investment in subsidiary bank, The Peoples Bank and
Trust Company* 58,047,236 56,840,048
Other assets 588,001 578,831
------------------------
Total assets $59,011,369 $57,704,137
=============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Dividends payable $ 46,413 $ 27,849
Other liabilities 1,059,619 955,869
------------------------
Total liabilities 1,106,032 983,718
------------------------
Common stock, $.10 par value; 9,000,000 shares
authorized; 5,184,138 and 5,186,940 shares issued,
respectively 514,814 518,694
Additional paid-in capital 5,651,560 6,286,399
Net unrealized gain (loss) on investments (1,646,912) 708,512
Retained earnings 53,385,875 49,843,652
Treasury stock, 38,802 and 71,410 shares,
respectively (636,838)
------------------------
Total stockholders' equity 57,905,337 56,720,419
------------------------
Total liabilities and stockholders' equity $59,011,369 $57,704,137
=============================================================================
* Eliminated in consolidation
32
<PAGE>
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
- -------------------------------------------------------------------------------
Cash dividends received or receivable
from subsidiary* $ 2,720,000 $ 21,861,500 $ 2,180,045
Equity in subsidiary's undistributed
net income* 3,562,612 4,273,689
Dividends received in excess of
subsidiary's net income* (15,270,901)
Other income 64,333 82,795 55,627
Other expense (1,029,974) (1,392,339) (915,725)
--------------------------------------
Net income 5,316,971 5,281,055 5,593,636
Retained earnings, beginning of period 49,843,652 46,099,175 41,832,699
Less: cash dividends declared (1,776,629) (1,536,578) (1,327,160)
Retirement of treasury stock 1,881
--------------------------------------
Retained earnings, end of year $53,385,875 $ 49,843,652 $46,099,175
==============================================================================
* Eliminated in consolidation
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
- --------------------------------------------------------------------------------
Operating activities:
Net income $ 5,316,971 $ 5,281,055 $ 5,593,636
Adjustments to reconcile net income
to net cash provided by operating
activities:
Subsidiary income less than (in
excess of) dividends (3,562,612) 15,270,901 (4,273,689)
Depreciation, amortization, and
accretion 24,699
Decrease (increase) in other assets (9,170) 522,842 (121,829)
Increase (decrease) in other
liabilities 103,750 450,170 93,510
--------------------------------------
Net cash provided by operating
activities 1,848,939 21,524,968 1,316,327
--------------------------------------
Investing activities:
Acquisition of bank (20,085,000)
--------------------------------------
Net cash used in investing
activities -- (20,085,000) --
--------------------------------------
Financing activities:
Dividends paid (1,758,065) (1,663,228) (1,324,353)
Stock options exercised 218,103
--------------------------------------
Net cash used in financing
activities (1,758,065) (1,445,125) (1,324,353)
--------------------------------------
Decrease in cash and cash
equivalents 90,874 (5,157) (8,026)
Cash and cash equivalents, beginning of
year 285,258 290,415 298,441
--------------------------------------
Cash and cash equivalents, end of year $ 376,132 $ 285,258 $ 290,415
--------------------------------------
Supplemental schedule of noncash
investing activities:
Contribution of acquired bank to
subsidiary $ 20,085,000
===============================================================================
* Eliminated in consolidation
33
<PAGE>
IN MEMORIUM
The management and staff of The Peoples Bank and Trust Company are deeply sad-
dened by the loss of B. Frank Wilson, James A. Minter, Jr., and W. Floyd
Gilliand. Each of these gentlemen were very instrumental in not only making our
bank what it is today but also the respective communities they each lived in.
They will be missed.
B. Frank Wilson
February 5, 1913--October 13, 1999
Frank Wilson served as both Chairman and President of The Peoples Bank and
Trust Company. Frank, at the time of his death was Chairman Emeritus. He was a
resident of Selma, Alabama.
James A. Minter, Jr.
March 24, 1905--June 17, 1999
Jim Minter was a prominent farmer and ginner from the Tyler community. Jim
served as a Director for The Peoples Bank and Trust Company for many years. He
was Director Emeritus at the time of his death.
W. Floyd Gilliand
August 18, 1914--November 3, 1999
Floyd Gilliand was a prominent farmer from Autauga County. Floyd was one of the
founders of Citizens Bank, Prattville. He served as a Prattville/Millbrook
Board member for The Peoples Bank and Trust company and was a Director Emeritus
at the time of his death.
34
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, 1999.
(2) Second-tier subsidiary, 100% owned by The Peoples Bank and Trust Company.
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 and File No. 333-77109) of our report dated February 28,
2000, on our audits of the consolidated financial statements of The Peoples
BancTrust Company, Inc. as of December 31, 1999 and 1998 and for each of the
three years in the period ended December 31, 1999 which report is incorporated
by reference in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
- --------------------------
Birmingham, Alabama
March 29, 2000
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