-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SO8/89OuPq8JiqH6QhluPtYYreabfI1ZPWYT2DFpfFZzJJ3jE32ngWbBnKmeotNI QsYz/VS8nUceKb2HVtmbfg== 0000318300-98-000006.txt : 19980817 0000318300-98-000006.hdr.sgml : 19980817 ACCESSION NUMBER: 0000318300-98-000006 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PEOPLES BANCORP INC CENTRAL INDEX KEY: 0000318300 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 310987416 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-16772 FILM NUMBER: 98691356 BUSINESS ADDRESS: STREET 1: 138 PUTNAM ST STREET 2: P O BOX 738 CITY: MARIETTA STATE: OH ZIP: 45750 BUSINESS PHONE: 6143733155 10-Q 1 FORM 10-Q TO BE FILED FOR PEOPLES BANCORP INC. FORM 10-Q ========= SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 (Mark One) [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the quarterly period ended June 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the transition period from ____ to ____ Commission file number 0-16772 PEOPLES BANCORP INC. ------------------------------------------------------ (Exact name of Registrant as specified in its charter) Ohio 31-0987416 - ------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 138 Putnam Street, P. O. Box 738, Marietta, Ohio 45750 - ------------------------------------------------ ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (740) 373-3155 -------------- Indicate by check mark whether the registrant (1) has filed all reports required 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 the number of shares outstanding of each of the issuer's class of Common Stock, as of July 1, 1998: 5,748,170. PART I - FINANCIAL INFORMATION - ------------------------------ ITEM 1 - ------ The following Condensed Consolidated Balance Sheets, Consolidated Statements of Income, Consolidated Statements of Shareholders' Equity, and Consolidated Statements of Cash Flows of Peoples Bancorp Inc. (the "Company") and subsidiaries, reflect all adjustments (which include normal recurring accruals) necessary to present fairly such information for the periods and dates indicated. Since the following condensed unaudited financial statements have been prepared in accordance with instructions to Form 10-Q, they do not contain all information and footnotes necessary for a fair presentation of financial position in conformity with generally accepted accounting principles. Operating results for the six months ended June 30, 1998, are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. Complete audited consolidated financial statements with footnotes thereto are included in the Company's Annual Report on Form 10-K for the year ended December 31, 1997. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated. PEOPLES BANCORP INC. AND SUBSIDIARIES - ------------------------------------- CONDENSED CONSOLIDATED BALANCE SHEETS - ------------------------------------- (Dollars in thousands) June 30, December 31, 1998 1997 ASSETS - ------ Cash and cash equivalents: Cash and due from banks $ 28,621 $ 21,473 Interest-bearing deposits in other banks 3,382 7,008 Federal funds sold 52,750 10,350 - ------------------------------------------------------------------------- Total cash and cash equivalents 84,753 38,831 - ------------------------------------------------------------------------- Available-for-sale investment securities, at estimated fair value (amortized cost of $205,277 and $170,702 at June 30, 1998 and December 31, 1997, respectively) 208,962 174,291 Loans, net of unearned interest 533,264 521,570 Allowance for loan losses (9,171) (8,356) - ------------------------------------------------------------------------- Net loans 524,093 513,214 - ------------------------------------------------------------------------- Bank premises and equipment, net 15,155 11,971 Other assets 33,381 19,851 - ------------------------------------------------------------------------- Total assets $ 866,344 $ 758,158 ========================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Deposits: Non-interest bearing $ 74,473 $ 64,229 Interest bearing 623,629 546,878 - ------------------------------------------------------------------------- Total deposits 698,102 611,107 - ------------------------------------------------------------------------- Short-term borrowings: Federal funds purchased and securities sold under repurchase agreements 31,370 30,811 Federal Home Loan Bank term advances 3,050 1,750 - ------------------------------------------------------------------------- Total short-term borrowings 34,420 32,561 - ------------------------------------------------------------------------- Long-term borrowings 44,121 28,577 Accrued expenses and other liabilities 7,712 7,095 - ------------------------------------------------------------------------- Total liabilities $ 784,355 $ 679,340 ========================================================================= Stockholders' Equity - -------------------- Common stock, no par value, 12,000,000 shares authorized - 5,782,091 shares issued at June 30, 1998 and 3,831,206 issued at December 31, 1997, including shares in treasury 50,578 50,001 Accumulated comprehensive income, net of deferred income taxes 2,395 2,369 Retained earnings 30,129 26,448 - ------------------------------------------------------------------------- 83,102 78,818 Treasury stock, at cost, 37,460 shares at June 30, 1998 and no shares at December 31, 1997 (1,113) 0 - ------------------------------------------------------------------------- Total stockholders' equity 81,989 78,818 - ------------------------------------------------------------------------- Total liabilities and stockholders' equity $ 866,344 $ 758,158 ========================================================================= PEOPLES BANCORP INC. AND SUBSIDIARIES - ------------------------------------- CONDENSED CONSOLIDATED STATEMENTS OF INCOME - ------------------------------------------- (Dollars in thousands, except per share data) Three Months Ended Six Months Ended June 30, June 30, 1998 1997 1998 1997 Interest income $ 15,735 $ 13,122 $ 31,099 $ 25,884 Interest expense 7,531 6,106 14,851 12,024 - ------------------------------------------------------------------------------ Net interest income 8,204 7,016 16,248 13,860 Provision for loan losses 546 641 1,242 1,229 - ------------------------------------------------------------------------------ Net interest income after provision for loan losses 7,658 6,375 15,006 12,631 Other income 1,590 1,462 3,208 2,880 (Gain) loss on securities transactions 427 (2) 431 (31) Other expenses 5,444 4,721 10,858 9,426 - ------------------------------------------------------------------------------ Income before income taxes 4,231 3,114 7,787 6,054 Federal income taxes 1,431 989 2,611 1,927 - ------------------------------------------------------------------------------ Net income $ 2,800 $ 2,125 $ 5,176 $ 4,127 ============================================================================= Basic earnings per share $0.49 $0.41 $0.90 $0.80 - ------------------------------------------------------------------------------ Diluted earnings per share $0.47 $0.40 $0.87 $0.78 - ------------------------------------------------------------------------------ Weighted average shares outstanding (basic) 5,754,541 5,174,951 5,750,750 5,171,895 - ------------------------------------------------------------------------------ Weighted average shares outstanding (diluted) 5,957,274 5,329,832 5,947,359 5,311,217 - ------------------------------------------------------------------------------ Cash dividends declared $ 765 $ 621 $ 1,495 $ 1,241 Cash dividend per share $0.13 $0.12 $0.26 $0.24 PEOPLES BANCORP INC. AND SUBSIDIARIES - ------------------------------------- CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY - ---------------------------------------------- (Dollars in thousands, except share amounts) Accumulated Other Common Stock Retained Treasury Comprehensive Shares Amount Earnings Stock Income Total - ------------------------------------------------------------------------------ Balance, December 31, 1997 3,831,206 $ 50,001 $ 26,448 $ 0 $ 2,369 $ 78,818 - ------------------------------------------------------------------------------ Adjustment for the effect of 3-for-2 common stock split 1,915,603 - ------------------------------------------------------------------------------ Balance, December 31, 1997 restated 5,746,809 - ------------------------------------------------------------------------------ Comprehensive income: Net income 5,176 5,176 Other omprehensive income, net of tax: Unrealized losses on available- for-sale securities, net of reclassification adjustment 26 26 - ------------------------------------------------------------------------------ Other comprehensive income 26 - ------------------------------------------------------------------------------ Comprehensive income 5,202 Exercise of common stock options 28,451 370 370 Cash dividends declared (1,495) (1,495) Common stock issued under dividend reinvestment plan 6,831 207 207 Purchase of treasury stock, 37,460 shares (1,113) (1,113) - ------------------------------------------------------------------------------ Balance, June 30, 1998 5,782,091 $ 50,578 $ 30,129 $(1,113) $ 2,395 $ 81,989 ============================================================================== Comprehensive Income: - --------------------- Unrealized holding losses on available-for-sale securities arising during the period, net of income taxes (494) Less: reclassification adjustment for gains realized in net income, net of income taxes 520 - ------------------------------------------------------------------------------ Net unrealized losses on available-for-sale securities, net oftax 26 ============================================================================== PEOPLES BANCORP INC. AND SUBSIDIARIES - ------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS - ------------------------------------- (Dollars in thousands) Six Months Ended June 30, 1998 1997 Cash flows from operating activities: - ------------------------------------- Net income $ 5,176 $ 4,127 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 1,242 1,229 (Gain) loss on sale of investment securities (431) 31 Depreciation, amortization, and accretion 1,227 1,294 Increase in interest receivable (378) (216) Increase (decrease) in interest payable 452 (72) Deferred income taxes 697 174 Deferral of loan origination fees and costs 90 32 Other, net (2,633) (696) - ---------------------------------------------------------------------------- Net cash provided by operating activities 5,442 5,903 - ---------------------------------------------------------------------------- Cash flows from investing activities: - ------------------------------------- Purchases of available-for-sale securities (84,788) (9,774) Proceeds from sales of available-for-sale securities 19,698 4,204 Proceeds from maturities of available-for-sale securities 31,248 8,589 Net increase in loans (3,889) (24,333) Expenditures for premises and equipment (2,298) (354) Proceeds from sales of other real estate owned 79 28 Business acquisitions, net of cash received 99,053 4,679 - ---------------------------------------------------------------------------- Net cash provided by (used in) investing activities 59,103 (16,961) - ---------------------------------------------------------------------------- Cash flows from financing activities: - ------------------------------------- Net decrease in non-interest bearing deposits (1,177) (7,300) Net (decrease) increase in interest-bearing deposits (29,290) 15,959 Net (decrease) increase in short-term borrowings (1,690) 253 Proceeds from long-term borrowings 16,782 3,000 Payments on long-term borrowings (1,238) (1,599) Cash dividends paid (1,268) (1,031) Purchase of treasury stock (1,113) (289) Proceeds from issuance of common stock 371 73 - ---------------------------------------------------------------------------- Net cash (used in) provided by financing activities (18,623) 9,066 - ---------------------------------------------------------------------------- Net increase in cash and cash equivalents 45,922 (1,992) Cash and cash equivalents at beginning of period 38,831 28,517 - ---------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 84,753 $ 26,525 ============================================================================ NOTES TO FINANCIAL STATEMENTS - ----------------------------- Basis of Presentation - --------------------- The accounting and reporting policies of Peoples Bancorp Inc. and Subsidiaries (the "Company") conform to generally accepted accounting principles and to general practices within the banking industry. The Company considers all of its principal activities to be banking related. The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Significant intercompany accounts and transactions have been eliminated. On April 13, 1998, the Company declared a 3-for-2 stock split effective April 30, 1998. Accordingly, all per share data have been restated to reflect the dividend. 1. Acquisitions - ---------------- The following text will include references to several acquisition transactions that have affected and/or will affect the Company's results of operations. On December 12, 1997, the Company completed the purchase of Gateway Bancorp, Inc. and its subsidiary, Catlettsburg Federal Savings Bank ("Catlettsburg Federal"), of Catlettsburg, Kentucky, for approximately $21.6 million in a combination of cash of $6.2 million and 365,472 shares (before the 3-for-2 stock split issued in April 1998) of Company stock ("Gateway Bancorp Acquisition" or "Catlettsburg Federal Acquisition"). Management has continued to operate Catlettsburg Federal as a federal savings bank subsidiary of the Company. Catlettsburg Federal had total assets of $64.3 million and deposits of $43.8 million at December 12, 1997. On June 26, 1998, one of the Company's subsidiaries, The Peoples Banking and Trust Company ("Peoples Bank") completed the purchase of full-service banking offices located in the communities of Point Pleasant (two offices), New Martinsville, and Steelton, West Virginia ("West Virginia Banking Center Acquisition") from an unaffiliated institution. In the transaction, Peoples Bank assumed approximately $121.0 million of deposits and purchased $8.3 million in loans. 2. New Accounting Pronouncements - --------------------------------- In June 1996, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities" ("SFAS No. 125") that provides accounting and reporting standards for transfers of financial assets and extinguishments of liabilities. SFAS No. 125 significantly changes the accounting rules for determining whether a transfer represents a sale or secured borrowing transaction. Portions of SFAS No. 125 were applicable for the Company effective January 1, 1997 and did not have a material impact on the Company's financial statements. On January 1, 1998, the Company adopted the provisions of SFAS No. 125 for securities lending, repurchase agreements, dollar rolls and other similar secured transactions which had been delayed until after December 31, 1997. The adoption of Statement No. 125 as it relates to securities lending, repurchase agreements, dollar rolls, and other similar transactions did not have a material effect on the Company's financial statements. On January 1, 1998, the Company also adopted Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive Income" ("SFAS No. 130"). SFAS No. 130 requires that certain items of comprehensive income that are reported directly within a separate component of stockholders' equity be displayed with the same prominence as other financial statements. The adoption of SFAS No. 130 had no impact on the financial position, results of operations, stockholders' equity, or cash flows of the Company. ITEM 2 - ------ MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - ----------------------------------------------- SELECTED FINANCIAL DATA - ----------------------- The following data should be read in conjunction with the unaudited consolidated financial statements and the management discussion and analysis that follows. For the Three For the Six Months Ended Months Ended June 30, June 30, 1998 1997 1998 1997 SIGNIFICANT RATIOS - ------------------ Net income to: - -------------- Average assets* 1.39% 1.30% 1.31% 1.27% - ---------------------------------------------------------------------------- Average shareholders' equity* 13.82% 14.80% 12.89% 14.46% - ---------------------------------------------------------------------------- Net interest margin* 4.55% 4.75% 4.58% 4.73% - ---------------------------------------------------------------------------- Efficiency ratio* 51.24% 51.80% 51.24% 52.44% - ---------------------------------------------------------------------------- Average shareholders' equity to average assets 10.11% 8.79% 10.20% 8.79% - ---------------------------------------------------------------------------- Loans net of unearned interest to deposits (end of period) 76.39% 85.35% 76.39% 85.35% - ---------------------------------------------------------------------------- Allowance for loan losses to loans net of unearned interest (end of period) 1.72% 1.56% 1.72% 1.56% - ---------------------------------------------------------------------------- Capital ratios: - --------------- Tier I capital ratio 10.58% 11.10% 10.58% 11.10% - ---------------------------------------------------------------------------- Risk-based capital ratio 11.83% 12.36% 11.83% 12.36% - ---------------------------------------------------------------------------- Leverage ratio 7.38% 7.68% 7.38% 7.68% - ---------------------------------------------------------------------------- Cash dividends to net income 27.32% 29.22% 28.88% 30.07% - ---------------------------------------------------------------------------- PER SHARE DATA - -------------- Book value per share $14.27 $11.40 $14.27 $11.40 - ---------------------------------------------------------------------------- Diluted earnings per share $0.47 $0.40 $0.87 $0.78 - ---------------------------------------------------------------------------- Cash dividends per share $0.13 $0.12 $0.26 $0.24 - ---------------------------------------------------------------------------- * Net income to average assets, net income to average shareholders' equity, net interest margin, and efficiency ratio are presented on an annualized basis. Net interest margin is calculated using fully tax equivalent net interest income as a percentage of average earning assets. Efficiency ratio is a ratio of non-interest expense (less intangible amortization and non-direct operational expenses) as a percentage of fully tax equivalent net interest income plus non-interest income. All non-recurring items are removed from the calculation of the Company's efficiency ratio. Introduction - ------------ The following discussion and analysis of the consolidated financial statements of the Company is presented to provide insight into management's assessment of the financial results. The Company's subsidiaries, The Peoples Banking and Trust Company ("Peoples Bank"); The First National Bank of Southeastern Ohio ("First National Bank"); Gateway Bancorp, Inc. and its subsidiaries, Catlettsburg Federal Savings Bank ("Catlettsburg Federal") and Russell Federal Savings Bank ("Russell Federal"); and The Northwest Territory Life Insurance Company ("Northwest Territory"), provide financial services to individuals and businesses within the Company's market area. Peoples Bank is chartered by the state of Ohio and subject to regulation, supervision, and examination by the Federal Deposit Insurance Corporation ("FDIC") and the Ohio Division of Banks. First National is a member of the Federal Reserve System and subject to regulation, supervision, and examination by the Office of the Comptroller of the Currency ("OCC"). Catlettsburg Federal and Russell Federal are members of the Federal Home Loan Bank, and are subject to the regulation, supervision, and examination by the Office of Thrift Supervision ("OTS"), and are also subject to limited regulation by the Board of Governors of the Federal Reserve System. The discussion and analysis should be read in conjunction with the prior year-end audited consolidated financial statements and footnotes thereto and the ratios, statistics, and discussions contained elsewhere in this Form 10-Q. References will be found in this Form 10-Q to several acquisition transactions that have affected and/or will affect the Company's results of operations. On December 12, 1997, the Company completed the purchase of Gateway Bancorp, Inc. and its subsidiary, Catlettsburg Federal, of Catlettsburg, Kentucky, for approximately $21.6 million in a combination of cash of $6.2 million and 365,472 shares of Company stock ("Gateway Bancorp Acquisition" or "Catlettsburg Federal Acquisition"). Management has continued to operate Catlettsburg Federal as a federal savings bank subsidiary of the Company. Catlettsburg Federal had total assets of $64.3 million and deposits of $43.8 million at December 12, 1997. In January, 1998, the Company reincorporated Russell Federal as a subsidiary of Gateway Bancorp to align the Company's business units in northeast Kentucky. On June 26, 1998, Peoples Bank completed the purchase of full-service banking offices located in the communities of Point Pleasant (two offices), New Martinsville, and Steelton, West Virginia ("West Virginia Banking Center Acquisition") from an unaffiliated institution. In the transaction, Peoples Bank assumed approximately $121.0 million of deposits and purchased $8.3 million in loans. RESULTS OF OPERATIONS - --------------------- Overview of the Income Statement - -------------------------------- For the six months ended June 30, 1998, the Company earned $5,176,000, a 25.4% increase from $4,127,000 in net income for the same period last year. For the quarter ended June 30, 1998, the Company earned $2,800,000, a 31.8% increase from $2,125,000 in the second quarter of 1997. In the second quarter, diluted earnings per share increased $0.07 from $0.40 last year to $0.47 in 1998. For the first half of 1998, diluted earnings per share reached $0.87, up $0.09 from $0.78 for the same period a year earlier. Second quarter net income was positively impacted by a net gain of $427,000 ($278,000 after taxes, or $0.05 per diluted share) on investment activity, primarily the exchange of certain domestic equity securities, as well as losses from repositioning of the investment portfolio. The Company's core earnings also increased due to stronger earnings in existing business units and additional revenue streams associated with recent acquisitions. Due to earning asset growth, second quarter net interest income totaled $8,204,000, up $1,188,000 (or 16.9%) compared to the same period last year. For the six months ended June 30, 1998, net interest income reached $16,248,000, an increase of $2,388,000 (or 17.2%) compared to the same period a year earlier. In the first half of 1998, provision for loan losses totaled $1,242,000 compared to $1,229,000 in 1997's first six months. For the three months ended June 30, 1998, provision for loan losses totaled $546,000, a decrease of $95,000 (or 14.8%) compared to last year's second quarter. Reduction in loan loss provision reflects the quality of the Company's loan portfolio and recent stabilization of loan delinquencies. Second quarter non-interest income increased $128,000 (or 8.8%) to $1,590,000, due primarily to increased fiduciary fees from the Company's Investment and Trust Division, deposit service charges, and electronic banking fees. For the six months ended June 30, 1998, non-interest income totaled $3,208,000, up $328,000 (or 11.4%) compared to the same period in 1997. Non-interest expense for the second quarter of 1998 totaled $5,444,000, up $723,000 (or 15.3%) from last year. For the first half of 1998, non-interest expense reached $10,858,000, an increase of $1,432,000 (or 15.2%) compared to the first six months of 1997. Recent growth in non-interest expense is due primarily to the Company's recent acquisitions and related expenses, such as salaries and benefits expense and amortization of intangibles. In the second quarter of 1998, the Company's efficiency ratio improved to 50.44% compared to 51.80% for the same period last year. For the six months ended June 30, 1998, efficiency ratio reached 51.24% compared to 52.44% for the same period in 1997. Management believes that a comparative approach to financial reporting should include the discussion of "cash earnings", which removes the after-tax impact of the amortization of intangibles on the Company's results of operations and facilitates comparison of the Company with competitors that make acquisitions using pooling of interests accounting. In the second quarter of 1998, intangible amortization expense totaled $372,000 ($273,000 after taxes) compared to $240,000 ($156,000 after taxes) for the same period a year earlier. After adjusting for the after-tax effect of the amortization of intangibles, diluted cash earnings per share for the quarter ended June 30, 1998 was $0.52, up $0.09 from $0.43 in diluted cash earnings per share in the second quarter of 1998. For the six months ended June 30, 1998, intangible amortization expense totaled $741,000 ($544,000 after taxes) compared to $481,000 ($313,000 after taxes) for the same period a year earlier. After adjusting for the after-tax effect of the amortization of intangibles, diluted cash earnings per share for the six months ended June 30, 1998 was $0.96, up $0.12 from $0.84 in diluted cash earnings per share for the same period a year earlier. Management uses cash earnings as one of several ways to evaluate the impact of acquisitions to profitability and the Company's return on its investment. Increased amortization of intangibles for the three months and six months ended June 30, 1998, also impacted tangible return on assets and equity. Recent acquisitions have increased and will increase the Company's amortization expense related to goodwill and other intangibles and as a result, the purchase method of accounting has affected earnings per share and other ratios. In order to provide comparative earnings per share information, management will continue to supplement future financial analysis with discussion concerning cash earnings per share, as previously defined. Interest Income and Expense - --------------------------- Net interest income is the amount by which interest income on earning assets exceeds interest paid on interest-bearing liabilities. Interest earning assets include loans and investment securities. Interest-bearing liabilities include interest-bearing deposits and borrowed funds. Net interest income remains the primary source of revenue for the Company. Changes in market interest rates, as well as changes in the mix and volume of interest-earning assets and interest-bearing liabilities, impact net interest income. When compared to prior year, increased operating earnings for the quarter and six months ended June 30, 1998 can be attributed primarily to growth of the Company's net interest income. The Company's interest earning assets and interest-bearing liabilities were positioned to generate increased net interest income streams in the second quarter. Also, the recent acquisitions provided additional earning assets to the Company, generating increased incremental net interest income. Earning asset growth strategies implemented in the second quarter of 1998 (in anticipation of the deposits acquired in the West Virginia Banking Center Acquisition) also contributed to incremental increases in net interest income. As a result, net interest income continued to grow in the second quarter of 1998, reaching $8,204,000 compared to $7,016,000 in last year's second quarter, an increase of $1,188,000 (or 16.9%). In the second quarter of 1998, total interest income reached $15,735,000 while interest expense totaled $7,531,00. Included in second quarter 1998 interest income is $466,000 of tax-exempt income from investments issued by states and political subdivisions. Since these revenues are not taxed, it is more meaningful to analyze net interest income on a fully-tax equivalent ("FTE") basis. Net interest margin is calculated by dividing FTE net interest income by average interest-earning assets and serves as a performance measurement of the net interest revenue stream generated by the Company's balance sheet. For the three months ended June 30, 1998, net interest margin (on an FTE basis) totaled 4.55% compared to 4.75% in the second quarter of 1997. On a year-to-date basis through June 30, net interest margin in 1998 totaled 4.58% compared to 4.73% for the same period last year. Several factors have contributed to net interest margin compression. The deposits acquired in the West Virginia Banking Center Acquisition significantly increased the Company's earning asset base in lower-yielding assets such as federal funds sold. Management continues to analyze methods to redeploy the acquired funds in an earning asset mix that is similar to that of the Company's ratios before the West Virginia Banking Center Acquisition. Net interest margin also decreased due to competitive pressures for loans and deposits in the Company's markets. In addition, the recent thrift acquisitions have modestly changed the Company's earning asset mix and lowered margins for comparative purposes, due to the fact the Company's thrifts have primarily invested in real estate loans, which typically do not generate return on investment like other loan products such as commercial and personal loans. In the first quarter of 1998, the Company implemented a pre-acquisition investment strategy to take advantage of reasonably favorable asset yields on selected investment securities (such as mortgage-backed securities and other corporate investments). The pre-investment program totaled approximately $49 million and was funded by short-term borrowings, which were replaced late in the second quarter of 1998 with deposits assumed in the West Virginia Banking Center Acquisition. The growth strategy resulted in modest compression of the Company's net interest margin in the second quarter of 1998, due to yields on investment that are modestly lower than typical loan yields. The sudden growth of the Company's earning asset base will continue to impact net interest margin in the second half of 1998 until the asset mix can be returned to a more appropriate balance of profitability and risk. Due to the replacement of short-term borrowings with the acquired deposits, management expects net interest margin to stabilize at current levels for the remainder of 1998. Average loans grew $65.3 million (or 14.2%) from second quarter 1997 to second quarter 1998 which comprise the largest earning asset component on the Company's balance sheet. Yield on earning assets totaled 8.61% in the second quarter of 1998, compared to 8.80% for the same period a year earlier. Although loan yields are consistent from 1997 to 1998, the Company's investment portfolio yield has dropped 34 basis points to 6.74% in the second quarter of 1998, reflecting the replacement of higher-yielding, maturing investments with lower-yielding investments. In addition, the average balance of investment securities has increased $73.4 million to $220.9 million due to recent growth strategies and acquisitions. Compared to the second quarter of 1997, cost of interest-bearing liabilities increased five basis points to 4.68% in the second quarter of 1998. Costs increased due to increases in the Company's use of short-term, higher-costing funding sources used to fund the previously described pre-acquisition strategy (in anticipation of the deposits acquired in the West Virginia Banking Center Acquisition). Management expects future interest costs to modestly decline in future reporting periods due to the acquisition of lower interest cost funding sources from the West Virginia Banking Center Acquisition. Management will continue to monitor the effects of net interest margin on the performance of the Company. Please refer to the "Consolidated Average Balance Sheet and Analysis of Net Interest Income" table included on page ____ for a complete quantitative evaluation of the Company's net interest margin. Provision for Loan Losses - ------------------------- In the second quarter of 1998, the Company's loan loss provision decreased due to improvement in loan delinquencies and net loan losses. For the three months ended June 30, 1998, the Company recorded a provision for loan losses of $546,000, a decrease of $95,000 (or 14.8%) from $641,000 in the second quarter of 1997. On a year-to-date basis through June 30, loan loss provision totaled $1,242,000 in 1998 compared to $1,229,000 last year. Loan growth in late 1997 and early 1998 was the primary reason for higher provisions for loan losses in quarters the first quarter of 1998. Management expects modest internal loan growth for the remainder of 1998. Due to this anticipated slowdown in loan growth, combined with stabilized levels of delinquencies and net loan losses, management believes that future 1998 provision expense will remain approximately level with the provision recorded in the second quarter of 1998. The duration of current provision levels will be dependent on acceptable loan delinquencies, portfolio risk, and general economic conditions in our markets. Non-Interest Income - ------------------- The Company's non-interest income is generated from four primary sources: income derived from fiduciary activities, cost-recovery fees related to deposit accounts, electronic banking revenues, and income generated by the Company's insurance agency subsidiaries. For the quarter and six months ended June 30, 1998, all of the Company's major sources of non-interest income increased compared to the same period a year earlier, representing management's commitment to continual improvement of the Company's operating performance. Second quarter non-interest income reached $1,590,000 in 1998, an increase of $128,000 (or 8.8%) compared to the same period in 1997. For the six months ended June 30, 1998, non-interest income totaled $3,208,000, up $328,000 (or 11.4%) compared to last year. The Investment and Trust Division of Peoples Bank continued its strong earnings growth in 1998. The fee structure for fiduciary activities is based primarily on the fair value of assets being managed, which totaled over $500 million at June 30, 1998. As a result of growth in market values and in the number of accounts served, second quarter income generated from fiduciary activities increased $38,000 (or 7.2%) to $566,000. On a year-to-date basis through June 30, fiduciary activities revenue increased $150,000 (or 14.5%) to $1,182,000 in 1998 compared to the same period a year earlier. The Investment and Trust Division continues to be a leader in fiduciary services in the Company's lead market area. Deposit account service charge income also increased in the second quarter of 1998, reaching $597,000, compared to $540,000 for the quarter ended June 30, 1997, an increase of $57,000 (or 10.6%). On a year-to-date basis for the six months ended June 30, 1998, deposit account service charge income increased $95,000 (or 9.0%) compared to 1997. The Company's fee income generated from deposits is based on cost recoveries associated with relevant services provided. Electronic banking, including ATM cards, direct deposit services, and debit card services, is one of the many services offered by the Company. The recovery of costs through fees associated with these products and services are beginning to significantly impact the Company's non-interest income. For the quarter ended June 30, 1998, total fees related to electronic banking reached $158,000, up $113,000 (or 39.8%) compared to the same period last year. For the six months ended June 30, 1998, electronic banking revenues totaled $284,000, an increase of $66,000 (or 30.3%) compared to the same period a year earlier. These increases are due primarily to revenues related to the Company's growing debit card program as well as non-customer activity in the Company's network of ATM's, which has caused a corresponding increase in ATM-related revenues. Management will continue to explore new methods of enhancing non-interest income. Both traditional and non-traditional financial service products are being analyzed for inclusion in the Company's product mix. Net Gain on Securities - ---------------------- In the second quarter of 1998, the Company recognized net gains on securities of $427,000 ($278,000 after taxes, or $0.05 per diluted share), compared to minimal net losses in the second quarter of 1997. The Company had a net gain of $516,000 ($336,000 after taxes) from an equity investment in a company that was acquired in a merger transaction. In addition, the Company recognized losses of $89,000 ($58,000 after taxes) from sales of investment securities due to repositioning of the investment portfolio. Management does not expect similar gains or losses to occur during the remainder of 1998. Non-Interest Expense - -------------------- For the three months ended June 30, 1998, non-interest expense totaled $5,444,000, an increase of $723,000 (or 15.1%) compared to the same period last year. For the first half of 1998, total non-interest expense reached $10,858,000, up $1,432,000 (or 15.2%) compared to 1997's first six months. When comparing 1998 non-interest expense information to 1997, it is important to consider the non-interest expense related to recent acquisitions. Acquisitions, and the related salaries and employee benefits and increased depreciation expense, comprise the majority of the increase in non-interest expense in 1998. Non-operational items also contributed to the increase in non-interest expense for the quarter and six months ended June 30, 1998. In particular, amortization of intangibles totaled $372,000 (up 55.0%) and $741,000 (an increase of 54.1%) for the quarter and six months ended June 30, 1998, respectively, compared to $240,000 and $481,000 for the identical periods a year earlier. Future amortization expense will increase due to the completion of the West Virginia Banking Center Acquisition. The Company considers the impact of intangible amortization when evaluating potential acquisitions. The Company's recent acquisitions also impacted non-interest expense in other areas, as the Company continues to expand its services and geographic area. Compared to 1997's second quarter, salaries and benefits expense increased $233,000 (or 11.6%) to $2,249,000 in the second quarter of 1998. For the six months ended June 30, salaries and benefits expense increased $546,000 (or 13.2%) to $4,691,000 in 1998 compared to 1997's first half of the year. Recent acquisitions have increased the number of Company employees, primarily customer service associates in the acquired offices. At June 30, 1998, the Company had 363 full-time equivalent employees, compared to 314 full-time equivalent employees at December 31, 1997, and 304 full-time equivalent employees at year-end 1996. While future salaries and benefit expense will increase on a gross comparison basis due to the associates retained in the West Virginia Banking Center acquisition, management will continue to strive to find new ways of increasing efficiencies and leveraging its resources while concentrating on maximizing customer service. Recent acquisitions also impacted net occupancy expenses, in particular depreciation expense. For the quarter and six months ended June 30, 1998, furniture and equipment expenses totaled $446,000 and $891,000, respectively, up $70,000 (or 18.7%) and $98,000 (or 12.4%) compared to 1997's identical reporting periods. Net occupancy expense totaled $389,000 in the second quarter of 1998, an increase of $83,000 (or 27.1%) compared to the same period a year earlier. On a year-to-date basis through June 30 and compared to last year, net occupancy expense increased $123,000 (or 15.5%) to $891,000 in 1998. These increases can be attributed primarily to the depreciation of the assets purchased in recent acquisitions, completion of construction projects to full-service offices in Athens and Caldwell, Ohio, as well as Ashland, Kentucky. Increases are also due to growth in depreciation of additional expenditures on technology. The Company's increased investment in technology and other customer-service enhancements will also impact depreciation expense in the future. Maintaining acceptable levels of non-interest expense and operating efficiency are key performance indicators for the Company. The Company and financial services industry use the efficiency ratio (total non-interest expense less amortization of intangibles and non-recurring items as a percentage of the aggregate of fully-tax equivalent net interest income and non-interest income) as a key indicator of performance. Gains and losses on sales of investment securities are not included in the calculation of the Company's efficiency ratio. In the second quarter of 1998, the Company's efficiency ratio was 50.44% compared to 51.80% for the same period last year. For the six months ended June 30, 1998, efficiency ratio improved to 51.24% compared to 52.44% for the same period in 1997. Management expects the efficiency ratio to continue to modestly improve throughout the remainder of 1998 and into 1999. Return on Assets - ---------------- For the quarter ended June 30, 1998, return on average assets ("ROA") reached 1.39% compared to 1.30% for the same period a year earlier. The Company's increased operating income and net gain on securities grew income more in the second quarter of 1998 than in recent reporting periods. For the six months ended June 30, 1998, the Company's ROA totaled 1.31%, up modestly from 1.27% for the same period a year earlier. The West Virginia Banking Center Acquisition significantly increased the asset base of the Company near the end of the second quarter of 1998. The effect of the West Virginia Banking Center Acquisition on average assets will not fully impact the Company until the third quarter of 1998, when average assets are estimated to grow approximately $70 million to nearly $870 million. The Company will be challenged to employ these new funds in a manner that will produce acceptable returns on investment in a short period of time. Management anticipates that ROA will continue to modestly decrease in 1998. As management is successful in transitioning the recently acquired funds sources to an asset mix similar to that held by the Company in previous reporting periods, ROA should return to pre-acquisition levels. Return on Equity - ---------------- The Company's return on average equity ("ROE") in the second quarter of 1998 was 13.82%, compared to 14.80% for the same period last year. For the first half of 1998, ROE totaled 12.89% compared to 14.46% in the first half of 1997. ROE decreased in 1998 due primarily to issuance of approximately $15.35 million of capital stock for the purchase of Gateway Bancorp, Inc. in late 1997. As a result, the increase in total equity had a significant impact on 1998's ROE for the quarter and six months ended June 30, 1998. Management expects ROE in 1998 to continue to be below prior year levels until the Company leverages the capital of the Company to the extent that capital was leveraged prior to the Gateway Bancorp Acquisition. The Company is considered well-capitalized under regulatory and industry standards of risk-based capital and has experienced growth through retention of increased earnings over the last several quarters. Federal Income Tax Expense - -------------------------- Federal income taxes increased from $989,000 in the second quarter of 1997 to $1,431,000 for the same period this year, an increase of $442,000 (or 44.7%). On a year-to-date basis through six months, the Company's income tax expense totaled $2,611,000 in 1998, an increase of $684,000 (or 35.5%) compared to 1997's first half. These increases are comparable to growth in pre-tax income. The Company's effective tax rate is approximately 33.8% for the second quarter of 1998, compared to 31.8% for the same period last year, primarily due to non-deductible expenses from the Gateway Bancorp Acquisition. FINANCIAL CONDITION - ------------------- Overview of Balance Sheet - ------------------------- Total assets have increased steadily from $758.2 million at December 31, 1997 to $797.5 million at March 31, 1998, and to $866.3 million at June 30, 1998. First quarter 1998 asset growth occurred primarily due to pre-acquisition strategies implemented in anticipation of the West Virginia Banking Center Acquisition's associated $121.0 million in deposits and $8.3 million in loans. Strategies for managing asset growth were implemented in the first quarter of 1998 within the Company's thrift subsidiaries to leverage their strong capital positions and enhance incremental interest income. On June 26, 1998, the Company completed the West Virginia Banking Center Acquisition, increasing assets approximately $70 million (or 8.7%) to $866.3 million at June 30, 1998. Net cash received in the West Virginia Banking Center Acquisition was redeployed into investment securities, which increased nearly $35 million (or 19.9%) from year-end 1997 to $209.0 million at June 30, 1998. Near the end of the second quarter of 1998, the Company sold approximately $8 million of investment securities to reposition the portfolio for enhanced future earnings. Proceeds from these sales were reinvested shortly thereafter in similar investment securities. Since March 31, 1998, total loans increased $14.4 million (or 2.8%) to over $533 million, due primarily to the loans purchased in the West Virginia Banking Center Acquisition. During the same period, total deposits increased $82.3 million (or 13.4%), due primarily to the net increase of deposits acquired in the West Virginia Banking Center Acquisition combined with maturities of short-term, higher interest rate time deposits. At June 30, 1998, the Company had short-term borrowings of $34.4 million compared to $49.2 million at March 31, 1998. Purchases of certain investment securities were funded by short-term Federal Home Loan Bank (FHLB) borrowings in anticipation of paying off such advances upon receipt of the deposits acquired in the West Virginia Banking Center Acquisition. As a result of the second quarter asset growth, the Company leveraged its recently expanded capital base (through the issuance of stock in the Gateway Bancorp, Inc. acquisition in late 1997). Total equity reached $83.1 million at June 30, 1998, compared to $80.5 million at March 31, 1998, an increase of $2.6 million (or 3.2%). Cash and Cash Equivalents - ------------------------- Cash and cash equivalents totaled $84.8 million at June 30, 1998, up $52.5 million from March 31, 1998, due to funds received in the West Virginia Banking Center Acquisition. Funds from the West Virginia Banking Center Acquisition were also temporarily invested in federal funds sold, which grew to $52.8 million at June 30, 1998. These balances will decrease over time through redeployment of those funding sources into higher yielding assets such as loans or investment securities. Management feels the liquidity needs of the Company are satisfied by the current balance of cash and cash equivalents, readily available access to traditional and non-traditional funding sources, and the portion of the investment and loan portfolios that mature within one year. These sources of funds should enable the Company to meet cash obligations and off-balance sheet commitments as they come due. Investment Securities - --------------------- All of the Company's investment securities are classified as available-for-sale. Management believes the available-for-sale classification provides flexibility for the Company in terms of selling securities as well as interest rate risk management opportunities. At June 30, 1998, the amortized cost of the Company's investment securities totaled $205.3 million. At year-end 1997, investment securities totaled $174.3 million and increased to $221.3 million at March 31, 1998 as a result of previously described growth strategies implemented in the first quarter of 1998. Investment securities totaled $209.0 million at June 30, 1998, a decrease of $12.4 million (or 5.6%) for the three months ended June 30, 1998. Near the end of the second quarter of 1998, the Company sold approximately $8 million of investment securities to reposition the portfolio for enhanced future income streams. These securities were reinvested in early third quarter. As a direct result of the pre-acquisition investment strategy and other growth strategies implemented by the Company, several categories of investments within the investment portfolio had significant growth. Variances since March 31, 1998 were caused by the sales of securities late in the second quarter of 1998; therefore comparisons between year-end 1997 and June 30, 1998 provide more meaningful information. At June 30, 1998, investments in US Treasury securities and obligations of US government agencies and corporations totaled $48.0 million, down $4.0 million (or 7.7%) since year-end 1997. In the first half of 1998, investments in mortgage-backed securities increased $17.7 million (or 23.2%) to $94.0 million at June 30, 1998. The Company's balances in investment obligations of states and political subdivisions totaled $36.3 million at June 30, 1998, an increase of $10.6 million (or 41.2%) since year-end 1997. Corporate investments at June 30, 1998 totaled $30.7 million, an increase of $10.5 million (or 52.0%) for the six months ended June 30, 1998. Management monitors the earnings performance and liquidity of the investment portfolio on a regular basis through Asset/Liability Committee (" ALCO") meetings. The group also monitors net interest income, sets pricing guidelines, and manages interest rate risk for the Company. Through active balance sheet management and analysis of the investment securities portfolio, the Company maintains sufficient liquidity to satisfy depositor requirements and the various credit needs of its customers. Management believes the risk characteristics inherent in the investment portfolio are acceptable based on these parameters. Loans - ----- The Company's lending is primarily focused in the mid-Ohio Valley areas of southeastern Ohio, northern and western West Virginia, as well as central Ohio and northeastern Kentucky markets. The Company's lending consists principally of retail lending, which includes single-family residential mortgages and other consumer lending. Loans totaled $533.3 million at June 30, 1998, an increase of $14.4 million (or 2.8%) since March 31, 1998, and up $11.7 million (or 2.2%) since year-end 1997. At December 31, 1997, the Company had $6 million of term federal funds sold invested with unaffiliated financial institutions. These investments were classified as loans for purposes of financial statement reporting and generate interest income streams similar to federal funds sold. Such investments were made in late 1997 to enhance the Company's short-term net interest income at a fixed rate. Of the $6 million of term federal funds held by the Company at year-end 1997, $5 million matured in the first quarter of 1998 and the remaining $1 million matured in the second quarter of 1998. The Company's loan portfolio grew in the second quarter due primarily to loans purchased in the West Virginia banking Center Acquisition. The Company purchased $8.3 million of commercial and consumer loans in the June, 1998 acquisition. The following table details total outstanding loans at the specified dates: (dollars in thousands) June 30, March 31, December 31, 1998 1998 1997 Commercial, financial, and agricultural $ 179,666 $ 163,293 $ 159,035 Real estate, construction 12,709 16,724 19,513 Real estate, mortgage 228,661 227,358 228,689 Consumer 112,228 111,459 114,333 - -------------------------------------------------------------------------- Total loans $ 533,264 $ 518,834 $ 521,570 ========================================================================== Real estate loans to the Company's retail customers (including real estate construction loans) continue to be the largest portion of the loan portfolio, comprising 47.1% of the total loan portfolio. Real estate loans totaled $241.4 million at June 30, 1998, down $2.7 million (or 1.1%) since March 31, 1998. Included in real estate loans are home equity credit lines ("Equilines"), which totaled $19.1 million at June 30, 1998, a quarterly increase of $2.0 million (or 11.7%). The Company continues to offer special fixed Equiline rates in its markets and specially priced Equiline products in its new West Virginia markets. Management believes the Equiline product is a competitive product that has an acceptable return on investment, after risk considerations, and anticipates these balances will continue to grow from new customers and increased market penetration. Residential real estate lending will continue to represent a major focus of the Company due to the lower risk factors associated with these types of loans and the opportunity to provide additional products and services to these consumers at attractive combined returns. Strong growth in commercial, financial, and agricultural loans ("commercial loans") occurred in the second quarter of 1998, as commercial loans increased $16.4 million (or 10.0%) to $179.7 million. Nearly half of this second quarter growth can be directly attributed to commercial loans purchased in the West Virginia Banking Center Acquisition. Economic conditions in the Company's markets have provided quality credit opportunities. Management will continue to focus on the enhancement and growth of the commercial loan portfolio while maintaining appropriate underwriting standards. Management expects commercial loan demand to continue to be strong in several of the Company's markets for the remainder of 1998 due to positive economic conditions in those markets. Consumer lending continues to be a vital part of the Company's core lending. For the three months ended June 30, 1998, consumer loan balances (excluding credit card loans) grew modestly to $105.8 million, a quarterly increase of $0.7 million. The majority of the Company's consumer loan focus continues to be in the indirect lending area. At June 30, 1998, the Company had indirect loan balances of $69.5 million, compared to $70.5 million at year-end 1997. Management is pleased with the recent performance of the Company's consumer loan portfolio, which can be attributed to the Company's commitment to quality customer service and the continued demand for indirect loans in the markets served by the Company. Lenders use a tiered pricing system that enables the Company to apply interest rates based on the corresponding risk associated with the indirect loan. Although consumer debt delinquency is increasing in the financial services industry (due mostly to credit card debt), management's recent actions to reinforce the Company's pricing system and underwriting criteria have tempered indirect lending delinquencies and recently tempered the overall growth of the indirect loan portfolio. Management plans to continue its focus on the use of this tiered pricing system combined with controlled growth of the indirect lending portfolio in 1998, particularly in the new markets recently entered by the Company. Credit card balances remained relatively unchanged since year-end 1997, totaling $6.5 million at June 30, 1998. In the past, the Company has offered several new products to better serve the credit needs of its customers, including a no-fee credit card and increased credit limits to qualified customers. Management will continue to evaluate new opportunities to serve credit card customers. Management anticipates loan growth in the remainder of 1998 to be consistent with the first half of 1998. Projected loan growth is expected in the recently entered West Virginia markets as well, as management focuses on employing the acquired funding sources in higher-yielding assets such as loans. In addition, management will continue to research and analyze various methods to satisfy the loan demand of the customers in its various markets. Management also continues to research the possibility of purchasing loans in packages or outside of the Company's core markets as a means of providing increased returns on its funding sources. Loan Concentration - ------------------ The Company does not have a concentration of its loan portfolio in any one industry. Real estate lending (both mortgage and construction loans) continues to be the largest component of the loan portfolio, representing $241.4 million (or 45.3%) of total loans. At year-end 1997, these loans comprised 47.6% of outstanding loans. At June 30, 1998, commercial, financial, and agricultural loans totaled $179.7 million (or 33.7%) of outstanding loans, compared to 30.5% of outstanding loans at December 31, 1997. The Company's lending is primarily focused in the local southeastern Ohio market and contiguous mid-Ohio Valley areas. The Company's loan mix consists principally of retail lending, which includes single-family residential mortgages and other consumer loan products. Approximately 10% of the Company's commercial loans are to lodging and lodging related companies. These lending opportunities have arisen because of the recent growth in the lodging industry and the need for additional travel related services in certain areas in or contiguous to the Company's markets, as well as the Company's ability to respond to the needs of customers in this segment of the economy. The credits have been subjected to the Company's normal commercial loan underwriting standards and do not present more than the normal amount of risk assumed in other lending areas. Allowance for Loan Losses - ------------------------- The allowance for loan losses as a percentage of loans increased from 1.60% at December 31, 1997, to 1.72% at June 30, 1998. For the quarter and six months ended June 30, 1998, the total dollar amount of the allowance for loan losses increased $346,000 and $469,000, respectively, due to decreased net chargeoffs. Total loan balances remained relatively unchanged due to slower than expected internal loan growth, causing an increase in the allowance as a percentage of total loans through the first half of 1998. The following table presents changes in the Company's allowance for loan losses for the three months and six months ended June 30, 1998, and 1997, respectively: Three Months Ended Six Months Ended (in thousands) June 30, June 30, 1998 1997 1998 1997 ------------------ ------------------ Balance, beginning of period $ 8,825 $ 7,152 $ 8,356 $ 6,873 Allowance for loan losses acquired in Russell Federal Acquisition 120 Chargeoffs (342) (642) (706) (1,153) Recoveries 142 147 279 229 - ------------------------------------------------------------------------------ Net chargeoffs (200) (495) (427) (924) - ------------------------------------------------------------------------------ Provision for loan losses 546 641 1,242 1,229 - ------------------------------------------------------------------------------ Balance, end of period $ 9,171 $ 7,298 $ 9,171 $ 7,298 ============================================================================== For the three months ended June 30, 1998, provision for loan losses totaled $546,000, while gross chargeoffs were $342,000 and recoveries amounted to $142,000. In the first half of 1998, provision for loan losses totaled $1,242,000, while gross chargeoffs were $706,000 and recoveries amounted to $279,000. For the period ended June 30, 1998, net chargeoff activity was down compared to both the quarter and six months for the same periods a year earlier. A significant portion of the Company's prior quarter's chargeoffs occurred in the consumer loan portfolio. In the first half of 1998, consumer loan chargeoffs tempered due to continued focus of measurements of the Company's indirect lending portfolio performance, including a review of underwriting standards and more aggressive collection of past due accounts. Management will continue to monitor the performance of the consumer loan portfolio and focus efforts to continue recent positive trends. Real estate and commercial loan chargeoffs and recoveries were insignificant for the first six months of 1998, demonstrating the quality of these portfolios. Nonperforming loans (those loans classified as nonaccrual, 90 days or more past due, and other real estate owned) as a percentage of outstanding loans were 0.29% at June 30, 1998, compared to 0.33% at December 31, 1997. Nonaccrual loans and those loans 90 days past due totaled $1,103,000 and $478,000, respectively, at June 30, 1998, compared to $1,220,000 and $462,000, respectively, at year-end 1997. Management believes the current level of nonperforming loans is acceptable and reflects the overall quality of the Company's loan portfolio. At June 30, 1998 the Company had an insignificant amount of loans that were considered impaired. Management will continue to monitor the status of impaired loans, including performing and non-performing loans, in order to determine the appropriate level of the allowance for loan losses. Management continually monitors the loan portfolio through its Loan Review Department and Loan Loss Reserve Committee to determine the adequacy of the allowance for loan losses and considers it to be adequate at June 30, 1998. Management expects future loan loss provision in 1998 to be consistent with second quarter 1998 expense, due to slower than expected loan growth and a reduction in delinquencies in the loan portfolio compared to 1997. Management believes the current allowance for loan losses of 1.72% of total loans at June 30, 1998 to be adequate to absorb inherent losses in the portfolio. Funding Sources - --------------- The Company considers deposits, short-term borrowings, and long-term borrowings when evaluating funding sources. Traditional deposits continue to be the most significant source of funds for the Company, reaching $698.1 million at June 30, 1998, a quarterly increase of $82.3 million (or 13.4%). The West Virginia Banking Center Acquisition provided the Company with significant additional funding sources, as detailed in the following table (in thousands): Non-interest bearing demand deposits $ 11,300 Interest-bearing transaction accounts 61,000 Time deposits (CD's and IRA's) 48,700 - --------------------------------------------------- Total acquired deposits $ 121,080 =================================================== The Company assumed $121.0 million in core deposits from the West Virginia Acquisition and has experienced minimal runoff of those deposit balances in the months following the completion of the acquisition. Management is pleased with the efforts of the Company's associates to maintain these acquired deposit accounts and look forward to expanding new customers' product and service relationships. In the second quarter of 1998, non-interest bearing deposit balances grew nearly $9 million (or 13.7%) to $74.5 million, due primarily to the deposits acquired in the West Virginia Banking Center Acquisition. Management intends to continue its focus of maintaining its recently enlarged base of lower-costing funding sources. During the first half of 1998, the Company's mix of interest-bearing deposits modestly shifted to interest-bearing transaction accounts from time deposit balances. In addition, the Company experienced modest attrition in late first quarter and in the second quarter of 1998 of maturing, short-term time deposits, as rate sensitive customers strive to maximize their investments by comparing rates offered by the Company's competitors. The Company will continue to offer special "relationship accounts" (both non-interest bearing and interest-bearing) based on deposits in other products such as CD's or IRA's. Management believes that the deposit base remains the most significant funding source for the Company and will continue to concentrate on deposit growth and maintaining adequate net interest margin to meet the Company's strategic goals. In addition to traditional deposits, the Company accesses both short-term and long-term borrowings to fund its operations and investments. The Company's short-term borrowings consist of federal funds purchased, corporate deposits held in overnight repurchase agreements, and various FHLB borrowings. After utilizing short-term FHLB borrowings to fund first quarter 1998 growth in anticipation of the West Virginia banking Center Acquisition, the Company decreased total borrowings to $34.4 million, compared to $49.2 million at March 31, 1998. The largest component of short-term borrowings consisted of balances in corporate repurchase agreements, which totaled $29.8 million at June 30, 1998, compared to $30.7 million at year-end 1997. In late 1997, growth occurred due primarily to increases in overnight repurchase agreement balances from a significant commercial customer. Management expects current balances to continue to modestly decrease throughout 1998 and, as a result, overnight repurchase agreement balances will correspondingly decrease to lower levels. In general, the Company will continue to access short-term FHLB borrowings at various times to meet liquidity needs as they arise. In addition to traditional deposits and short-term borrowings, the Company maintains long-term borrowing capacity with the FHLB. This allows the Company to obtain reliable funds at fixed and indexed rates for longer periods of time than other traditional deposit products, creating the opportunity to match longer term fixed rate mortgages and other extended-maturity asset commitments against a similar funding source. Long-term FHLB advances totaled $41.3 million at June 30, 1998, a net quarterly decrease of $0.2 million since the previous quarter-end. Since December 31, 1997, the Company increased FHLB long-term advances approximately $15.7 million to fund growth strategies designed to leverage the respective equity bases of Russell Federal and Catlettsburg Federal. In order to finance a portion of the total purchase price of the Russell Federal Acquisition, the Company obtained a $3 million loan from an unaffiliated financial institution. The remaining funds for the Russell Federal Acquisition were generated from internal sources. Principal paydowns began on the $3 million note in the first quarter of 1998 and will continue semi-annually over the next several years. At June 30, 1998, the Company had $2.9 million in long-term debt related to the Russell Federal Acquisition. Capital/Stockholders' Equity - ---------------------------- The Company's capital increased $3.2 million (or 4.0%) to $82.0 million at June 30, 1998.. In the second quarter of 1998, the capital position of the Company grew approximately $2.1 million (or 2.6%). For the three months ended June 30, 1998, the Company had net income of $2.8 million and paid dividends of $0.8 million, a dividend payout ratio of 27.32% of earnings. For the first half of 1998, net income totaled $5.2 million and dividends paid reached $1.5 million, a dividend payout ratio of 28.88% of net income, compared to 30.07% for the same period last year. Management believes recent dividends represent a balanced payout ratio for the Company and anticipates similar payout ratios in future periods through quarterly dividends. At June 30, 1998, the adjustment for the net unrealized holding gain on available-for-sale securities, net of deferred income taxes, totaled $2.4 million, unchanged for the six months ended June 30, 1998. Since all of the investment securities in the Company's portfolio are classified as available-for-sale, both the investment and equity sections of the Company's balance sheet are more sensitive to the changing market values of investments. The combination of stable market interest rates and recent purchases of investment securities (when the difference between amortized cost and estimated fair value is insignificant), have caused the equity adjustment to remain relatively unchanged. The Company has also complied with the standards of capital adequacy mandated by the banking industry. Bank regulators have established "risk-based" capital requirements designed to measure capital adequacy. Risk-based capital ratios reflect the relative risks of various assets banks hold in their portfolios. A weight category of either 0% (lowest risk assets), 20%, 50%, or 100% (highest risk assets) is assigned to each asset on the balance sheet and to certain off-balance sheet commitments. At June 30, 1998, the Company's and each of its banking subsidiaries' risk-based capital ratios were above the minimum standards for a well-capitalized institution. The Company's risk-based capital ratio was 11.83%, above the minimum standard of 8%. The Company's Tier 1 capital ratio of 10.58% also exceeded the regulatory minimum of 4%. The Leverage ratio at the end of the first quarter was 7.38% and also above the minimum standard of 4%. The Company's capital ratios provide quantitative data demonstrating the strength and future opportunities for use of the Company's capital base. Management continues to evaluate risk-based capital ratios and the capital position of the Company and each of its banking subsidiaries as part of its strategic decision process. On June 15, 1998, the Company's Board of Directors announced approval and implementation of a formal plan to purchase treasury shares for use in its stock option plans. The announcement superseded a previously announced stock repurchase plan and serves as the basis for treasury purchases in anticipation of the Company's projected stock option exercises. The stock repurchase plan is based upon specific criteria related to market prices and the number of shares expected to be issued under the Company's stock option plans. Subsequent to the announcement of the formal plan, the Company purchased 15,000 shares in the amount of $0.5 million near the end of the second quarter of 1998. Management expects to purchase similar share amounts in future quarters for use in its stock option plans. Future changes, if any, to the Company's systematic share repurchase program may be necessary to respond to the number of shares expected to be reissued in the Company's stock option plans. The Company intends to fund future treasury share purchases with internally generated sources. During early 1998, the Company initiated the Peoples Bancorp Inc. Deferred Compensation Plan ("DCP") for the directors of the Company and its subsidiaries, which is designed to recognize the value to the Company of the past and present service of its directors and encourage their continued service through implementation of a deferred compensation plan. The DCP allows directors to defer the fees earned for their service as Company and subsidiary directors into deferred accounts that are either invested in the Company's common stock or a time deposit, at the specific director's discretion at the time of entering the DCP. As a result and in accordance with accounting regulations, the balances invested in Company stock in such accounts are reported as treasury stock in the Company's financial statements. At June 30, 1998, the DCP and its participants owned $0.6 million of Company stock, which is a reduction to the equity balance of the Company. Management does not expect the DCP to have a material impact on future financial statements or results of operations for the Company. As a result of treasury stock purchases and DCP activity, the Company had a treasury stock balance of $1.1 million at June 30, 1998. Due primarily to DCP activity, management expects the Company's treasury stock balance to continue to modestly increase in the future. Liquidity - --------- Liquidity measures an organization's ability to meet cash obligations as they come due. During the six months ended June 30, 1998, the Company generated cash from operating activities and investing activities of $5.4 million and $59.1 million, respectively. The major cash inflow was $99.0 million generated from the West Virginia Banking Center Acquisition, which offset cash used for purchase of investment securities of $84.8 million. Proceeds from maturities and ales of investment securities totaled $31.2 million and $19.7 million , respectively, for the six months ended June 30, 1998. The Company used cash flows of $18.6 million from financing activities in the first half of 1998. The major outflow of cash in the first six months of 1998 was $29.3 million decrease in interest bearing deposits, mostly short-term, rate sensitive time deposits. The Consolidated Statements of Cash Flows presented on page 6 of the Company's Consolidated Financial Statements provides analysis of cash flow activity. Additionally, management considers that portion of the loan portfolio that matures within one year and the maturities within one year in the investment portfolio as part of the Company's liquid assets. The Company's liquidity is monitored by the ALCO, which establishes and monitors ranges of acceptable liquidity. Management feels the Company's current liquidity position is acceptable. Interest Rate Sensitivity - ------------------------- Static gap analysis measures the amount of repricing risk embedded in the balance sheet at a point in time. It does so by comparing the differences in the repricing characteristics of assets and liabilities. A gap is defined as the difference between the principal amount of assets and liabilities which reprice within a specified time period. At June 30, 1998, the Company's interest rate sensitivity position, based on static gap analysis, was liability sensitive in the short-term, decreasing in sensitivity for periods over one year and up to five years. Up to one year, the Company is liability sensitive due primarily to increases in funding sources which are short-term, such as the FHLB borrowings and CD specials previously mentioned. the funding sources acquired in the West Virginia Banking Center Acquisition caused the Company's balance sheet to become less liability sensitive due to significant increases in federal funds sold, a highly liquid and rate sensitive asset that reprices daily. Management believes the Company's balance sheet is theoretically insulated from significant increases or decreases in interest rates due to the various variable rate assets and liabilities. Management monitors the asset and liability sensitivity through the ALCO and uses available dynamic data to make appropriate strategic decisions. In addition to the interest rate sensitivity schedule and asset/liability repricing schedules, management also uses simulation modeling and forecasting to determine the impact of a changing rate environment and interest rate risk. This combination provides dynamic information concerning the Company's balance sheet structure in different interest rate environments. When using simulation modeling, assumptions based on anticipated market pricing are applied to interest-earning assets and interest-bearing liabilities. These adjustments more accurately indicate the interest rate risk of the Company. Management believes the Company's current mix of assets and liabilities provides a reasonable level of insulation from significant fluctuations in net interest income and the resulting volatility of the Company's earning base. Management also considers various hedging products as a method of minimizing the interest rate risk of the Company's balance sheet. The Company's management reviews interest rate risk in relation to its effect on net interest income, net interest margin, and the volatility of the earnings base of the Company. Effects of Inflation on Financial Statements - -------------------------------------------- Substantially all of the Company's assets relate to banking and are monetary in nature. Therefore they are not impacted by inflation to the same degree as companies in capital intensive industries in a replacement cost environment. During a period of rising prices, a net monetary asset position results in loss in purchasing power and conversely a net monetary liability position results in an increase in purchasing power. In the banking industry, typically monetary assets exceed monetary liabilities. Therefore as prices have recently increased, financial institutions experienced a decline in the purchasing power of their net assets. Future Outlook - -------------- Results of operations for the quarter and six months ended June 30, 1998 represent enhanced financial performance through a combination of external growth and enhanced core competencies based on customer service and community presence. Management continues to challenge its employees to improve critical banking processes to provide the customer with the highest quality products and services in the most efficient manner. In addition, management has identified and will continue to analyze key performance areas which quantitatively measure the relative performance of the Company compared to prior year results. Management is pleased with recent efforts to transition the offices and associates acquired in the West Virginia Banking Center Acquisition. The geographic expansion is a natural extension of the Company's presence in the mid-Ohio Valley. The Company will be challenged in the third and fourth quarters of 1998 to employ the large inflow of cash associated with the acquisition in assets that provide acceptable return on investment without compromising the Company's performance and capital ratios. Management intends to invest a portion of the acquired funds in loans in the new geographic markets as well as in the Company's established markets, although overall loan activity has tempered in recent periods. Management will continue to analyze the viability of purchasing loans to enhance revenues of the Company. Future loan growth will depend on the Company's ability to serve existing markets, penetrate new markets through acquisition, and serve selected customers outside traditional geographic markets. Management is satisfied with the retention of the acquired core deposit base and looks forward to continuing the development of the markets in Point Pleasant, New Martinsville, and Steelton, West Virginia. These markets represent additional opportunities to provide superior customer service and strengthen the Company's position in those markets. One of the Company's top priorities for the remainder of 1998 will be the management and direction of the West Virginia Banking Center Acquisition offices with existing full-service banking centers to create a united financial service provider for the customers of Mason and Wetzel Counties in West Virginia and surrounding areas of West Virginia and Ohio. Management expects to enhance non-interest income streams in the second half of 1998 and beyond due to the acquired deposits and associated cost-recovery fees of those deposits. In August, 1998, the Company will open a full-service banking center in Parkersburg, West Virginia. For years, the Company has provided financial products and services to the customers of Wood County (across the Ohio River from Washington County in Ohio). Management is excited by the opportunity to enhance these customer relationships through its first physical presence in south Parkersburg of Wood County. The Parkersburg office will offer traditional banking services such as loans and deposits, investment and trust services, and insurance products, and is expected to provide strong opportunities to penetrate the Parkersburg, West Virginia, market. Managing the delicate balance between expansion into new markets and development of new products and services will also challenge the Company in 1998 and beyond. The financial services environment remains dynamic as merger and consolidation continues to change traditional banking services and the competitors the Company must face. Customers continue to strive for better, faster, more efficient methods of banking, and as a result, the Company has invested in technology and dedicated resources that provide the means for those customers to perform banking functions through their personal computers 24 hours a day. "PC banking" continues to be an integral part of the Company's core service delivery process. Loan loss provisions in 1998 will be based on loan delinquency trends, economic conditions, and anticipated loan growth. Based on the most recent analysis, management expects future loan provisions to approximate that recorded in the second quarter of 1998. Management believes the Company's reserve for loan losses is adequate for the risks inherent in the portfolio and believes the reduction in loan loss provision is a reflection of the overall quality of the Company's loan portfolio and market conditions. Future financial performance will depend directly on the timing of anticipated loan growth and other factors. Future operating results will be determined by the ability of the Company to capture lending opportunities in expanded market areas or make similar investments with acceptable risk and return on investment indicators. Mergers and acquisitions remain a viable strategic alternative for the continued growth of the Company's operations and scope of customer service. Future acquisitions, if they occur, may not be limited to specific geographic location or proximity to current markets. Acquisitions will depend upon financial service opportunities that strengthen the core competencies developed by the Company. Management considers mergers and acquisitions to be a viable method of enhancing the Company's earnings potential and will continue to pursue appropriate business opportunities as they develop. Management concentrates on several key performance indicators to measure and direct the performance of the Company. While past results are not an indication of future earnings, management feels the Company is positioned to leverage its recent equity growth and maintain current levels of performance through the remainder of 1998. Impact of the Year 2000 Issue - ----------------------------- Many companies across various industries have dedicated efforts to analyze the much-publicized "Year 2000" issue, which is the result of computer programs being written using two digits rather than four to define the applicable year. Any of the Company's computer programs or hardware that have date-sensitive software or embedded chips may recognize a date of "00" as the year 1900 rather than the year 2000. This could result in system failure or miscalculations causing disruptions of operations, including, among other things, the inability to process transactions or engage in similar normal business activities. Management has implemented plans to address Year 2000 issues and their impact to its business, operations, and relationships with customers, suppliers, and other third parties. The Company primarily relies on third party vendors for all critical processing systems software. Based on recent assessments, the Company determined that it will be required to modify or replace portions of its software and work with software vendors so that those systems will properly utilize dates beyond December 31, 1999. Management presently believes that with modifications and replacement of existing hardware and software, the Year 2000 issue can be mitigated. However, if such modifications and replacements are not made, or are not completed timely, the Year 2000 issue could have a material impact on the operations of the Company. The Company is also assessing the credit, liquidity and counterparty trading risks that may be posed by customers who encounter Year 2000-related problems. These problems may result from the failure of a customer to properly remediate its own systems and from Year 2000 problems that are not addressed by the customer's suppliers and clients. The Company has amended credit policies to include an assessment of Year 2000-related risks for material new customers and plans to complete the initial assessment of customer-related risks for material customers by September 30, 1998. Management plans to resolve the Year 2000 issue in five phases as follows: awareness, assessment, renovation, validation, and implementation. To date, the Company has completed its assessment of all material systems that could be affected by the Year 2000 issue and addressed the extent to which its operations are vulnerable should its software fail to be Year 2000 compliant. The completed assessment indicated that most of the Company's significant information technology systems could be affected. Banking regulators have issued guidelines and deadlines detailing what they expect banks to do in order to insure Year 2000 preparedness. The Company is following these guidelines and expects to meet the deadlines defined by the regulators. As a part of this process, the Company is also developing contingency plans for all mission-critical systems, which it will implement in the event any of these systems fail to function. Contingency plans include a combination of manual processes and utilization of systems (which have already been Year 2000 validated and implemented) that are completely independent from the Company's core information systems. Management estimates that half of its potential Year 2000 issues originate in the Company's core banking system (software provided by a third-party vendor). The Company's core banking system supports approximately 50% of the information processing for the Company. This single system software provides accounting for the Company, as well as loan and deposit products. This core banking system has been certified as Year 2000 compliant by the vendor and the Information Technology Association of America. To date, the Company has not completed its due diligence of the core banking system and expects to perform a complete review by December 31, 1998. Since the software has essentially been Year 2000 compliant for several years, management is confident that validation and implementation will occur by year-end 1998 due to the fact the system currently supports calculations beyond the Year 2000. The remaining information technology systems such as the automated teller machine (ATM) network software, document processing and retrieval system, the accounting system for the Investment and Trust Division software, etc., are expected to fully validated and implemented by June 30, 1999. The ATM network software and the Investment and Trust Division software system have also been certified compliant by their respective vendors. Year 2000 compliant versions of other vendor-supported software are scheduled for release to the Company during the third and fourth quarters of 1998. Management expects to replace the Company's internal operating systems (on existing hardware) in the third quarter of 1998. No additional replacement costs are estimated since the Company's annual maintenance contracts cover upgrades such as those related to Year 2000. Immediately following the core operating system's replacement, management intends to begin renovation of material internal systems and expects to complete such renovation by year-end 1998. Management does not consider internal software systems to be significant to the overall operations of the Company. In general, for its information technology exposures, to date the Company is 70% complete on the renovation phase for all material systems and expects to complete software reprogramming and replacement no later than December, 1998. After completing the reprogramming and replacement of these systems, the Company's plans call for testing and implementing its information technology systems. To date, the Company approximates that it has completed 20% of its testing and has not implemented any renovated systems. As soon as management completes its due diligence of the core banking system in the second half of 1998, the Company will have implemented approximately 50% of renovated systems. Completion of the testing phase is expected by year-end 1998, with all renovated systems fully implemented by June 30, 1999. The Company's systems interface with systems supported and maintained by other third-party providers, such as ATM and Automated Clearing House (ACH) networks. The Company has scheduled testing of significant interfaces during the second half of 1998. The Company has queried its important suppliers, such as utility companies, that do not involve system interface. To date, the Company is not aware of any problems that would materially impact operations, although the Company has no means of ensuring that these organizations will be Year 2000 ready. The inability of these parties to complete their Year 2000 resolution process could materially impact the Company, as well as other businesses and consumers. The Company expenses Year 2000 project costs as incurred. The total out-of-pocket cost of the Year 2000 compliance project is not expected to be greater than $200,000 and, therefore, is immaterial to the Company's results of operations or financial position. This estimate includes human resource expense which are approximated between $75,000 to $100,000 (and estimated to be 25% complete to date). The Company plans to complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing assumptions of future events including the continued availability of certain resources, and other factors. Estimates on the status of completion and the expected completion dates are based on costs incurred to date compared to total expected costs. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those plans. Specific factors that might cause such material differences include, but are not limited to, the availability and cost of personnel trained in this area, the ability of vendors to deliver Year 2000 compliant software as planned, the ability to locate and correct all relevant computer codes, and similar uncertainties. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995 - --------------------------------------------------------------- The statements in this Form 10-Q which are not historical fact are forward looking statements that involve risks and uncertainties, including, but not limited to, the interest rate environment, the effect of federal and state banking and tax regulations, the effect of technological changes, the effect of third party or Company failures to achieve timely remediation of Year 2000 issues, the effect of economic conditions, the impact of competitive products and pricing, and other risks detailed in the Company's Securities and Exchange Commission filings. PEOPLES BANCORP INC. AND SUBSIDIARIES - ------------------------------------- CONSOLIDATED AVERAGE BALANCE SHEET AND ANALYSIS OF NET INTEREST INCOME - ----------------------------------------------------------------------
For the Three Months For the Six Months Ended June 30, Ended June 30, 1998 1997 1998 1997 Average Yield/ Average Yield/ Average Yield/ Average Yield/ Balance Rate Balance Rate Balance Rate Balance Rate ASSETS - ------ Securities: Taxable $188,561 6.55% $125,614 6.87% $177,358 6.56% $125,755 6.85% Tax-exempt 32,362 7.85% 21,640 8.32% 29,000 7.93% 22,067 8.34% - -------------------------------------------------------------------------------------------------- Total 220,923 6.74% 147,254 7.08% 206,358 6.75% 147,822 7.07% - -------------------------------------------------------------------------------------------------- Loans: Commercial 179,631 9.37% 139,199 9.54% 177,172 9.45% 136,975 9.53% Real estate 232,808 8.68% 206,211 8.49% 232,681 8.69% 203,817 8.44% Consumer 110,908 10.50% 112,674 10.34% 111,693 10.51% 110,946 10.38% - -------------------------------------------------------------------------------------------------- Total loans 523,347 9.30% 458,084 9.26% 521,546 9.34% 451,738 9.25% Less: Allowance for loan loss (9,047) (7,269) (8,860) (7,194) - -------------------------------------------------------------------------------------------------- Net loans 514,300 9.47% 450,815 9.41% 512,686 9.50% 444,544 9.40% Interest-bearing deposits 4,440 5.03% 681 3.48% 5,482 6.06% 1,377 4.29% Federal funds sold 3,554 5.69% 6,273 5.53% 6,307 5.55% 7,195 5.43% - -------------------------------------------------------------------------------------------------- Total earning assets 743,217 8.61% 605,023 8.80% 730,833 8.67% 600,938 8.76% Other assets 58,510 48,451 56,926 48,097 - -------------------------------------------------------------------------------------------------- Total assets $801,727 $653,474 $787,759 $649,035 ================================================================================================== LIABILITIES AND EQUITY - ---------------------- Interest-bearing deposits: Savings $ 91,989 2.99% $ 85,203 3.03% $ 91,547 3.03% $ 84,118 3.04% Interest-bearing demand deposits 140,887 3.52% 124,962 3.43% 139,337 3.57% 122,301 3.38% Time 299,806 5.43% 268,207 5.53% 311,142 5.48% 267,468 5.52% - -------------------------------------------------------------------------------------------------- Total 532,682 4.50% 478,372 4.54% 542,026 4.58% 473,887 4.53% Borrowed funds: Short-term 68,161 5.30% 19,647 4.35% 55,233 5.21% 19,610 4.19% Long-term 44,025 5.85% 30,851 6.26% 37,128 5.94% 31,133 6.28% - -------------------------------------------------------------------------------------------------- Total 112,186 5.51% 50,498 5.52% 92,361 5.49% 50,743 5.47% Total interest bearing liabilities 644,868 4.68% 528,870 4.63% 634,387 4.71% 524,630 4.62% Non-interest bearing deposits 65,243 60,189 63,990 59,768 Other liabilities 10,561 6,987 9,054 7,562 - -------------------------------------------------------------------------------------------------- Total liabilities 720,672 596,046 707,431 591,960 Stockholders' equity 81,055 57,428 80,328 57,075 - -------------------------------------------------------------------------------------------------- Total liabilities and equity $801,727 $653,474 $787,759 $649,035 ================================================================================================== Interest income to earning assets 8.61% 8.80% 8.67% 8.76% Interest expense to earning assets 4.06% 4.05% 4.09% 4.03% - -------------------------------------------------------------------------------------------------- Net interest margin 4.55% 4.75% 4.58% 4.73% ================================================================================================== Interest income and yields presented on a fully tax-equivalent basis using a 35% tax rate in 1998 and a 34% tax rate in 1997.
PART II - ------- ITEM 1: Legal Proceedings. None. ITEM 2: Changes in Securities. None. ITEM 3: Defaults upon Senior Securities. None. ITEM 4: Submission of Matters to a Vote of Security Holders. None. ITEM 5: Other Information. As discussed in the Company's Proxy Statement for the 1998 Annual Meeting of Shareholders, any qualified shareholder of the Company who intends to submit a proposal to the Company at the 1999 Annual Meeting of Shareholders must submit such proposal to the Company not later than November 6, 1998 to be considered for inclusion in the Company's Proxy Statement and form of Proxy (the "Proxy Materials") relating to that Meeting. If a shareholder intends to present a proposal at the 1999 Annual Meeting of Shareholders, but has not sought the inclusion of such proposal in the Company's Proxy Materials, such proposal must be received by the Company prior to January 20, 1999 or the Company's management proxies for the 1999 Annual Meeting will be entitled to use their discretionary voting authority should such proposal then be raised, without any discussion of the matter in the Company's Proxy Materials. ITEM 6: Exhibits and Reports on Form 8-K. a) Exhibits: EXHIBIT INDEX ------------- Exhibit Number Description Exhibit Location - -------------- -------------------------------- ---------------- 2 Office Purchase and Assumption * between Peoples Bank and Community Trust Bancorp, Inc., dated January 26, 1998; and Letter Agreement between Peoples Bank and Community Trust Bancorp, Inc., dated June 4, 1998. 11 Computation of Earnings Per Share. * 27 Financial Data Schedule. EDGAR electronic filing only. *Filed herewith b) Reports on Form 8-K: None. SIGNATURES - ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized. PEOPLES BANCORP INC. Date: August 14, 1998 By: /s/ ROBERT E. EVANS Robert E. Evans President and Chief Executive Officer Date: August 14, 1998 By: /s/ JOHN W. CONLON John W. Conlon Chief Financial Officer EXHIBIT INDEX ------------- PEOPLES BANCORP INC. QUARTERLY REPORT ON FORM 10-Q FOR PERIOD ENDED JUNE 30, 1998 -------------------------------------------------- Exhibit Number Description Exhibit Location - -------------- --------------------------------- ---------------- 2 Office Purchase and Assumption * between Peoples Bank and Community Trust Bancorp, Inc., dated January 26, 1998; and Letter Agreement between Peoples Bank and Community Trust Bancorp, Inc., dated June 4, 1998. 11 Computation of Earnings Per Share. * 27 Financial Data Schedule. EDGAR electronic filing only. *Filed herewith EX-2 2 OFFICE PURCHASE AND ASSUMPTION AGREEMENT - ---------------------------------------------------------------------------- OFFICE PURCHASE AND ASSUMPTION AGREEMENT - ---------------------------------------------------------------------------- By and Between COMMUNITY TRUST BANCORP, INC. 208 North Mayo Trail P.O. Box 2947 Pikeville, Kentucky 415012947 and THE PEOPLES BANKING AND TRUST COMPANY 138 Putnam Street Marietta, Ohio 45750 Dated as of the 20th day of January, 1998 1. Purchase and Assumption...............................................1 1.1 Purchase and Sale of Assets....................................1 1.2 Transfer of Assets.............................................2 1.3 Acceptance and Assumption......................................4 1.4 Payment of Funds...............................................5 2. Conduct of the Parties Prior to Closing...............................8 2.1 Covenants of SELLER............................................8 2.2 Covenants of BUYER.............................................9 2.3 Covenants of All Parties......................................10 3. Representations and Warranties.......................................10 3.1 Representations and Warranties of SELLER......................10 3.2 Representations and Warranties of BUYER.......................12 4. Actions Respecting Employees and Pensions and Employee Benefit Plan..13 4.1 Employment of employees.......................................13 4.2 Terms and Conditions of Employment............................13 4.3 Compliance with Law...........................................14 4.4 Actions to be Taken by SELLER.................................15 5. Conditions Precedent to Closing......................................15 5.1 Conditions to SELLER's Obligations............................15 5.2 Conditions to BUYER's Obligations.............................16 5.3 NonSatisfactions of Conditions Precedent......................18 5.4 Waivers of Conditions Precedent...............................18 6. Closing..............................................................18 6.1 Closing and Closing Date......................................18 6.2 SELLER's Actions at Closing...................................18 6.3 BUYER's Actions at the Closing................................20 6.4 Methods of Payment............................................21 6.5 Availability of Closing Documents.............................21 6.6 Effectiveness of Closing......................................22 7. Certain Transitional Matters.........................................22 7.1 Transitional Action By BUYER..................................22 7.2 Transitional Actions By SELLER................................24 7.3 Overdrafts and Transitional Action............................28 7.4 ATMs and Debit Cards..........................................28 7.5 Environmental Matters.........................................29 7.6 Effect of Transitional Action.................................32 8. General Covenants and Indemnification................................32 8.1 Confidentiality Obligations of BUYER..........................32 8.2 Confidentiality Obligations of SELLER.........................33 8.3 Indemnification By SELLER.....................................33 8.4 Indemnification By BUYER......................................34 8.5 Solicitation of Customers by BUYER Prior to Closing...........35 8.6 Solicitation of Customers by SELLER After the Closing.........35 8.7 Further Assurances............................................35 8.8 Operation of the Offices......................................36 8.9 Information After Closing.....................................37 8.10 Individual Retirement Accounts................................37 8.11 Covenant Not to Compete.......................................37 8.12 Nonsolicitation of Employees..................................37 9. Termination..........................................................38 9.1 Termination By Mutual Agreement...............................38 9.2 Termination By SELLER.........................................38 9.3 Termination By BUYER..........................................39 9.4 Effect of Termination.........................................40 10. Deposits.............................................................40 11. Miscellaneous Provisions.............................................41 11.1 Substitution of Parties.......................................41 11.2 Expenses......................................................41 11.3 Certificates..................................................41 11.4 Termination of Representations and Warranties.................41 11.5 Waivers.......................................................42 11.6 Notices.......................................................42 11.7 Parties in Interest: Assignment: Amendment....................43 11.8 Headings......................................................43 11.9 Terminology...................................................43 11.10 Flexible Structure............................................45 11.11 Press Releases................................................45 11.12 Entire Agreement..............................................45 11.13 Governing Law.................................................45 11.14 Counterparts..................................................45 11.15 Tax Matters...................................................45 OFFICE PURCHASE AND ASSUMPTION AGREEMENT This Office Purchase and Assumption Agreement is entered into and effective as of this ____ day of January, 1998, by and between The Peoples Banking and Trust Company ("BUYER"), an Ohio banking corporation, with its principal office at 138 Putnam Street, Marietta, Ohio 45750, and Community Trust Bancorp, Inc. ("SELLER"), a Kentucky corporation, with its principal office at 208 North Mayo Trail, P.O. Box 2947, Pikeville, Kentucky 415012947. Recitals: --------- A. WHEREAS, pursuant to that certain Office Purchase and Assumption Agreement dated as of December 30th, 1997, and that certain Letter Agreement dated as of December 30, 1997, all by and among Bank One, West Virginia, National Association and Bank One Wheeling Stuebenville, National Association (collectively, "Banc One") and SELLER (collectively, the "Banc One Agreement"), Banc One agreed to sell and assign to SELLER certain assets and liabilities associated with offices of Banc One (the "Acquired Assets and Liabilities"). (The closing of the transactions contemplated by the Banc One Agreement is referred to in this Agreement as the "Banc One Closing.") BUYER acknowledges the SELLER may elect to sell the Acquired Assets and Liabilities related to the Offices which are the subject of this Agreement through a wholly owned subsidiary financial institution. B. WHEREAS, BUYER desires to purchase and assume from SELLER, and SELLER desires to sell and assign to BUYER, certain Acquired Assets and Liabilities associated with offices of SELLER on the terms and subject to the conditions contained in this Agreement. Agreement: ---------- Now, Therefore, in consideration of the premises and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, BUYER and SELLER hereby agree as follows: 1. Purchase and Assumption. - ---------------------------- 1.1 Purchase and Sale of Assets. At the Closing, as defined in Section 6.1 hereof (the "Closing"), BUYER shall purchase and acquire, and SELLER shall sell and assign, the real estate and other assets described in Section 1.2 hereof (collectively, the "Assets") all of which have been used in and/or relate to business conducted by Banc One immediately prior to the Banc One Closing at its branch offices known as and located at the sites described in Schedules A and B attached hereto and incorporated herein by reference (such real estate and other assets to be acquired by Seller at the Banc One Closing occurring immediately prior to the Closing), pursuant to the terms and conditions set forth herein and subject to exceptions, if any, set forth herein. The foregoing offices are hereinafter sometimes collectively referred to as the "Offices" and each, individually, sometimes as an "Office." The transactions contemplated by this Agreement and the purchase of assets and assumption of liabilities provided for herein is sometimes referred to herein as the "Acquisition." Except as otherwise expressly provided herein, the sale of the Assets is without warranty or guarantee, express or implied, on an "asis, whereis" basis, and without recourse. Except as otherwise expressly provided herein, the Assets are sold without any representation or warranty whatsoever by SELLER. 1.2 Transfer of Assets. Subject to the terms and conditions of this Agreement, SELLER shall assign, transfer, convey and deliver to BUYER, on and as of the Closing on the Closing Date, as defined in Section 6.1 hereof, the Assets, which shall include the following: (a) Owned Real Estate. All of SELLER's right, title and interest in and to the real estate described in attached Schedule A on which an Office is situated, together with all of SELLER's rights in and to all improvements thereon; and all easements rights, privileges and appurtenances associated therewith (the "Owned Real Estate"); (b) Leased Real Estate. A good and valid leasehold estate in the real estate described in attached Schedule B and created by certain lease agreement(s) (individually and collectively the "Third Party Lease") relating to the referenced Offices (the "Leased Real Estate"), specifically identified in Schedule B attached hereto and incorporated herein by reference; (c) Furniture and Equipment. All of SELLER's right, title and interest in and to the furniture, fixtures and equipment located at the Offices as of the Closing Date (the "Fixed Assets"), a preliminary listing of which is contained in Schedule C attached hereto and incorporated herein by reference, specifically excluding, among other items, teller calculators and other teller and platform equipment and systems, CRTs, controllers and printers, signs and stands, printed supplies and documents and other materials bearing any Banc One or affiliate name and/or logo, network communications equipment and related devices, any artwork, ATM surrounds, and marketing fixtures. A final listing of specific items included in the Fixed Assets will be provided to BUYER prior to the Closing. (d) Safe Deposit Business. All right, title and interest of SELLER in and to the safe deposit business conducted at the Offices as of the close of business on the Closing Date, and all of Seller's right, title and interest in and to the amount of safe deposit box rent allocated to Seller under the Banc One Agreement; (e) Cash on Hand. All cash on hand at the Offices as of the close of business on the Closing Date including vault cash, petty cash, ATM cash and tellers' cash; (f) Prepaid Expenses. All prepaid expenses recorded or otherwise reflected on the books of Banc One as of August 31, 1997, or incurred in the ordinary course of business thereafter, as being attributable to the Offices as of the close of business on the day immediately preceding the Closing Date, but only to the extent attributable to the Assets sold, assigned or transferred to BUYER by SELLER pursuant to this Agreement and only to the extent arising by reason of BUYER's use or ownership of such Assets after the close of business on the Closing Date. SELLER shall not give any written consent to Banc One regarding any prepaid expenses incurred by Banc One with respect to the Offices subsequent to August 31, 1997 without the prior written consent of BUYER; (g) Office Loans. All right, title and interest in and to all those loans which, as of the close of business on the Closing Date, are (i) secured in whole or in part by Deposit Accounts (as hereinafter defined) attributable to an Office (the "Deposit Account Loans"), (ii) commercial or other loans attributable to an Office (if any, the "Other Loans") or (iii) automatically created as the result of an overdraft of a Deposit Account pursuant to a preapproved overdraft protection program offered by Banc One immediately prior to the Banc One Closing (except for those overdraft protection loans which are charged to credit card accounts not transferred to SELLER at the Banc One Closing, the "Overdraft Loans"). The Deposit Account Loans, Other Loans, and Overdraft Loans sold and assigned to BUYER hereunder will be identified as of the Closing Date and listed in Schedule H attached hereto and incorporated herein by reference and will constitute all of the Deposit Account Loans, Other Loans and Overdraft Loans acquired by SELLER at the Banc One Closing with respect to the Offices (hereinafter referred to individually and collectively as the "Office Loans"). Notwithstanding anything contained in this Agreement to the contrary, transfer of the Office Loans will be subject to the terms and conditions set forth in Schedule S attached hereto and incorporated herein by reference. Except as otherwise expressly provided herein, the transfer of the Office Loans will be made without recourse, without any representation, warranty, or guarantee of any kind, express or implied, and without any reserve for loan losses; (h) Records of the Offices. All records and documents related to the Assets transferred or liabilities assumed by BUYER as may exist and are available and maintained at the Offices (in whatever form or medium maintained by Banc One immediately prior to the Banc One Closing) including, but not limited to, those relating to (i) the Deposit Accounts and (ii) the promissory notes and documents and instruments evidencing the Liens (as defined in Schedule S annexed hereto and made a part hereof) relating to the Office Loans; and (i) Contracts or Agreements. All of SELLER's right, title and interest in and to the maintenance and service agreements related to the Offices, as listed on Schedule D annexed hereto and made a part hereof (the "Assumed Contracts"), provided the same have been assigned by Banc One to Seller at the Banc One Closing. 1.3 Acceptance and Assumption. Subject to the terms and conditions of this Agreement, on and as of the Closing on the Closing Date, BUYER shall: (a) Assets. Receive and accept all of the Assets assigned, transferred, conveyed and delivered to BUYER by SELLER pursuant to this Agreement, including those identified in Section 1.2 above. (b) Deposit Liabilities. Assume and thereafter discharge, pay in full and perform all of SELLER's obligations and duties relating to the "Deposit Liabilities" (as hereinafter defined). The term "Deposit Liabilities" is defined herein as all of SELLER's obligations, duties and liabilities of every type and character relating to all deposit accounts, other than (i) KEOGH accounts and (ii) deposit accounts securing any loan of SELLER which is not an Office Loan, for which BUYER assumes no liability, which, as reflected on the books of Banc One as of the close of business on the date of the Banc One Closing, are attributable to the Offices. The deposit accounts referred to in the immediately preceding sentence (hereinafter the "Deposit Accounts") include, without limitation, passbook, statement savings, checking, Money Market, and NOW accounts, Individual Retirement Accounts for which SELLER and/or Banc One has not received, on or before the Closing Date, the written advice from the account holder of such account holder's objection or failure to accept BUYER as successor custodian ("IRA's") and certificates of deposit. The "obligations, duties and liabilities" referred to in the first sentence of this Section 1.3(b) include, without limitation, the obligation to pay and otherwise process all Deposit Accounts in accordance with applicable law and their respective contractual terms and the duty to supply all applicable reporting forms for periods following the Closing Date including, without limitation, IRS Form 1099 reports relating to the Deposit Accounts to be filed and provided after the Closing Date relating to interest accrued after the Closing Date. With regard to each IRA included within the Deposit Accounts, BUYER shall also assume the appropriate plan pertaining thereto and the trustee or custodial arrangement in connection therewith. (c) Liabilities Under Leases/Safe Deposit Business. Assume and thereafter fully and timely perform and discharge, in accordance with their respective terms, all of the liabilities and obligations of SELLER arising after the Closing Date with respect to: (1) all leases listed on Schedules B and E to this Agreement (including safe deposit leases if any) and sold, assigned or transferred to BUYER by SELLER pursuant to this Agreement; (2) the safe deposit business of the Offices including, but not limited to, the maintenance of all necessary facilities for the use of safe deposit boxes by the renters thereof during the periods for which such persons have paid rent therefor in advance to Banc One, which liability or obligation SELLER has assumed at the Banc One Closing for the period from and after the date of the Banc One Closing, subject to the provisions of the applicable leases or other agreements relating to such boxes; and (3) all safekeeping items and agreements listed on Schedule E to this Agreement and delivered to BUYER by SELLER pursuant to this Agreement, including, but not limited to, all applicable safekeeping agreements, memoranda, or receipts so delivered to BUYER by SELLER hereunder. (d) Other Liabilities. Fully and timely perform and discharge, as the same may be or become due, the Assumed Contracts, the Third Party Lease for the Leased Real Estate and all additional liabilities, obligations and deferred expenses of Banc One as of the date of the Banc One Closing that are assumed by SELLER and reflected on the books of Banc One as being attributable to an Office as of the close of business on the date of the Banc One Closing, but only to the extent attributable to the Assets sold, assigned or transferred to BUYER by SELLER pursuant to this Agreement and only to the extent arising by reason of BUYER's use or ownership of such Assets after the close of business on the Closing Date. No additional material liabilities and obligations of Banc One incurred subsequent to the date of this Agreement shall be assumed by BUYER unless the prior written consent of BUYER has been obtained prior to the incursion of the material liability or obligation by Banc One. (e) Other Obligations. Fully and timely perform its obligations relative to employees of the Offices, if any, as set forth hereinafter. 1.4 Payment of Funds. Subject to the terms and conditions hereof, at the Closing: (a) Consideration. In consideration of BUYER's assumption of the Deposit Liabilities and its other agreements herein, SELLER shall make available and transfer to BUYER, in the manner specified in Section 6.4 hereof, funds equal to the sum of (i) the aggregate balance of all Deposit Accounts (including interest posted or accrued to such accounts as of the close of business on the day immediately preceding the Closing Date) and (ii) the amount of deferred expenses identified in Section 1.3(d) hereof assumed by SELLER under the Banc One Agreement, and less an amount equal to the sum of: (1) the amount of cash on hand at the Offices transferred to BUYER as of the close of business on the Closing Date; and (2) the net aggregate book value of the Offices, as determined for purposes of the Banc One Agreement; and (3) the net aggregate book value of the furniture, fixtures and equipment being transferred to BUYER, as determined for purposes of the Banc One Agreement; and (4) Nine and seven tenths percent (9.7%) of the average aggregate "Core Deposits" (as hereinafter defined) of the Offices as of the close of business for the five (5) business day period ending on the Banc One Closing Date; provided, however, in the event that the average principal balance of Deposit Liabilities relating to any Office, for the five(5) business day period immediately preceding the Banc One Closing Date, shall decline more than five percent (5%) in principal balance from the average level of Deposit Liabilities relating to any such Office for the period commencing five (5) business days immediately preceding the first public disclosure of this Agreement, then the Acquisition Consideration as applicable to the Offices subject to the disclosure, shall be calculated on the basis of the Deposit Liabilities for that Office for the period commencing five (5) business days preceeding the date of such disclosure. The term "Core Deposits" shall mean the aggregate balance of all Deposit Liabilities of the Offices (which aggregate balance shall include interest posted to such accounts as of the close of business on the Closing Date). The amount calculated as set forth herein as of the close of business on the Closing Date is hereinafter called the "Acquisition Consideration;" and (5) the amount of prepaid expenses described in Section 1.2(f) of this Agreement, prorated as of the close of business on the day immediately preceding the Closing Date; and (6) the book value of the Office Loans together with accrued and unpaid interest thereon computed as of the close of business on the Closing Date; and (7) the sum of $10,000.00 for each ATM or CBCT located at the Offices (which price does not include the "surrounds" for such ATM or BCT). In the event that the sum of items (1) through (7) above should be in excess of the aggregate amount to be transferred by SELLER pursuant to the first paragraph of this Section 1.4(a), the full amount of such excess shall constitute an amount due from BUYER to SELLER, and shall be paid to SELLER at the Closing in the manner specified in Section 6.4 hereof. The parties shall execute a Preliminary Settlement Statement at the Closing and a Final Settlement Statement postclosing in accordance with Section 6.4 herein, in substantially the same form as set forth in Schedules P and Q attached hereto and incorporated herein. (b) Reimbursement of Certain Expenses. All other expenses relating to the Offices (i) due and payable at times after the Closing Date for periods prior to the close of business on the Closing Date or (ii) paid prior to the close of business on the Closing Date for periods following the Closing Date, including the prepaid expenses described in Section 1.2(f) hereof and deferred expenses described in Section 1.3(d) hereof, including without limitation, real estate taxes and assessments which are a lien but not yet due and payable, utility payments, payments due on leases assigned, payments due on assigned service and maintenance contracts, FDIC insurance premiums, and similar expenses relating to the Offices that have been prorated to SELLER under Section 1.04(b) of the Banc One Agreement shall be expenses for which the BUYER shall make reimbursement to SELLER. (c) Expenses Relating to Real Property and other Assets. The transfer (or conveyance) fees relating to the Owned Real Estate and the costs, fees and expenses of all title commitments, title guaranties and title examinations relating to the procurement of the Title Commitments related to the Owned Real Estate and the Leased Real Estate referred to in Sections 2.1(a) and 5.2(g) herein, shall be allocated to, and shall be borne, solely and exclusively by BUYER. The costs, fees and expenses relating to the premiums for all title insurance policies (net of the costs of all title commitments, guaranties and examinations), recording costs and other similar costs, fees and expenses, if any, relating to the sale and transfer of the Owned Real Estate or the transfer of SELLER's interest in the Leased Real Estate including, but not limited to, any conveyance fees, taxes, recording costs and other similar fees and expenses relating to the sale and transfer of any other Assets, shall be allocated to, and shall be borne, solely and exclusively, by BUYER. BUYER shall reimburse SELLER at the Closing for all of the costs, fees and expenses allocated to BUYER pursuant to this Section 1.4(c) but paid by SELLER in the manner specified in Section 6.4 herein. If this transaction does not close by virtue of a breach of this Agreement, the breaching party shall be responsible for and shall, as appropriate, reimburse the other party for its expenses as set forth herein. If this transaction does not close for any other reason, each party shall reimburse the other party upon termination of this Agreement for such party's share of expenses so that each party shall pay the same share of expenses as it would have paid at Closing. 2. Conduct of the Parties Prior to Closing. - --------------------------------------------- 2.1 Covenants of SELLER. SELLER hereby covenants to BUYER that, from the ate hereof until the Closing, it will do or cause the following to occur: (a) Title Commitments for Real Estate. SELLER shall use reasonable efforts to cause Banc One to deliver to BUYER, at BUYER's expense, with respect to the Owned Real Estate and Leased Real Estate no later than thirty (30) days after the date of this Agreement, a commitment or commitments (the "Title Commitments") having an effective date as near as feasible to the date of delivery of such Title Commitments from a title insurance company designated by Banc One and reasonably satisfactory to BUYER, to issue to BUYER as soon as practicable after the Closing Date, as applicable, an American Land Title Association (ALTA) owners (Form B, 1970, Rev 1984) and/or leasehold title insurance (1975 Form) policies having an effective date as of the Closing Date in an amount satisfactory to BUYER (but not in excess of the appraised value of such properties or, as applicable, the amount of the leasehold interest to be transferred to BUYER pursuant to the Third Party Lease) covering the Owned Real Estate and Leased Real Estate, subject to the exceptions specified in the Title Commitments. If title to all or part of the Owned Real Estate or Leased Real Estate is unmarketable or is subject to any defect, lien, encumbrance, easement, condition, restriction or encroachment other than the Permitted Exceptions as defined in Section 10.8(c) herein, then BUYER shall provide written notice thereof to SELLER. SELLER shall in turn notify Banc One of such notice. Banc One shall have thirty days after written notice thereof from BUYER, to elect to remedy or remove any such defect, lien, encumbrance, easement, condition, restriction or encroachment but, if Banc One does not, BUYER may elect to attempt to cure or remove such defect or encumbrance or other maker, for a period of thirty days thereafter. If such defect or encumbrance or other manner is not cured, then, in addition to any other rights which BUYER may have hereunder, BUYER shall have the right with respect to the relevant Office (i) to declare this Agreement terminated by written notice to SELLER, or (ii) to waive any objection to such defect or encumbrance or other matter in which event such defect, encumbrance, or other matter shall be deemed to be a Permitted Exception. The Owned Real Estate is being sold by SELLER to BUYER hereunder free and clear of all liens, claims, encumbrances and rights of tenants in possession except for the Permitted Exceptions, and the conveyance by Limited Warranty Deed to be delivered by SELLER pursuant hereto shall be subject only to the Permitted Exceptions. (b) Required Authorizations. SELLER shall obtain and procure all necessary internal corporate approvals and authorizations, if any, required by SELLER to enable it to fully perform all obligations imposed on it hereunder which must be performed by it at or prior to the Closing. (c) Condemnation. If prior to Closing all or any portion of the Owned Real Estate or Leased Real Estate is taken or is made subject to eminent domain or other governmental acquisition proceedings, then SELLER, upon receipt of such notice from Banc One under the Banc One Agreement, shall promptly notify BUYER thereof, and BUYER may either complete the Closing and receive the proceeds paid or payable on account of such acquisition proceedings, or terminate this Agreement as to such Office and related assets and liabilities. If BUYER terminates this Agreement, both parties shall thereupon be relieved from all further obligations hereunder as to such Office and related assets and liabilities. (d) Covenants of Banc One. The covenants of Banc One set forth in Section 2.01 of the Banc One Agreement shall, for purposes of this Agreement, inure to the benefit of BUYER, and SELLER hereby covenants and agrees to enforce such covenants at the written request of BUYER, provided that BUYER shall pay all costs and expenses (including, but not limited to, attorney's fees and expenses) associated with the enforcement by SELLER of such covenants. 2.2 Covenants of BUYER. BUYER hereby covenants to SELLER that, from the date hereof until the Closing, it will do or cause the following to occur: (a) Regulatory Applications. BUYER shall prepare and submit for filing, at no expense to SELLER, any and all applications, filings, and registrations with and notifications to, all federal and state authorities required on the part of BUYER or any shareholder or affiliate of BUYER for the Acquisition to be consummated at the Closing as contemplated in Section 6.1 herein and for BUYER to operate the Offices following the Closing. BUYER shall provide SELLER with a draft copy of each application, filing, registration, and notification for SELLER's approval prior to filing, which approval by SELLER will not be unreasonably withheld or delayed. Such applications will be submitted to SELLER in draft form not later than February 9, 1998 and filed by BUYER without delay following SELLER's approval of such applications; provided, however, that in no event will such applications be filed later than March 9, 1998. Thereafter, BUYER shall pursue all such applications, filings, registrations, and notifications diligently and in good faith, and shall file such supplements, amendments, and additional information in connection therewith as may be reasonably necessary for the Acquisition to be consummated at such Closing and for BUYER to operate the Offices following the Closing. BUYER shall deliver to SELLER evidence of the filing of each and all of such applications, filings, registrations and notifications (except for any confidential portions thereof), and any supplement, amendment or item of additional information in connection therewith (except for any confidential portions thereof). BUYER shall also deliver to SELLER a copy of each material notice, order, opinion and other item of correspondence received by BUYER from such federal and state authorities (except for any confidential portions thereof) and shall advise SELLER, at SELLER's request, of developments and progress with respect to such matters. (b) Required Authorizations. BUYER shall obtain and procure all necessary corporate and other approvals and authorizations, if any, required on its part to enable it to fully perform all obligations imposed on it hereunder which must be performed by it at or prior to the Closing. (c) Satisfaction of Conditions. BUYER shall not voluntarily undertake any course of action inconsistent with the satisfaction of the requirements or the conditions applicable to it, or its agreements, undertakings, obligations, or covenants set forth in this Agreement, and it shall promptly do all such reasonable acts and take all such reasonable measures as may be appropriate to enable it to perform as early as reasonably possible the agreements, undertakings, obligations, and covenants herein provided to be performed by it, and to enable the conditions precedent to SELLER's obligations to consummate the Closing of the Acquisition to be fully satisfied. Additionally, BUYER shall not knowingly, directly or through any existing or future subsidiary or affiliate, take any action that would be in conflict with, or result in the denial, delay, termination, or withdrawal of, any of the regulatory approvals referred to in this Agreement. 2.3 Covenants of All Parties. SELLER hereby covenants to BUYER, and BUYER hereby covenants to SELLER that, from the date hereof until the Closing, such party shall, subject to each party's respective rights and obligations under this Agreement, cooperate fully with the other party in attempting to obtain all consents, approvals, permits, or authorizations which are required to be obtained pursuant to any federal or state law, or any federal or state regulation thereunder, for or in connection with the transactions described and contemplated in this Agreement. 3. Representations and Warranties. - ------------------------------------ 3.1 Representations and Warranties of SELLER. SELLER represents and warrants to BUYER as follows: (a) Good Standing and Power of SELLER. SELLER is a corporation duly organized, validly existing, and in good standing under the laws of the Commonwealth of Kentucky and a registered bank holding company under the Bank Holding Company Act of 1956, as amended, with corporate power to own its properties and to carry on its business as presently conducted. Banking subsidiaries of SELLER are insured depository institutions as defined in the Federal Deposit Insurance Act and applicable regulations thereunder. (b) Authorization of Agreement. The execution and delivery of this Agreement, and the transactions contemplated hereby, have been duly authorized by all necessary corporate action on the part of SELLER, and this Agreement is a valid and binding obligation of SELLER. (c) Effective Agreement. Subject to the receipt of any and all necessary regulatory approvals and required consents, the execution, delivery, and performance of this Agreement by SELLER and the consummation of the transactions contemplated hereby, will not conflict with, result in the breach of, constitute a violation or default, result in the acceleration of payment or other obligations, or create a lien, charge or encumbrance, under any of the provisions of Articles of Incorporation or ByLaws of SELLER, under any judgment, decree or order, under any law, rule, or regulation of any government or agency thereof, or under any material contract, material agreement or material instrument to which SELLER is subject, where such conflict, breach, violation, default, acceleration or lien would have a material adverse effect on the Assets or SELLER's ability to perform its obligations hereunder. (d) Title to Real Estate And Other Assets. SELLER shall convey, or cause to be conveyed, the Owned Real Estate to BUYER by delivery at the Closing of a limited warranty deed conveying such title subject only to the Permitted Exceptions. The Third Party Lease will be assigned to BUYER by delivery of an assignment conveying such leasehold interest to BUYER at the Closing. (e) Deposit. Attached as Schedule G hereto is a true and accurate schedule of all Deposit Accounts (including individual retirement accounts) domiciled at the Offices, prepared by Banc One as of a date within thirty (30) days prior to the date of this Agreement, listing by Office and by category the amount of all deposits and the interest rates and maturity dates associated with such deposits, and indicating the deposits that constitute Core Deposits. (f) Office Loans. Attached hereto as Schedule H is a true and accurate Schedule of all Office Loans, including accrued and unpaid interest thereon, computed as of a date within thirty (30) days prior to the date of this Agreement, excluding however, such Office Loans which are more than 30 days past due for payment of principal or interest. (g) Personal Property. Schedule C is a preliminary listing of Fixed Assets owned by Banc One and located at the Offices, which is subject to nonmaterial change prior to the Closing Date. A final listing of Fixed Assets will be provided to BUYER by SELLER prior to the Closing Date. (h) Assumed Contracts and Third Party Lease. Schedule D is a true and accurate schedule of all Assumed Contracts related to the Offices. (i) FIRPTA. SELLER is not a "foreign person" within the meaning of the Internal Revenue Code 1445. (j) For purposes of this Section 3.1, the "knowledge" of SELLER shall mean the actual knowledge of the President of SELLER. (k) Representations and Warranties of Banc One. The representations and warranties of Banc One set forth in Section 3.01 of the Banc One Agreement shall, for purposes of this Agreement, inure to the benefit of BUYER, and upon BUYER's written request, SELLER hereby agrees to exercise on behalf of BUYER any remedies available as a result of any such representation or warranty being untrue or breached, provided that, BUYER shall pay all cost and expenses (including, but not limited to, attorneys' breached fees and expenses) associated with the exercise by SELLER of such remedies. 3.2 Representations and Warranties of BUYER. BUYER represents and warrants to SELLER as follows: (a) Good Standing and Power of BUYER. BUYER is a corporation duly organized, validly existing, and in good standing under the laws of the State of Ohio, as amended, with corporate power to own its properties and to carry on its business as presently conducted. The banking subsidiaries of BUYER are insured depository institutions, as defined in the Federal Deposit Insurance Act and applicable regulations thereunder. (b) Authorization of Agreement. The execution and delivery of this Agreement, and the transactions contemplated hereby, have been duly authorized by all necessary corporate action on the part of BUYER, and this Agreement is a valid and binding obligation of BUYER. (c) Effective Agreement. Subject to the receipt of any and all necessary regulatory approvals, the execution, delivery, and performance of this Agreement by BUYER, and the consummation of the transactions contemplated hereby, will not conflict with, result in the breach of, constitute a violation or default, result in the acceleration of payment or other obligations, or create a lien, charge or encumbrance, under any of the provisions of the Articles of Incorporation or ByLaws of BUYER, under any judgment, decree or order, under any law, rule or regulation of any government or agency thereof, or under any material agreement, material contract or material instrument to which BUYER is subject, where such conflict, breach, violation, default, acceleration or lien would have a material adverse effect on BUYER's ability to perform its obligations hereunder. 4. Actions Respecting Employees and Pensions and Employee Benefit Plan. - ------------------------------------------------------------------------- 4.1 Employment of employees. BUYER shall extend offers of employment, as of the Closing Date, to such employees of the Offices listed in Schedule R as may be employed by Banc One at the Offices as of the date of the Banc One Closing (including, without limitation, those employees who on the Closing Date are on family and medical leave, military leave, or personal or pregnancy leave and who elect to return to work not later than one (1) year following the Closing Date; individually and collectively the "Leave Employees" herein) for positions entailing responsibilities in effect at Banc One as of the Closing Date, and for a base salary not less than that paid by Banc One as of the Closing Date, Employees accepting employment with BUYER, including but not limited to the Leave Employees, are referred to herein individually and collectively as the "Transferred Employees". In the event that BUYER shall transfer (except in a comparable position and for comparable compensation to an office not more than 25 miles from the Office at which the Transferred Employee is employed as of the Closing Date, or at the request of the Transferred Employee), terminate employment of, or reduce the base salary of, a Transferred Employee (the "Terminated Employee") between the Closing Date and the date which is one (1) year from the Closing Date, other than for cause, BUYER shall pay to the Terminated Employee a sum equal to the greater of that which the Terminated Employee would have received on the date of such transfer, termination, or reduction in salary under the severance plan of Banc One applicable to the Terminated Employee as of the date hereof and set forth in Schedule R or the severance plan of BUYER otherwise applicable to the Terminated Employee as of the date of such transfer, termination, or reduction in base salary. Such payment shall be due and owing the Terminated Employee on the date of such transfer, termination, or reduction in salary. Nothing contained in this Agreement shall restrict or prohibit BUYER and any Transferred Employee from entering into an agreement satisfactory to both BUYER and the Transferred Employee providing for resolution of matters set forth in this section. 4.2 Terms and Conditions of Employment. Except as otherwise provided explicitly in this Agreement, the terms of employment for each Transferred Employee shall be determined solely by BUYER's policies, procedures, and programs; provided, however, that each Transferred Employee shall be provided employment subject to the following terms and conditions: (a) Base salary shall be at least equivalent to the rate of base salary paid by Banc One to such Transferred Employee as of the close of business on the day prior to the Closing Date. (b) Except as otherwise specifically provided herein, Transferred Employees shall be provided employee benefits that are no less favorable in the aggregate than those provided to similarly situated employees of BUYER. BUYER shall provide such Transferred Employees with credit for the Transferred Employee's period of service with Banc One (including any service credited from predecessors by merger or acquisition to Banc One) towards the calculation of eligibility and vesting for such purposes as vacation, severance and other benefits and participation and vesting in BUYER's qualified pension and/or Profit sharing 401(k) plans, as such plans may exist (but, except as set forth in (e) below and for vacation, not for purposes of benefit accruals, including, without limitation, funding of accrued pension or profit sharing plans for such Transferred Employees with respect to any period prior to the Closing Date). (c) Each Transferred Employee shall be eligible to participate in the medical, dental, or other welfare plans of BUYER, as such plans may exist, on and after the Closing Date, and any preexisting conditions provisions of such plans shall be waived with respect to any such Transferred Employees. (d) With respect to any Transferred Employee who is also a Leave Employee, upon conclusion of his or her shortterm disability or temporary leave of absence, subject to the terms and conditions of the BUYER's plans and policies and applicable law, each Transferred Employee on such leave shall receive the salary and vacation benefits in effect when he or she went on leave, shall otherwise be treated as a Transferred Employee, and, to the extent practicable, shall be offered by the BUYER the same or a substantially equivalent position to his or her position with Banc One prior to having gone on leave. (e) Except as provided herein, Banc One shall pay, discharge, and be responsible for (i) all salary and wages arising out of employment of the Transferred Employees through the Closing Date, and (ii) any employee benefits (except vacation, sick, and personal days accrued but unused by the Transferred Employee through the Closing Date which BUYER hereby agrees to grant to such Transferred Employees following the Closing Date) arising under Banc One's employee benefit plans and employee programs prior to the Closing Date (but not including medical benefits, if any, to Transferred Employees who retire after the Closing Date), including benefits with respect to claims incurred prior to the Closing Date but reported after the Closing Date and benefits inuring to Leave Employees prior to any election by such Leave Employees to return to work with BUYER. From and after the Closing Date, BUYER shall pay, discharge, and be responsible for all salary, wages, and benefits arising out of or relating to the employment of the Transferred Employees by BUYER from and after the Closing Date, including, without limitation, all claims for welfare benefits plans incurred on or after the Closing Date. Claims are incurred as of the date services are provided notwithstanding when injury or illness may have occurred. 4.3 Compliance with Law. BUYER agrees that it shall comply with any and all applicable requirements, if any, under the Worker Adjustment and Retraining Notification Act in connection with the transaction contemplated by this Agreement. BUYER hereby agrees to indemnify and to hold SELLER and its affiliates and its and their officers, directors, agents, and employees harmless from and against any and all liability, loss, cost, and expense, however arising, as a result of the failure of BUYER to comply with its obligations as set forth in this section. 4.4 Actions to be Taken by SELLER. SELLER covenants to BUYER that it will do or cause the following to occur: Except with the written consent of BUYER, for a period of twelve (12) months following the Closing Date, SELLER will not directly or indirectly solicit Transferred Employees as prospective officers or employees of SELLER; provided, however, that SELLER shall not be prohibited or restricted from hiring a Transferred Employee if such Transferred Employee contacts SELLER or an affiliate of SELLER to seek hiring or retention, whether in response to general advertising, or if a Transferred Employee is terminated subsequent to the Closing. 5. Conditions Precedent to Closing. - ------------------------------------- 5.1 Conditions to SELLER's Obligations. The obligations of SELLER to consummate the Acquisition are subject to the satisfaction, or the waiver in writing by SELLER to the extent permitted by applicable law, of the following conditions at or prior to the Closing: (a) Prior Regulatory Approval. All filings and registrations with, and notifications to, all federal and state authorities required for consummation of the Acquisition shall have been made, all approvals and authorizations of all federal and state authorities required for consummation of the Acquisition shall have been received and shall be in full force and effect, and all applicable waiting periods shall have passed. (b) Corporate Action. The Board of Directors of BUYER shall have taken all corporate action necessary by it to effectuate this Agreement and the Acquisition and BUYER shall have furnished SELLER with a certified copy of each such resolution adopted by the Board of Directors of BUYER evidencing the same. (c) Representations and Warranties. The representations and warranties of BUYER set forth in this Agreement shall be true and correct in all material respects on the Closing Date with the same effect as though all such representations and warranties had been made on and as of the Closing Date, and BUYER shall have delivered to SELLER a Certificate to that effect, dated as of the Closing Date to the effect specified in Schedule I to this Agreement. (d) Covenants. Each and all of the covenants and agreements of BUYER to be performed or complied with at or prior to Closing pursuant to this Agreement shall have been duly performed or complied with in all material respects by BUYER, or waived by SELLER, and BUYER shall have delivered to SELLER a Certificate to that effect, dated as of the Closing Date to the effect specified in Schedule K to this Agreement. (e) No Proceedings or Prohibitions. At the time of the Closing, there shall not be any litigation, investigation, inquiry, or proceeding pending or threatened in or by any court or agency of any government or by any third party which in the judgment of the executive officers of SELLER, with the advice of counsel, presents a bona fide claim to restrain, enjoin, or prohibit consummation of the transactions contemplated by this Agreement or which might result in rescission in connection with such transactions; and SELLER shall have been furnished with a Certificate, in substantially the form specified in Schedule K to this Agreement, dated as of the Closing Date and signed by the Chairman, President, or Vice President, and the Secretary or Assistant Secretary of BUYER, to the effect that no such litigation, investigation, inquiry, or proceeding is pending or threatened to the best of their knowledge. (f) Opinion of Counsel. BUYER shall have delivered to SELLER an opinion, dated as of the Closing Date, of legal counsel reasonably satisfactory to SELLER and its counsel, in form and substance reasonably satisfactory to SELLER and its counsel to the effect specified in Schedule L to this Agreement. (g) Receipt of Consents of Third Parties. SELLER shall have received, in form and substance satisfactory to SELLER, any and all consents, approvals or waivers of third parties as SELLER, in its sole discretion (subject to the provisions of this Agreement), may deem necessary or appropriate to enable it to consummate the transactions contemplated by this Agreement without additional cost, expense, or liability to SELLER or its affiliates. (h) Closing under Banc One Agreement. The Closing under the Banc One Agreement shall have occurred. (i) Banc One Approval. Banc One shall have delivered its written approval of BUYER as an "Approved Subsequent Buyer" as defined in Banc One Agreement. 5.2 Conditions to BUYER's Obligations. The obligations of BUYER to consummate the Acquisition are subject to the satisfaction, or the waiver in writing by BUYER to the extent permitted by applicable law, of the following conditions at or prior to the Closing: (a) Prior Regulatory Approval. All filings and registrations with, and notifications to, all federal and state authorities required for consummation of the Acquisition and operation of the Offices by BUYER shall have been made, all approvals and authorizations of all federal and state authorities required for consummation of the Acquisition and operation of the Offices by BUYER shall have been received and shall be in full force and effect, and all applicable waiting periods shall have passed. (b) Corporate Action. The Board of Directors of SELLER shall have taken all corporate action necessary to effectuate this Agreement and the Acquisition; and SELLER shall have furnished BUYER with a certified copy of each such resolution adopted by the Board of Directors of SELLER evidencing the same. (c) Representations and Warranties. The representations and warranties of SELLER set forth in this Agreement shall be true and correct in all material respects on the Closing Date with the same effect as though all such representations and warranties had been made on and as of the Closing Date (unless a different date is specifically indicated in such representations and warranties), and SELLER shall have delivered to BUYER a Certificate to that effect, dated as of the Closing Date to the effect specified in Schedule K to this Agreement. (d) Covenants. Each and all of the covenants and agreements of SELLER to be performed or complied with pursuant to this Agreement shall have been duly performed or complied with in all material respects by SELLER, or waived by BUYER, and SELLER shall have delivered to BUYER a Certificate to that effect, dated as of the Closing Date to the effect specified in Schedule K to this Agreement. (e) No Proceedings or Prohibitions. At the time of the Closing, there shall not be any litigation, investigation, inquiry, or proceeding pending or threatened in or by any court or agency of any government or by any third party which in the judgment of the executive officers of BUYER, with the advice of counsel, presents a bona fide claim to restrain, enjoin, or prohibit consummation of the transactions contemplated by this Agreement or which might result in rescission in connection with such transactions; and BUYER shall have been furnished with a Certificate, in substantially the form specified in Schedule K to this Agreement, dated as of the Closing Date and signed by the Chairman, President, or Vice President, and the Secretary or Assistant Secretary of SELLER, to the effect that no such litigation, investigation, inquiry, or proceeding is pending or threatened to the best of their knowledge. (f) Opinion of Counsel. SELLER shall have delivered to BUYER an opinion, dated as of the Closing Date, of legal counsel reasonably satisfactory to BUYER and its counsel, in form and substance reasonably satisfactory to BUYER and its counsel to the effect specified in Schedule L to this Agreement. (g) Real Property. The Title Commitments (as defined in Section 2.1(a) herein) shall have been delivered to BUYER, and updated to or as close as practicable to (but in no event more than five (5) business days prior to) the Closing Date, in accordance with the terms of such Section, and such updated Title Commitments shall not include any special exceptions other than those set forth in the original Title Commitments and any other Permitted Exceptions. (h) Fixed Assets. There shall have been no material alteration in or adjustment to the Fixed Assets. For purposes of this subsection (h), it will not be considered to be a material alteration or adjustment to the Fixed Assets if (i) Banc One makes additions to the Fixed Assets with the prior written consent of BUYER or (ii) Banc One makes additions to the Fixed Assets without BUYER's consent in order to correct emergency situations which are threatening to impair Banc One's operations at an Office. (i) Banc One Approval. Banc One shall have delivered its written approval of BUYER as an "Approved Subsequent Buyer" as defined in Banc One Agreement. 5.3 NonSatisfactions of Conditions Precedent. The nonoccurrence or delay of the Closing of the Acquisition by reason of the failure of timely satisfaction of all conditions precedent to the obligations of any party hereto to consummate the Acquisition shall in no way relieve such party of any liability to the other party hereto, nor be deemed a release or waiver of any claims the other party hereto may have against such party, if and to the extent the failure of timely satisfaction of such conditions precedent is attributable to the actions or inactions of such party. 5.4 Waivers of Conditions Precedent. The conditions specified in Sections 5.1 and 5.2 herein shall be deemed satisfied or, to the extent not satisfied, waived if the Closing occurs unless such failure of satisfaction is reserved in a writing executed by BUYER and SELLER at or prior to the Closing. 6. Closing. - ------------- 6.1 Closing and Closing Date. The Acquisition contemplated by this Agreement shall be consummated and closed (the "Closing") at such location as shall be mutually agreed upon by BUYER and SELLER, and such Closing shall be on the same date, or the next succeeding day, as the Banc One Closing (the "Closing Date"). 6.2 SELLER's Actions at Closing. At the Closing (unless another time is specifically stated in Section 6.4 hereof), SELLER shall, with respect to the Offices: (a) deliver to BUYER at the Offices such of the Assets purchased hereunder as shall be capable of physical delivery, including, without limitation, all assets comprising the safe deposit box business, if any, of the Offices; (b) execute, acknowledge and deliver to BUYER all such limited warranty deeds (qualified, as necessary, to reflect all Permitted Exceptions), endorsements, assignments, bills of sale, and other instruments of conveyance, assignment, and transfer as shall reasonably be necessary or advisable to consummate the sale, assignment, and transfer of the Assets sold or assigned to BUYER hereunder and such other documents as the title company may reasonably require; the originals of all blueprints, construction plans, specifications and plats relating to the Owned Real Estate, which are now in Banc One's possession or which SELLER has reasonable access to; and such other documents or instruments as may be reasonably required by BUYER, required by other provisions of this Agreement, or reasonably necessary to effectuate the Closing; (c) execute, acknowledge and deliver to BUYER a duly executed and recordable assignment to BUYER of the Third Party Lease and a consent to assignment from the landlord of the Third Party Lease all in substantially as set forth in Schedule F attached hereto and incorporated herein by reference; (d) assign, transfer, and make available to BUYER such of the following records as exist and are available and maintained at the Offices (in whatever form or medium then maintained by Banc One) pertaining to the Deposit Liabilities and Office Loans: (1) signature cards, orders, contracts, and agreements between Banc One and depositors of the Offices and borrowers with respect to Office Loans, and records of similar character; and (2) a trial balance listing of records of account; and (3) all other miscellaneous records, statements and other data and materials maintained by Banc One relative to any Deposit Liabilities being assumed by BUYER and Office Loans being acquired by BUYER; and (e) assign, transfer, and deliver to BUYER such safe deposit and safekeeping files and records (in whatever form or medium then maintained by Banc One) pertaining to the safe deposit business of the Offices transferred to BUYER hereunder as exist and are available, together with the contents of the safe deposit boxes maintained at the Offices, as the same exist as of the close of business on the day immediately preceding the Closing Date (subject to the terms and conditions of the leases or other agreements relating to the same) and all securities and other records, if any, held by the Offices for their customers as of the close of business on the day immediately preceding the Closing Date (subject to the terms and conditions of the agreements or receipts relating to the same); and (f) make available and transfer to BUYER on the Closing Date and prior to the conclusion of the Closing any funds required to be paid to BUYER pursuant to the terms of this Agreement; and (g) execute, acknowledge and deliver to BUYER all Certificates and other documents required to be delivered to BUYER by SELLER at the Closing pursuant to the terms of this Agreement; and (h) assign by endorsement substantially in a form as provided in Schedule M attached hereto, transfer and deliver to BUYER the contract, promissory note or other evidence of indebtedness related to the Office Loans together with the loan file and records (in whatever form or medium maintained by Banc One immediately prior to the Banc One Closing) pertaining to such Office Loans; and (i) assign to BUYER all SELLER's rights in and to the Assumed Contracts which are assignable and which constitute part of the Assets. 6.3 BUYER's Actions at the Closing. At the Closing (unless another time is specifically stated in Section 6.4 hereof), BUYER shall, with respect to the Offices: (a) execute, acknowledge, and deliver to SELLER, to evidence the assumption of the liabilities and obligations of SELLER by BUYER hereunder, an instrument of assumption in the form set forth in Schedule N to this Agreement, and SELLER shall then accept, execute, and acknowledge such instrument. Copies of such instrument may be recorded in the public records at the option of either party hereto. The execution and acknowledgment of such instrument shall not be deemed to be a waiver of any rights or obligations of any party to this Agreement; (b) receive, accept and acknowledge delivery of all Assets, and all records and documentation relating thereto, sold, assigned, transferred, conveyed or delivered to BUYER by SELLER hereunder; and (c) execute and deliver to SELLER such written receipts for the Assets, properties, records, and other materials assigned, transferred, conveyed, or delivered to BUYER hereunder as SELLER may reasonably have requested at or before the Closing; (d) pay to SELLER on the Closing Date and prior to the conclusion of the Closing any funds required to be paid to SELLER at the Closing pursuant to the terms of this Agreement; (e) execute, acknowledge and deliver to SELLER all Certificates and other documents required to be delivered to SELLER by BUYER at the Closing pursuant to the terms hereof; and (f) execute, acknowledge and deliver to SELLER an agreement wherein BUYER assumes obligations with respect to the Third Party Lease and Assumed Contracts and the IRA's for all periods following the Closing Date with respect thereto. 6.4 Methods of Payment. Subject to the adjustment procedures set forth in this Section 6.4, the transfer of the funds, if any, due to BUYER or to SELLER, as the case may be, as set forth pursuant to the terms of Section 1.4(a) hereof, shall be made on the Closing Date in immediately available United States Federal Funds. At least two business days prior to the Closing, SELLER and BUYER shall provide written notice to one another indicating the account and bank to which such funds shall be wire transferred. In order to facilitate the Closing, the parties agree: (i) that the amount of funds transferred on the Closing Date, pursuant to Section 1.4(a) hereof, shall be computed based upon (a) the aggregate book value plus accrued interest of the Office Loans as of the close of business on a day to be agreed between the parties, not more than three (3) business days preceding the Closing Date, (b) cash on hand at the Offices as of the close of business on a day to be agreed between the parties, not more than three (3) business days preceding the Closing Date, and (c) the aggregate balance of all Deposit Accounts (including interest posted or accrued to such accounts and Individual Retirement Accounts which have become IRAs as a result of the written appointment of BUYER as the successor custodian and the failure of the account holders to object to such appointment) as of the close of business on a day to be agreed between the parties, not more than three (3) business days preceding the Closing Date, and the parties shall execute a Preliminary Closing Statement in substantially the form set forth in Schedule P attached. Furthermore, within ten (10) business days after the Closing, the parties shall make appropriate postclosing adjustments, consistent with the provisions of Section 1.4 hereof, based upon actual Deposit Accounts as of the Closing Date, Office Loans as of the Closing Date, and cash transactions which took place on the Closing Date or which took place prior to the Closing Date but which were not reflected in the Preliminary Closing Statement, and shall execute the Final Settlement Statement in substantially the form set forth in Schedule O attached. In addition, prorations of prepaid and deferred income and expenses that cannot be reasonably calculated at the Closing shall be settled and paid based on actual amounts and calculations as soon as possible after the Closing. 6.5 Availability of Closing Documents. The documents proposed to be used and delivered at the Closing shall be made available for examination by the respective parties not later than 12:00 noon, Ohio time, on the tenth Business Day prior to the Closing Date. 6.6 Effectiveness of Closing. Upon the satisfactory completion of the Closing, which does not include and shall not require completion of the adjustment and proration arrangements set forth in Section 6.4, the Acquisition shall be deemed to be effective and the Closing shall be deemed to have occurred. 7. Certain Transitional Matters. - ---------------------------------- 7.1 Transitional Action By BUYER. After the Closing, unless another time is otherwise indicated: (a) BUYER shall: (i) pay in accordance with the law and customary banking practices and applicable Deposit Account contract terms, all properly drawn and presented checks, negotiable orders of withdrawal, drafts, debits, and withdrawal orders presented to BUYER by mail, over the counter, through electronic media, or through the check clearing system of the banking industry, by depositors of the Deposit Accounts assumed by BUYER hereunder, whether drawn on checks, negotiable orders or withdrawal, drafts, or withdrawal order forms provided by BUYER or Banc One; and (ii) in all other respects discharge, in the usual course of the banking business, the duties and obligations of Banc One with respect to the balances due and owing to the depositors whose Deposit Accounts are assumed by BUYER hereunder; provided, however, that any obligations of BUYER pursuant to this Section 7.1 to honor checks, negotiable orders of withdrawal, drafts, and withdrawal orders on forms provided by Banc One and carrying its imprint (including its name and transit routing number) shall not apply to any checks, drafts, withdrawal orders, or returned items (i) presented to BUYER more than one hundred eighty (180) days following the Closing Date, or (ii) on which a stop payment has been requested by the deposit customer. BUYER shall submit and file any required reports on IRS Form 1099 with respect to interest accrued on Deposit Liabilities after the Closing Date. The provisions of this subsection 7.1 (a) shall in no way limit BUYER's duties or obligations arising under Section 1.3(b) hereof. (b) BUYER shall, not earlier than the time of procurement of all regulatory approvals required for consummation of the transaction contemplated by this Agreement nor later than ten (10) days prior to the Closing Date, notify all depositors of the Offices by letter, acceptable to Banc One and SELLER, produced in, if appropriate, several similar, but different forms calculated to provide necessary and specific information to the owners of particular types of accounts, of BUYER's pending assumption of the Deposit Liabilities hereunder, and, in appropriate instances, notify depositors that on and after the Closing Date certain Banc One depositrelated services and/or Banc One's debit card and automatic teller machine services impacted by the transactions contemplated by this Agreement, will be terminated. As an enclosure to such notices, BUYER may furnish appropriate depositors with brochures, forms and other written materials related or necessary to the assumption of the Deposit Accounts by BUYER and the conversion of said accounts to BUYER accounts, including the provision of checks to appropriate depositors using the forms of BUYER with instructions to such depositors to utilize such BUYER checks on and after the Closing Date and thereafter to destroy any unused checks on Banc One's forms. The expenses of the printing, processing and mailing of such letter notices and providing new BUYER checks and other forms and written materials to appropriate customers shall be borne by BUYER. Before Closing, except as provided in this paragraph, BUYER will not contact Banc One's customers except as may occur in connection with advertising or solicitations directed to the public generally or in the course of obtaining the requisite regulatory approvals of the transaction. Anything to the contrary herein notwithstanding, BUYER shall provide, at no cost to Banc One and SELLER, any and all notices, communications, and filings which may be required by law, regulation, or otherwise, relating to any changes in terms and other matters relating to the Deposit Accounts and the Office Loans occurring subsequent to the Closing Date. Any and all such notices, communications, and filings which may be required to be provided prior to the Closing Date shall be submitted on a timely basis for review by Banc One and SELLER and shall be subject to the written approval of Banc One and SELLER prior to delivery to any third party. (c) BUYER shall promptly pay to SELLER an amount equivalent to the amount of any checks, negotiable orders of withdrawal, drafts, withdrawal orders, or returned items (net of the applicable Acquisition Consideration paid by BUYER with respect to the Deposit Liabilities represented by any such instrument) credited as of the close of business on the Closing Date to a Deposit Account assumed by BUYER hereunder which are returned uncollected to Banc One or SELLER after the Closing Date. The foregoing shall include an amount equivalent to holds placed upon such deposit account for items cashed by Banc One or SELLER as of the close of business on the Closing Date. (d) All tasks and obligations concerning the provision of data processing services to or for the Offices after the Closing, other than those specifically set forth in, and to the extent assumed by SELLER pursuant to, Section 7.2(b) herein, if any, are the sole and exclusive responsibility of, and shall be performed solely and exclusively by, BUYER. (e) BUYER shall, not later than the close of business on the business day immediately following the Closing Date, supply suitable governmentbacked securities as security for any deposits of governmental units included among the Deposit Liabilities for which Banc One had provided similar security. (f) BUYER shall, as soon as practicable but not more than 10 business days after the Closing Date, prepare and transmit at BUYER's expense to each of the obligors on Office Loans transferred to BUYER pursuant to this Agreement a notice to the effect that the loan has been transferred and directing that payment be made to BUYER at the address specified by BUYER, with BUYER's name as payee on any checks or other instruments used to make payments, and, with respect to such loan on which a payment notice or coupon book has been issued, to issue a new notice or coupon book reflecting the name and an address of BUYER as the person to whom and place at which payments are to be made. (g) If the balance due on any Office Loan transferred to BUYER pursuant to this Agreement has been reduced by Banc One or SELLER as a result of a payment by check or draft received prior to the close of business on the Closing Date, which item is returned unpaid to Banc One or SELLER after the day immediately preceding the Closing Date, the asset value represented by the loan transferred shall be correspondingly increased and an amount in cash equal to such increase shall be promptly paid by BUYER to SELLER. (h) BUYER shall use its best efforts to cooperate with SELLER in assuring an orderly transition of ownership of the Assets and responsibility for the liabilities, including the Deposit Liabilities, assumed by BUYER hereunder. (i) BUYER hereby grants to SELLER and its contractors access to the Offices until 8:00 A.M. local time on the day following the Closing Date, or such other later date and time as the parties may agree, at no cost or expense to SELLER, for conduct of activities consistent with this Agreement in conjunction with the transactions contemplated hereby. (j) The duties and obligations of BUYER in this section 7.1 shall survive the Closing. 7.2 Transitional Actions By SELLER. After the Closing, unless another time is otherwise indicated: (a) SELLER shall use its best efforts to cooperate with BUYER in assuring an orderly transition of ownership of the Assets and responsibility for the liabilities, including the Deposit Liabilities, assumed by BUYER hereunder. SELLER shall use reasonable efforts to have Banc One provide final statements as of the Closing Date, in conjunction with appropriate Deposit Liabilities, with interest and service charges prorated to close of business on the Closing Date. SELLER shall use reasonable efforts to have Banc One submit and file any required reports on IRS Form 1099 with respect to interest accrued on Deposit Liabilities through the Closing Date. (b) SELLER's sole and exclusive responsibilities concerning the provision of data processing services to or for the Deposit Accounts of the Offices after the Closing Date, if any, shall be as set forth in this Section 7.2(b). As soon as practicable following the date of this Agreement, SELLER shall use reasonable efforts to have Banc One provide BUYER with applicable product functions and specifications relating to the data processing support required for the Deposit Accounts, Office Loans, and safe deposit business (if such data processing support currently is provided with respect to such business) maintained at the Offices (such Deposit Accounts, Office Loans and safe deposit business, if applicable, hereinafter called the "Accounts"). As soon as practicable following the date of this Agreement, SELLER shall use reasonable efforts to have Banc One provide to BUYER file formats relating to the Accounts and up to three (3) sets of test tapes related to the Accounts in generic form which are machine readable on IBM (or IBM compatible) equipment or which shall be on eighteen track 3480 cartridges (noncompressed data) or on nine channel 6250 B.P.I. EBCDIC formatted tape. By not later than 2:00 P.M. local Columbus, Ohio time on the day immediately following the Closing Date, SELLER shall use reasonable efforts to have Banc One make the foregoing documents and materials available for pickup by BUYER at the Banc One Corporation, Columbus, Ohio, Data Processing Center and/or the FISERV Data Center in Philadelphia, Pennsylvania. BUYER shall review and analyze such materials including, but not limited to, the file formats and test tapes, and shall advise SELLER in writing of any defects or concerns relating thereto not later than 10 business days following receipt thereof. (c) SELLER shall use reasonable efforts to have Banc One resign as custodian of each IRA account maintained at the Offices and assign the custodianship of such accounts to BUYER upon Closing subject to receipt of applicable customer consents and other provisions of this Agreement including the provisions of section 8.10 hereto. (d) SELLER shall use reasonable efforts to have Banc One terminate its ATM/debit card service effective as of close of business on the business day preceding the Closing Date or such other date and time as Banc One, SELLER and BUYER may agree. Such terminations will be preceded by the notice described in Section 7.1(b) herein. SELLER shall have no obligation with respect to conversion or change over with respect to direct deposit or payroll and retirement payments service relating to the Deposit Accounts following the Closing and, further, BUYER shall assume all responsibility and liability with respect thereto following the Closing. SELLER and Banc One will continue to redirect and/or pass through relevant ACT transactions on Deposit Accounts for a period of 90 days following the Closing Date. (e) As of the opening of business on the first business day after the Closing Date, SELLER shall use reasonable efforts to have Banc One, and BUYER shall, provide the appropriate Federal Reserve Bank (the "FRB") with all information necessary in order to expedite the clearing and sorting of all checks, drafts, instruments and other commercial paper relative to the Deposit Liabilities and/or the Office Loans (hereinafter collectively referred to as "Paper Items"). BUYER shall bear all charges and costs imposed by the Federal Reserve in connection with the reassignment of account number ranges for sorting the Paper Items. In the event the Federal Reserve and/or any other regional or local clearinghouse for negotiable instruments fails, refuses or is unable to direct sort such Paper Items for delivery to BUYER with the result that such Paper Items are presented to Banc One or SELLER, by not later than 2:00 _.m. local Columbus, Ohio time on each business day following the Closing and continuing for one hundred twenty (120) days after the Closing, SELLER shall use reasonable efforts to have Banc One make available to BUYER for pick up from Banc One's offices or the offices of Banc One's agent and/or processor at the Banc One Data Processing Center in Columbus, Ohio and/or the Banc One Corporation Charleston, West Virginia Data Processing Center, all of the Paper Items which are received by Banc One or SELLER from the FRB and/or any regional or local clearinghouse during the morning of each such business day on an "asreceived basis." At the same time SELLER shall use reasonable efforts to have Banc One also make available to BUYER information and records, including but not limited to systems printouts, concerning such Paper Items and concerning incoming Automated Clearing House items ("ACM items") as well as outstanding Automatic Teller Machine ("ATM") transactions. Such information and records, including but not limited to systems printouts, will utilize the most recent account number designated by Banc One for each of the Deposit Accounts and/or the Office Loans. BUYER shall initiate appropriate Notification of Change requests relating to appropriate routing manners at the sole expense of BUYER within 30 days following the Closing Date. SELLER shall use reasonable efforts to have Banc One each business day endeavor to see that the sum of (a) the actual Paper Items provided to BUYER plus (b) all ACT items and ATM transactions captured by Banc One in its information and records balance with the sum of (c) the information and records, including but not limited to systems printouts, provided by Banc One relative to the Paper Items plus (d) the information and records, including but not limited to systems printouts, provided relative to the ACT items and ATM transactions affecting the Deposit Accounts and/or the Office Loans. Except as otherwise expressly noted, SELLER shall use reasonable efforts to have Banc One provide the foregoing at no charge to BUYER for a period not to exceed thirty (30) days from the Closing Date except that BUYER shall pay any charges assessed to Banc One or SELLER by the FRB, a national or local clearinghouse and/or Banc One's agent and/or processor to the extent such assessments relate to the Deposit Accounts. BUYER shall be responsible for pick up of the data to be provided by Banc One and SELLER and shall compensate SELLER for activity subsequent to the referenced 30 day period in the amount of $50.00 per day and $.25 per item. SELLER and BUYER shall arrange for appropriate daily settlement between the parties in order that the transmission of all monies associated with the matters set forth in this Section 7.2(e) might be effected promptly. SELLER shall not be liable to BUYER for any failure to provide the data required by this Section 7.2(e) to the extent any such failure results from causes beyond SELLER's control including war, strike or other labor disputes, acts of God, errors or failures of the FRB, Banc One and/or a participating regional or local clearinghouse, or equipment failure or other emergency wherein SELLER and/or its agent processor has been unable to process in clearings from the FRB, Banc One or such clearinghouse. (f) SELLER shall use reasonable efforts to have Banc One, not earlier than the time of procurement of all regulatory approvals required for consummation of the transaction contemplated by this Agreement nor later than twenty days prior to the Closing Date, notify all depositors of the Offices and all borrowers of any Office Loan by letter acceptable to BUYER, produced in, if appropriate, several similar, but different forms calculated to provide necessary and specific information to the owners of particular types of accounts and/or loans, of BUYER's pending assumption of the Deposit Liabilities and acquisition of the Office Loans hereunder, and, in appropriate instances, notify depositors that on and after the Closing Date certain Banc One depositrelated services and/or Banc One's debit card and automatic teller machine services, will be terminated. SELLER shall use reasonable efforts to insure that the expenses of the printing, processing and mailing of such letter notices shall be borne by Banc One. Anything to the contrary herein notwithstanding, nothing in this Agreement shall be deemed to constitute an assumption by SELLER or Banc One of the duties and obligations of BUYER with respect to the provision of applicable notices, communications, and filings relating to changes in the terms of any Deposit Accounts or Office Loans as set forth in this Agreement. (g) For a period of ending on the later of the next ensuring payment date under the terms of the office loan following the Closing Date or sixty (60) days after the Closing Date, SELLER shall use reasonable efforts to ensure that Banc One will forward to BUYER, within two (2) business days of receipt, loan payments received by Banc One with respect to the Office Loans. BUYER will forward, within two (2) business days of receipt payments received by BUYER with respect to any loans not assigned to BUYER under this Agreement. BUYER further agrees, and SELLER shall use reasonable efforts to have Banc One agree, to refer customers to the offices of the other when such customers present payments over the counter to the party not holding their respective loan. BUYER shall reimburse Banc One within 30 days of notice by Banc One to BUYER for any payments tendered by borrowers which were credited to the outstanding balance of any Office Loan prior to the Closing Date and which are subsequently returned or otherwise withdrawn for any reason and SELLER shall use reasonable efforts to have Banc One assign to BUYER any rights of Banc One to recovery of such payments as against the relevant borrower. (h) The duties and obligations of the parties in this section 7.2 shall survive the Closing. 7.3 Overdrafts and Transitional Action. Overdrafts paid on the Deposit Accounts with respect to ledger dates after the Closing Date will be the responsibility and risk of BUYER. SELLER shall use reasonable efforts to ensure that overdrafts approved with respect to ledger dates prior to the Closing Date will be the responsibility and risk of Banc One. Overdrafts approved with respect to ledger dates prior to the Closing Date through the Closing Date will initially be the responsibility and risk of BUYER; provided, however, that SELLER shall use reasonable efforts to ensure that BUYER shall have the right to retransfer any such overdrafts back to Banc One for Banc One's responsibility and at its risk within ten (10) days following the Closing Date, and Banc One will repurchase all rights in respect of such overdrafts from BUYER for the lesser of a) the amount of each such overdraft as of the Closing Date or b) the amount of each such overdraft outstanding at the time it is retransferred back to Banc One, minus the amount of the Acquisition Consideration paid by BUYER to SELLER attributable to such overdrafts and, provided further, that BUYER shall have closed all accounts on which each such overdraft exists not later than the date of such retransfer. 7.4 ATMs and Debit Cards. (a) SELLER shall use reasonable efforts to have SELLER provide to BUYER no later than sixty (60) days prior to the Closing Date, a test tape, along with a file format or file layout and a production tape thirty (30) days before the Closing Date, containing customer name, card number, withdrawal limits, the Deposit Accounts activated by, accessible to or committed to such cards issue dates and/or open dates, last transaction dates, and expiration dates as to all ATM and debit cards issued to customers of the Banc One Offices processor to deactivate the operation of the Banc One ATM and debit cards completely or to deactivate or disconnect the Deposit Accounts from such Banc One ATM and debit cards no later than the business day cutoff on the date prior to the Closing Date so that all activity generated by the Banc One ATM and debit cards shall have settled prior to the Closing Date. All transactions and activity related to the Banc One ATM and debit cards following the Closing Date which are received or forwarded to Banc One will be accepted and forwarded by Banc One to BUYER along with all corresponding funds. SELLER shall use reasonable efforts to have Banc One thereafter agree to immediately notify its processor to deactivate such ATM and debit cards and to forward all transactions related thereto directly to BUYER. (b) SELLER shall use reasonable efforts to have Banc One agree to deactivate the ATMs located at the Offices on or before the business day cutoff on the day prior to the Closing Date. Thereafter, BUYER shall reconfigure the ATMs to its standards for activation after the business day cutoff on the Closing Date. (c) BUYER, and SELLER shall use reasonable efforts to have Banc One, agree to cooperate with each other to assure that all transactions originated through the ATM or originated with the ATM Cards prior to or on the Closing Date shall be for the account of Banc One and all transactions originated after the Closing Date shall be for the account of BUYER. A post closing adjustment shall be made in the manner set forth in Section 6.4 hereof to reflect all such transactions which cannot be reasonably calculated as of the Closing. 7.5 Environmental Matters. (a) SELLER has provided to BUYER, and BUYER hereby acknowledges receipt of, copies of Phase I environmental site assessments which were provided to SELLER by Banc One (the "Phase I Assessments" herein) for all Owned Real Estate. (b) If such Phase I Assessments reasonably indicated the necessity or desirability of further investigation to determine whether or not an Environmental Hazard exists at such Owned Real Estate, BUYER shall notify SELLER in writing, not later than eighteen (18) days after December 30, 1997, of BUYER's desire to have an environmental consultant selected by SELLER (the "Environmental Consultant"), to the extent reasonable and appropriate, conduct Phase II environmental site assessments ( the "Phase II Assessments" herein). Any such further investigation or testing shall be conducted in such a manner so as not to interfere with the normal operation of the Office(s) involved and shall be conducted for the benefit of Buyer. All such Phase II Assessments shall be treated as information subject to Section 8.1 of this Agreement, shall be completed not less than fiftyeight (58) days after December 30, 1997, and shall be conducted at no cost or expense to SELLER. Further, BUYER shall indemnify and hold harmless SELLER and its affiliates and its and their employees, officers, directors, agents, tenants, and landlords from and against any and all liability, loss, cost, and expense, however arising, including attorney fees, as a direct or indirect result of any injuries to persons or property occurring in conjunction with conduct of the Phase II Assessments. (c) SELLER shall have a period of 10 business days from receipt of such notice to elect, at its sole option, to consent to conduct of the Phase II Assessment or to terminate this Agreement with respect to the relevant Office which is the proposed subject of the Phase II Assessment (the "Removed Office") and any and all assets and liabilities associated therewith. In the event of such termination, if the Removed Office is the only Office which is the subject of this Agreement this Agreement shall be deemed terminated in accordance with Section 9.1 herein and the Deposit described in the Banc One Agreement shall be refunded to BUYER upon receipt by SELLER. In the event of such termination where the Removed Office is not the only Office which is the subject of this Agreement, this Agreement shall remain in full force and effect except that the Removed Office and any and all assets and liabilities associated therewith shall be deemed not the subject of this Agreement and eliminated therefrom. (d) In the event that the Phase II Assessment is conducted and the Environmental Consultant discovers an Environmental Hazard during any such Phase II Assessment at any single parcel of Owned Real Estate, the remediation of which, in the reasonable judgment of the Environmental Consultant, is or would be the responsibility of Banc One, SELLER, or BUYER should it acquire such Owned Real Estate, and will result in projected remediation costs of $75,000.00 or more for such single parcel of Owned Real Estate, BUYER shall lease from SELLER such single parcel of Owned Real Estate pursuant to a Lease Agreement which shall provide as follows: (1) Such Lease Agreement shall be for a term of two (2) years from the Closing Date, with no obligation or right to renew (it being the intention of SELLER that BUYER locate an alternative branch site during such two years unless remediation occurs pursuant to this Section 7.5), at a rental equal to a fair market rental value; (2) Such Lease payment shall provide that SELLER shall indemnify BUYER in connection with any claims or losses incurred by BUYER in connection with any remediation conducted by BUYER with the leased premises. (3) SELLER may sell such Owned Real Estate to any person at any time during the term of such Lease Agreement, subject to such Lease Agreement, for a price; (4) During the term of such Lease Agreement, in the event that SELLER shall deliver to BUYER a report of a qualified environmental engineer or consultant certifying that the Environmental Hazard, at or on any such parcel of Owned Real Estate which is the subject of the Lease Agreement, has been remediated to the extent reasonably required under applicable Environmental Laws, BUYER shall be required to purchase such parcel of Owned Real Estate at the net book value as of the close of business of the monthend day most recently preceding the Closing Date; and (5) Other terms and conditions of the Lease Agreement shall be typical to branch leases in the relevant market of the subject Owned Real Estate and as negotiated between SELLER and BUYER. If the projected remediation cost is less than $75,000 for any single parcel of Owned Real Estate, BUYER shall acquire such parcel and such cost shall be borne by BUYER without indemnity, price adjustment, or set off under this Agreement, and BUYER shall be deemed to have waived any and all claims against SELLER and its affiliates and its and their officers, directors, employees, or arising directly or indirectly as a result of the Environmental Hazards. (e) BUYER agrees that the Environmental Consultant should conduct any Phase II Assessments or other investigations pursuant to this Section with reasonable care and subject to customary practices among environmental consultants and engineers, including, without limitation, following completion thereof, the restoration of any site to the extent practicable to its condition prior to such site assessment or investigation and the removal of all monitoring wells. (f) Any lease of a parcel of Owned Real Estate pursuant to this Section 7.5 shall in no way affect the transfer of any related assets or liabilities, other than such parcel of Owned Real Estate, to the BUYER at the Closing. (g) For purposes of this Section 7.5, the term "Environmental Law" shall mean any Federal or state law, statute, rule, regulation, code, order, judgment, decree, injunction, or agreement with any Federal or state governmental authority, (x) relating to the protection, preservation, or restoration of the environment (including, without limitation, air, water, vapor, surface water, groundwater, drinking water supply, surface land, subsurface land, plant and animal life or any other natural resource) or to human health or safety or (y) the exposure to, or the use, storage, recycling, treatment, generation, transportation, processing, handling, labeling, production, release or disposal of hazardous substances, in each case as amended and now in effect. Environmental Laws include, without limitation, the Clean Air Act (42 U.S.C. section 7401 et seq.); the Comprehensive Environmental Response Compensation and Liability Act (42 U.S.C. section 9601 et seq.); the Federal Water Pollution Control Act (33 U.S.C. section 1251 et seq.); the Occupational Safety and Health Act (29 U.S.C. section 651 et seq.); provided, however, that the definition of "Environmental Law" shall not include any Federal or state law, statute, rule, regulation, code, order, judgment, decree, injunction or agreement with any governmental authority relating to asbestos or asbestoscontaining materials. (h) For purposes of this Section 7.5, the term "Environmental Hazard" shall mean the presence of any Hazardous Substance in violation of, and reasonably likely to require material remediation costs under, applicable Environmental Laws; provided, however, that the definition of Environmental Hazard shall not include asbestos and asbestoscontaining materials. (i) For purposes of this Section 7.5, the term "Hazardous Substance" shall mean any substance, whether liquid, solid, or gas, (a) listed, identified or designated as hazardous or toxic to a level which requires remediation under any Environmental Law; (b) which, applying criteria specified in any Environmental Law, is hazardous or toxic; or (c) the use or disposal of which is regulated under Environmental Law. 7.6 Effect of Transitional Action. Except as and to the extent expressly set forth in this Article 7, nothing contained in this Article 7 shall be construed to be an abridgment or nullification of the rights, customs and established practices under applicable banking laws and regulations as they affect any of the matters addressed in this Article 7. 8. General Covenants and Indemnification. - ------------------------------------------- 8.1 Confidentiality Obligations of BUYER. From and after the date hereof, BUYER and its affiliates and parent company shall treat all information received from SELLER concerning the business, assets, operations, and financial condition of SELLER and Banc One and its affiliates and its and their customers (including without limitation the Offices), as confidential, unless and to the extent that BUYER can demonstrate that such information was already known to BUYER and its affiliates, if any, or in the public domain or received from a third person not known by BUYER to be under any obligation to SELLER and Banc One; and BUYER shall not use any such information (so required to be treated as confidential) for any purpose except in furtherance of the transactions contemplated hereby. Upon the termination of this Agreement, BUYER shall, and shall cause its affiliates, if any, to, promptly return all documents and workpapers containing, and all copies of, any such information (so required to be treated as confidential) received from or on behalf of SELLER and Banc One in connection with the transactions contemplated hereby. The covenants of BUYER contained in this Section 8.1 are of the essence and shall survive any termination of this Agreement, but shall terminate at the Closing, if it occurs, with respect to any information that is limited solely to the activities and transactions of the Offices; provided, however, that neither BUYER nor any of its affiliates shall be deemed to have violated the covenants set forth in this Section 8.1 if BUYER shall in good faith disclose any of such confidential information in compliance with any legal process, order or decree issued by any court or agency of government of competent jurisdiction. It is expressly acknowledged by SELLER that all information provided to BUYER related to this purchase and assumption transaction may be provided to BUYER's affiliates as necessary for the purpose of consummating the transaction which is the subject of this Agreement. The covenants and obligations of BUYER hereunder shall survive the Closing and any earlier termination of this Agreement. 8.2 Confidentiality Obligations of SELLER. From and after the date hereof, SELLER, and its affiliates shall treat all information received from BUYER concerning BUYER's business, assets, operations, and financial condition as confidential, unless and to the extent SELLER can demonstrate that such information was already known to SELLER or its affiliates or in the public domain, and SELLER shall not use any such information (so required to be treated as confidential) for any purpose except in furtherance of the transactions contemplated hereby. Upon the termination of this Agreement, SELLER shall promptly return all documents and workpapers containing, and all copies of, any such information (so required to be treated as confidential) received from or on behalf of BUYER in connection with the transactions contemplated hereby. The covenants of SELLER contained in this Section 8.2 are of the essence and shall survive any termination of this Agreement; provided, however, that SELLER nor any of its affiliates shall be deemed to have violated the covenants set forth in this Section 8.2 if SELLER shall in good faith disclose any of such confidential information in compliance with any legal process, order or decree issued by any court or agency of government of competent jurisdiction. It is expressly acknowledged by BUYER that all information provided to SELLER related to this purchase and assumption transaction may be provided to SELLER's affiliates for the purpose of consummating the transaction which is the subject of this Agreement. The covenants and obligations of SELLER hereunder shall survive the Closing and any earlier termination of this Agreement. 8.3 Indemnification By SELLER. From and after the Closing Date, SELLER shall indemnify, hold harmless, and defend BUYER from and against all claims, losses, liabilities, demands and obligations, including without limitation reasonable attorneys' fees and expenses, which BUYER may receive, suffer or incur in connection with (i) any actions, suits, claims, demands or proceedings commenced prior to the Closing Date (other than proceedings to prevent or limit the consummation of the Acquisition) relating to operations at the Offices and/or the Deposit Liabilities or Office Loans of the Offices or (ii) any actions, suits, claims, demands or proceedings commenced on or after the Closing Date to the extent the same relate to operations at the Offices, the Assets, the Deposit Liabilities or Office Loans prior to the Closing Date. The obligations of SELLER under this Section 8.3 shall be contingent upon (a) SELLER being indemnified by Banc One for any obligations arising under this Section 8.3 and (b) BUYER giving SELLER written notice (i) of receipt by BUYER of any process and/or pleadings in or relating to any actions, suits, or proceedings of the kinds described in this Section 8.3, including copies thereof, and (ii) of the assertion of any claim or demand relating to the operation of the Offices, the Assets, the Deposit Liabilities or Office Loans prior to the Closing, including, to the extent known to BUYER, the identity of the person(s) or entity(ies) asserting such claim or making such demand and the nature thereof, and including copies of any correspondence or other writings relating thereto, provided, however, that the failure to give timely notice by BUYER hereunder shall not relieve SELLER of its obligations under this Section 8.3 unless SELLER has been materially damaged by such failure to give notice. The rights of BUYER under this section shall not apply to any suits, judgments, demands, setoffs, or other claims arising directly or indirectly in conjunction with the Office Loans or other Assets transferred in accordance with this Agreement except (i) claims for personal injury arising from injuries occurring at the Offices prior to the Closing, or (ii) claims relating to the operation of the Offices prior to the Closing Date which relate to the Assets or Office Loans. All notices required by the preceding sentence shall be given within fifteen (15) days of the receipt by BUYER of any such process or pleadings or any oral or written notice of the assertion of any such claims or demands. SELLER shall have the right to take over BUYER's defense in any such actions, suits or proceedings through counsel selected by SELLER, to compromise and/or settle the same (with the prior written consent of BUYER, which consent shall not unreasonably be withheld) and to prosecute any available appeals or reviews of any adverse judgment or ruling that may be entered therein. The covenants and obligations of SELLER hereunder shall survive the Closing Date. 8.4 Indemnification By BUYER. From and after the Closing Date, BUYER shall indemnify, hold harmless and defend SELLER from and against all claims, losses, liabilities, demands and obligations, including without limitation reasonable attorneys' fees and expenses which SELLER may receive, suffer, or incur in connection with (i) any losses incurred by SELLER related to SELLER's compliance with instructions from BUYER made pursuant to Section 7.4 of this Agreement and not related to any negligence or malfeasance on the part of SELLER and (ii) operations and transactions occurring after the Closing and which involve the Assets transferred, the Deposit Liabilities or Office Loans and the other obligations and liabilities assumed pursuant to this Agreement. The obligations of BUYER under this Section 8.4 shall be contingent upon SELLER giving BUYER written notice (i) of the receipt by SELLER of any process and/or pleadings in or relating to any actions, suits or proceedings of the kinds described in this Section 8.4, including copies thereof, and (ii) of the assertion of any claim or demand relating to the Assets transferred to and/or the Deposit Liabilities or Office Loans and the other obligations and liabilities assumed by BUYER on or after the Closing, including, to the extent known to SELLER, the identity of the person(s) or entity(ies) asserting such claim or making such demand and the nature thereof, and including copies of any correspondence or other writings relating thereto, provided, however, that the failure to give timely notice by SELLER hereunder shall not relieve BUYER of its obligations under this Section 8.4 unless BUYER has been materially damaged by such failure to give notice. All notices required by the preceding sentence shall be given within fifteen (15) days of the receipt by SELLER of any such process or pleadings or any oral or written notice of the assertion of any such claims or demands. BUYER shall have the right to take over SELLER's defense in any such actions, suits, or proceedings through counsel selected by BUYER, to compromise and/or settle the same and to prosecute any available appeals or review of any adverse judgment or ruling that may be entered therein. The covenants and obligations of BUYER hereunder shall survive the Closing. BUYER shall indemnify and hold harmless SELLER from and against any and all claims, losses, liabilities, demands, and obligations, including without limitation reasonable attorneys' fees and expenses, which SELLER may receive, suffer or incur in connection with (a) BUYER's failure to perform in any material respect any of its obligations under this Agreement, and (b) BUYER's performance of its obligations under this Agreement with respect to Transferred Employees, depositors and customers of Banc One to the extent that such performance does not fully satisfy the obligations of SELLER to such Transferred Employees, depositors and customers under the Banc One Agreement. 8.5 Solicitation of Customers by BUYER Prior to Closing. At any time prior to the Closing Date, BUYER will not, and will not permit any of its affiliates, if any, to conduct any marketing, media or customer solicitation campaign which is targeted to induce customers whose Deposit Account liabilities are to be assumed or Office Loans are to be acquired by BUYER pursuant to this Agreement to discontinue their account or business relationships with Banc One or its affiliates. Additionally, at any time prior to the Closing, BUYER shall not, with respect to its offices in the same market as the Offices, offer to pay on any transaction accounts or any new or renewal savings account or certificates of deposits, rates of interest greater than those offered or then being paid on similar accounts for like term and amount by other offices of BUYER located in the referenced market. Among other matters, it is the intent of this provision to prevent BUYER from paying or offering to pay a rate of interest on any deposit accounts in excess of that rate paid for like accounts at other offices of BUYER within the market of the Offices prior to execution of this Agreement. 8.6 Solicitation of Customers by SELLER After the Closing. From the date of this Agreement and for one (1) year following the Closing Date, SELLER will not knowingly directly solicit (a) deposit accounts from customers whose Deposit Liabilities and/or Office Loans are assumed or acquired by BUYER pursuant to this Agreement, or (b) refinancing of Office Loans from borrowers whose Office Loans are being acquired by BUYER hereunder, except as may occur in connection with (i) advertising or solicitations directed to the public generally, (ii) solicitations outside the designated market area of the Offices and (iii) customers or borrowers with a banking or other relationship with SELLER or its affiliates at offices other than the Offices, or who have or maintain more than one place of business. The covenants and obligations of SELLER hereunder shall survive the Closing. 8.7 Further Assurances. From and after the date hereof, each party hereto agrees to execute and deliver such instruments and to take such other actions as the other party hereto may reasonably request in order to carry out and implement this Agreement. Without limiting the foregoing, SELLER agrees to execute and deliver such deeds, bills of sale, acknowledgments, and other instruments of conveyance and transfer as, in the reasonable judgment of BUYER, shall be necessary and appropriate to vest in BUYER the legal and equitable title to the Assets of SELLER being conveyed to BUYER hereunder. Further, BUYER, at its sole cost and expense, shall prepare and shall file, or shall cause to be prepared and filed, with any appropriate third parties, any and all documents and notices which are necessary and proper to transfer to BUYER any security interests and other rights of SELLER in and to collateral securing the Office Loans not later than the earlier to occur of exclusion of the relevant Office Loan from the "put" provisions set forth in Schedule S hereof or the Option Exercise Date as defined in Schedule S hereof. SELLER shall cooperate with BUYER in executing any necessary and proper documents and notices as may be appropriate in furtherance of the foregoing covenant and consistent with the terms of this Agreement; provided, however, that nothing contained herein shall relieve BUYER of its obligations as set forth herein. The covenants and obligations of the parties hereunder shall survive the Closing. 8.8 Operation of the Offices. Except as otherwise expressly provided in this Agreement, or as agreed to in writing between the parties, after the Closing Date neither SELLER, its subsidiaries, or affiliates shall be obligated to provide for any managerial, financial, business, or other services to the Offices, including without limitation any personnel, employee benefit, data processing, accounting, risk management, or other services or assistance that may have been provided to the Offices prior to the close of business on the Closing Date, and BUYER shall take such action as may in its judgment appear to be necessary or advisable to provide for the ongoing operation and management of, and the provision of services and assistance to, the Offices after the Closing Date. Upon the Closing, BUYER shall change the legal name of the Offices and, except for any documents or materials in possession of the customers of the Offices (including but not limited to deposit tickets and checks), shall not use and shall cause the Offices to cease using any signs, stationery, advertising, documents, or printed or written materials that refer to the Offices by any name that includes the words "SELLER" or "Banc One" or the name of any affiliate of Banc One CORPORATION. Preceding the Closing, SELLER shall cooperate with any reasonable requests of BUYER directed to obtaining specifications for the procurement of new signs of BUYER's choosing for installation by BUYER of new signs immediately following the close of business on the Closing Date; provided, however, that BUYER's receipt of all sign specifications shall be obtained by BUYER in a manner that does not significantly interfere with the normal business activities and operations of the Offices and shall be at the sole and exclusive expense of BUYER. As indicated in, and as limited by, Section 1.2(c), Banc One will retain its signs located at the Offices. If removed by BUYER in conjunction with its installation of new signs, BUYER shall obtain Banc One's approval for such removal and shall insure that said signs are removed without damage to same. It is understood by the parties hereto that, with the exception of the signs, all mounting facilities for the signs shall be considered as Fixed Assets for purposes of this Agreement. The covenants of the parties hereunder shall survive the Closing. 8.9 Information After Closing. For a period of seven (7) years following the Closing, upon written request of SELLER to BUYER or BUYER to SELLER, as the case may be, such requested party shall provide the requesting party with reasonable access to, or copies of, information and records relating to the Offices which are then in the possession or control of the requested party reasonably necessary to permit the requesting party or any of its subsidiaries or affiliates to comply with or contest any applicable legal, tax, banking, accounting, or regulatory policies or requirements, or any legal or regulatory proceeding thereunder or requests related to customer relationships at the Offices prior to Closing. In the event of any such requests, the requesting party shall reimburse the requested party for the reasonable costs of the requested party related to such request. The covenants and obligations of the parties hereunder shall survive the Closing. 8.10 Individual Retirement Accounts. All Individual Retirement Accounts related to the Offices that shall not have become IRAs by the close of business on the 30th day following the Closing shall not be assigned by SELLER to BUYER or assumed by BUYER, SELLER or Banc One may thereafter, at its option, elect to retain such Individual Retirement Accounts, advise the account holders that it has withdrawn its resignation as custodian or transfer the amount in such Individual Retirement Accounts to the account holders. 8.11 Covenant Not to Compete. From and after the Closing and for a period of two (2) years following the Closing Date, SELLER shall not, and shall not enter into any agreement to, acquire, lease, purchase, own, operate or use any building, office or other facility or premises located within a three (3) mile radius of any Office for the purpose of operating a full service branch and making loans, accepting deposits or cashing checks; provided, however, that the foregoing prohibition shall not apply to (a) performance by SELLER or any current or future affiliate or successor of SELLER of any of the foregoing activities utilizing ATMs, CBCTs, ALMs, cash dispensing machines, remote service facilities, terminals, or similar devices, or (b) performance by SELLER or any current or future affiliate or successor of SELLER of the foregoing activities as a result of a merger or other combination with, or acquisition of or by, SELLER, or an affiliate thereof with any third party following the Closing Date. The covenants and obligations of SELLER hereunder shall survive the Closing. 8.12 Nonsolicitation of Employees. BUYER agrees that for a period of twelve (12) months from the Closing Date, or for a period of six months from such earlier date as this Agreement may be terminated pursuant to Section 9 hereof, neither BUYER nor any of its subsidiaries or affiliates will; (a) directly or indirectly solicit for employment or employ any persons who are employees in the retail group of Banc One Corporation, Banc One, SELLER or their subsidiaries or affiliates on the date hereof or; (b) directly or indirectly solicit for employment or employ any other persons who are employees of Banc One Corporation, BANK ONE, SELLER or their subsidiaries or affiliates on the date hereof and with whom BUYER has had contact or who became known to BUYER solely in conjunction with any phase of the transaction contemplated hereby, whether prior to execution of this Agreement or subsequent thereto. As used solely in this subsection 8.12(b), the term "solicit" shall not be deemed to include general advertisements or general solicitations that are not targeted or directed specifically to individuals who are employees of Banc One Corporation, Banc One, SELLER or their subsidiaries or affiliates. Subject to the prohibitions contained in subsection 8.12(a), nothing in this section 8.12(b) shall prohibit BUYER or BUYER's affiliates or subsidiaries from hiring a person covered by this subsection 8.12(b) who contacts BUYER on their own initiative (and not in response to solicitation by BUYER in violation of this section) or a person covered by this subsection 8.12(b) who is no longer in the employ of Banc One Corporation, Banc One, SELLER or their subsidiaries or affiliates at the time of such solicitation. The obligations and covenants of BUYER hereunder shall survive the Closing or any earlier termination of this Agreement pursuant to Section 9 hereof or as termination may otherwise be provided in this Agreement. 9. Termination. - ----------------- 9.1 Termination By Mutual Agreement. This Agreement may be terminated and the transactions contemplated hereby may be abandoned by mutual consent of the parties authorized by a vote of a majority of the Board of Directors (or by the vote of the Executive Committee of such Board, if so empowered) of each of SELLER and BUYER. 9.2 Termination By SELLER. This Agreement may be terminated and the transactions contemplated hereby abandoned by a vote of a majority of the Board of Directors (or by the vote of the Executive Committee of such Board, if so empowered) of SELLER: (a) in the event of a material breach by BUYER of this Agreement; or (b) in the event any of the conditions precedent specified in Section 5.1 of this Agreement has not been met as of the date required by this Agreement and, if not so met, has not been waived by SELLER; or (c) in the event any regulatory approval for the consummation of the Acquisition is denied by the applicable regulatory authority or in the event that at any time prior to the Closing Date it shall become reasonably certain to SELLER, with the advice of counsel, that a regulatory approval required for consummation of the Acquisition will not be obtained within a time reasonably satisfactory to SELLER; or (d) on or after June 30, 1998 (the "Termination Date") if the Closing has not then occurred unless the failure to consummate by such date is due to a breach of this Agreement by SELLER; or (e) at the option of SELLER in the event that BUYER enters into an agreement or agreements, or intends to enter into an agreement or agreements, providing for the merger, acquisition, or sale of substantially all of the assets of BUYER or its parent company such as would require prior regulatory approval under the Change in Bank Control Act, as amended, or the Bank Holding Company Act of 1956, as amended, or similar law or regulation; or (f) at the option of SELLER in the event that there is a material adverse change in the financial condition or results of operation of BUYER, or pending or threatened litigation or claims with respect to the transactions contemplated by this Agreement which, in the opinion of SELLER, may materially hinder or delay the ability of the parties to consummate the transactions contemplated by this Agreement; or (g) at the option of SELLER in the event that consents to the transactions contemplated by this Agreement from such third parties as SELLER may reasonably deem necessary or appropriate are not available prior to the Closing Date without material additional cost or expense to SELLER, or in the event that releases of SELLER by such third parties as SELLER may reasonably deem necessary or appropriate are not available prior to the Closing Date without material additional cost or expense to SELLER; or (h) in the event Banc One does not approve, in writing, BUYER as an "Approved Subsequent Buyer" as defined in the Banc One Agreement. 9.3 Termination By BUYER. This Agreement may be terminated and the transactions contemplated hereby abandoned by a vote of a majority of the Board of Directors (or by the vote of the Executive Committee of such Board, if so empowered) of BUYER: (a) in the event of a material breach by SELLER of this Agreement; or (b) in the event any of the conditions precedent specified in Section 5.2 of this Agreement has not been met as of the date required by this Agreement and, if not so met, has not been waived by BUYER; or (c) in the event any regulatory approval required for consummation of the Acquisition is denied by the applicable regulatory authority or in the event that at any time prior to the Closing Date it shall become reasonably certain to BUYER, with the advice of counsel, that a regulatory approval required for consummation of the Acquisition will not be obtained; (d) on or after the Termination Date if the Closing has not then occurred unless the failure to consummate by such time is due to a breach of this Agreement by BUYER; or (e) in the event Banc One does not approve, in writing, BUYER as an "Approved Subsequent Buyer" as defined in the Banc One Agreement. 9.4 Effect of Termination. The termination of this Agreement pursuant to Sections 9.2 or 9.3 of this Article 9 shall not release any party hereto from any liability or obligation to the other party hereto arising from (i) a breach of any provision of this Agreement occurring prior to the termination hereof or (ii) the failure of timely satisfaction of conditions precedent to the obligations of a party to the extent that such failure of timely satisfaction is attributable to the actions or inactions of such party. 10. Deposits. - -------------- BUYER and SELLER acknowledge the deposit by SELLER of the sum of $1.275 million (the "Deposit" herein) with Banc One. BUYER agrees that BUYER shall pay to SELLER, upon demand, the sum of $375,000 in the event that SELLER elects to terminate the transactions contemplated by this Agreement pursuant to the provisions of section 9.2 of this Agreement. The foregoing payment shall be due and owing in conjunction with the foregoing, irrespective of whether BUYER elects to terminate the transactions contemplated by this Agreement pursuant to section 9.3(b) (due to lack of regulatory approval under section 5.2(a) of this Agreement) or 9.3(c) of this Agreement. Any such payment shall not be deemed to constitute liquidated damages or a waiver by SELLER of any rights in law or in equity arising out of a breach by BUYER of the terms and conditions of this Agreement. In the event the transactions contemplated by this Agreement are closed in accordance with the terms hereof, BUYER elects to terminate the transactions contemplated by this Agreement pursuant to the provisions of sections 9.3(a) or (b) of this Agreement or in the event that the transactions are terminated pursuant to section 9.1 of this Agreement no sum shall be due or owing by BUYER to SELLER under this provision. Notwithstanding anything contained herein, no sum shall be due or owing by BUYER to SELLER under this provision as a result of the termination of this Agreement by either BUYER or SELLER pursuant to section 9.3(e) or 9.2(h), respectively. 11. Miscellaneous Provisions. - ------------------------------ 11.1 Substitution of Parties. BUYER hereby agrees and consents to SELLER substituting a whollyowned subsidiary financial institution of SELLER as the party to transfer the Assets, Deposits , Liabilities, Office Loans and other assets and liabilities to BUYER under the terms and conditions of this Agreement. Notwithstanding any substitution of parties by SELLER pursuant to this Agreement, SELLER shall remain obligated to perform its agreements and covenants regarding enforcement of rights against Banc One as expressly provided herein. 11.2 Expenses. Except as and to the extent specifically allocated otherwise herein, each of the parties hereto shall bear its own expenses, whether or not the transactions contemplated hereby are consummated. 11.3 Certificates. All statements contained in any certificate ("Certificate") delivered by or on behalf of SELLER or BUYER pursuant to this Agreement or in connection with the transactions contemplated hereby shall be deemed to be representations and warranties of the party delivering the Certificate hereunder. Each such Certificate shall be executed on behalf of the party delivering the Certificate by duly authorized officers of such party. 11.4 Termination of Representations and Warranties. The respective representations and warranties of SELLER and BUYER contained or referred to in this Agreement or in any Certificate, schedule, or other instrument delivered or to be delivered pursuant to this Agreement shall terminate at the Closing, except for: (a) those representations and warranties contained in any warranty deeds delivered by SELLER to BUYER at the Closing; (b) those representations and warranties contained in any bill of sale relating to the Assets delivered by SELLER to BUYER at Closing; (c) those representations and warranties contained in any instrument of assumption or in any Certificate in the forms of Schedule I and Schedule N, respectively, attached hereto and delivered by BUYER to SELLER at the Closing; (d) those representations and warranties contained in any Certificate in the form of Schedule K attached hereto, delivered by SELLER to BUYER at the Closing; and 11.5 Waivers. Each party hereto, by written instrument signed by duly authorized officers of such party, may extend the time for the performance of any of the obligations or other acts of the other party hereto and may waive, but only as affects the party signing such instrument: (a) any inaccuracies in the representations or warranties of the other party contained or referred to in this Agreement or in any document delivered pursuant hereto; (b) compliance with any of the covenants or agreements of the other party contained in this Agreement; (c) the performance (including performance to the satisfaction of a party or its counsel) by the other party of such of its obligations set out herein; and (d) satisfaction of any condition to the obligations of the waiving party pursuant to this Agreement. 11.6 Notices. All notices and other communications hereunder may be made by mail, handdelivery or by courier service and notice shall be deemed to have been given when received; provided, however, if notices and other communications are made by nationally recognized overnight courier service for overnight delivery, such notice shall be deemed to have been given one business day after being forwarded to such a nationally recognized overnight courier service for overnight delivery. If to SELLER: Community Trust Bancorp, Inc. Attention: Burlin Coleman 208 North Mayo Trail P.O. Box 2947 Pikeville, Kentucky 41501-2947 With a copy to: Greenebaum Doll & McDonald, PLLC Attention: Christopher C. Spears 1400 Vine Center Tower 333 West Vine Street Lexington, Kentucky 40507-1665 If to BUYER: The Peoples Banking and Trust Company 138 Putnam Street Marietta, Ohio 45750 Attention: Robert E. Evans With a copy to: Charles Hunsaker Peoples Bancorp, Inc. 138 Putnam Street Marietta, Ohio 45750 or such other person or address as any such party may designate by notice to the other parties, and shall be deemed to have been given as of the date received. 11.7 Parties in Interest: Assignment: Amendment. The rights and obligations of each individual bank holding company which is a party hereto shall be exclusively and individually binding upon, and shall inure exclusively and individually to the benefit of, that bank holding company and its respective permitted successors and assigns. Representations, warranties, and covenants of SELLER contained herein shall be deemed made by the appropriate respective banking association which is the owner of the respective asset or obligor of the respective liability related thereto and shall not be deemed made by or on behalf of any banking association for any other banking association. This Agreement is binding upon and is for the benefit of the parties hereto and their respective successors, legal representatives, and assigns, and no person who is not a party hereto (or a permitted successor or assignee of such party) shall have any rights or benefits under this Agreement, either as a third party beneficiary or otherwise. This Agreement cannot be assigned by BUYER by action of law or otherwise, and this Agreement cannot be amended or modified, except by a written agreement executed by the parties hereto or their respective permitted successors and assigns. 11.8 Headings. The headings, table of contents, and index to defined terms (if any) used in this Agreement are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 11.9 Terminology. The specific terms of art that are defined in various provisions of this Agreement shall apply throughout this Agreement (including without limitation each Schedule hereto), unless expressly indicated otherwise. In addition, the following terms and phrases shall have the meanings set forth for purposes of this Agreement (including such Schedule): (a) The term `business day" shall mean any day other than a Saturday, Sunday, or a day on which either SELLER or BUYER is closed in accordance with applicable law or regulation. Any action, notice, or right which is to be taken or given or which is to be exercised or lapse on or by a given date which is not a business day may be taken, given, or exercised, and shall not lapse, until the next business day following. (b) The term "affiliate" shall mean, with respect to any person, any other person directly or indirectly controlling, controlled by or under common control with such person. (c) The term "Permitted Exceptions" shall mean, with respect to the Owned Real Estate and the Leased Real Estate, (i) those five standard exceptions appearing as Schedule B items in a standard ALTA owners or leasehold title insurance policy, and any other exceptions, restrictions, easements, rights of way, and encumbrances referenced in the Title Commitment delivered by SELLER to BUYER as indicated in Section 2.1(a) of this Agreement; (ii) statutory liens for current taxes or assessments not yet due, or if due not yet delinquent, or the validity of which is being contested in good faith by appropriate proceedings; (iii) such other liens, imperfections in title, charges, easements, restrictions, and encumbrances (but in all cases of Owned Real Estate excluding those which secure borrowed money) which, individually and in the aggregate, do not materially detract from the value of, or materially interfere with the present use of, any property subject thereto or affected thereby; and (iv) such other exceptions as are approved by BUYER in writing. (d) The term "person" shall mean any individual, corporation, partnership, limited liability company, association, trust, or other entity, whether business, personal, or otherwise. (e) Unless expressly indicated otherwise in a particular context, the terms "herein," "hereunder," "hereto," "hereof," and similar references refer to this Agreement in its entirety and not to specific articles, sections, schedules, or subsections of this Agreement. Unless expressly indicated otherwise in a particular context, references in this Agreement to enumerated articles, sections, and subsections refer to designated portions of this Agreement (but do not refer to portions of any Schedule unless such Schedule is specifically referenced) and do not refer to any other document. (f) The term "subsidiary" shall mean a corporation, partnership, limited liability company, joint venture, or other business organization more than 50% of the voting securities or interests in which are beneficially owned or controlled by the indicated parent of such entity. 11.10 Flexible Structure. References in this Agreement to federal or state laws or regulations, jurisdictions, or chartering or regulatory authorities shall be interpreted broadly to allow maximum flexibility in consummating the transactions contemplated hereby in light of changing business, economic, and regulatory conditions. Without limiting the foregoing, in the event SELLER and BUYER agree in writing to alter the legal structure of the Acquisition contemplated by this Agreement references in this Agreement to such laws, regulations, jurisdictions, and authorities shall be deemed to be altered to reflect the laws, regulations, jurisdictions, and authorities that are applicable in light of such change. 11.11 Press Releases. SELLER or BUYER, as the case may be, shall approve, in writing prior to issuance, the form and substance of any press release or other public disclosure relating to any matters relating to this Agreement issued by the other. 11.12 Entire Agreement. This Agreement supersedes any and all oral or written agreements and understandings heretofore made relating to the subject matter hereof and contains the entire agreement of the parties relating to the subject matter hereof. All schedules, exhibits, and appendices to this Agreement are incorporated into this Agreement by reference and made a part hereof. 11.13 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Ohio and the laws of the United States, as well as regulations issued by relevant agencies thereof. 11.14 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 11.15 Tax Matters. BUYER and SELLER agree that they will file applicable tax returns and other related schedules and documents related to their respective interests based on the allocations in this Agreement. In Witness Whereof, the parties have entered into this Agreement as of the date first written above. The Peoples Banking and Trust Company By: /s/ ROBERT E. EVANS Robert E. Evans, President and Chief Executive Officer ("BUYER") Community Trust Bancorp, Inc. By: /s/ BURLIN COLEMAN Title: CHAIRMAN ("SELLER") SCHEDULES TO OFFICE PURCHASE AND ASSUMPTION AGREEMENT Schedule A - Description of Owned Real Estate Schedule B - Description of Leased Real Estate and Third Party Lease Schedule C - Furniture, Fixtures and Equipment Schedule D - Assumed Contracts Schedule E - List of Leases, Safekeeping Items and Agreements Schedule F - Form of Assignment and Assumption of Lease and Estoppel Certificate Schedule G - Deposit Accounts Schedule H - Office Loans Schedule I - Form of Certification of BUYER Schedule J - Form of Opinion of Counsel for BUYER Schedule K - Form of Certification of SELLER Schedule L - Form of Opinion of Counsel for SELLER Schedule M - Form of Assignment of Office Loans, Notes, Agreements and Pledge Schedule N - Form of Instrument of Assumption Schedule O - Form of Assignment, Transfer and Appointment of Successor Custodian for IRAs Schedule P - Form of Preliminary Closing Statement Schedule Q - Form of Final Closing Statement Schedule R - Listing of Employees of Offices Schedule S - Put Provisions for Office Loans SCHEDULE A DESCRIPTION OF OWNED REAL ESTATE -------------------------------- Point Pleasant - Main Office, 421 Main Street, Point Pleasant, West Virginia 25550 New Martinsville - 207 Main Street, New Martinsville, West Virginia 26155 New Martinsville - Steelton - 638 North State Route 2, New Martinsville, West Virginia 26155 SCHEDULE B DESCRIPTION OF LEASED REAL ESTATE AND THIRD PARTY LEASE ------------------------------------------------------- Point Pleasant - North - 2513 Jackson Avenue, Point Pleasant, West Virginia 25550 Point Pleasant - Mini Branch - 332 Viand Street, Point Pleasant, West Virginia 25550 SCHEDULE C FURNITURE, FIXTURES AND EQUIPMENT --------------------------------- 1450 New Martinsville Asset # Asset Description Cost Acc. Depre Net Book 43400077 LAND 1,000 - 1,000 43400003 drive thru 20,144 10,938 9,206 43400101 AIR CONDITIONER 5,715 1,592 4,123 43400099 PANELS/POSTS 1,909 1,081 828 43400105 REMODELING 715 254 461 43400074 NEW COLUMNS/PORCHES 1,445 1,177 268 43400071 NEW FURNACE 2,064 2,030 34 43400002 banking house 171,750 171,750 - 43400013 PARITIONS-STEEL PAN 925 925 - 43400068 AIR CONDITIONING SYS 1,551 1,551 - 43400069 IMPROVEMENTS 1,468 1,468 - 43400079 IMPROVEMENTS 1,459 1,459 - 43400106 SIDEWALK REPAIR 1,240 246 994 43400070 ASPHALTIC CONCRETE 3,200 3,200 - 43400107 CARPETING 4,212 2,062 2,150 43400115 VERTICALS AND DRAPES 1,256 510 746 43400114 CARPETING 639 199 440 43400109 INDOOR SIGNS-JOHN RYAN 19,438 15,226 4,212 43400108 OUTDOOR SIGNS 15,114 11,839 3,275 43400110 PLASTI-LINE SIGNE 5,075 4,144 930 43400111 GRAPHIC STORAGE BOXES 204 159 45 260,523 231,812 28,712 1451 New Martinsville - Steelton Asset # Asset Description Cost Acc. Depre Net Book 43400076 LAND 20- (STEELTON) 14,970 - 14,970 43400075 20% LAND (STEELTON) 11,000 - 11,000 43400005 Steelton Branch Bldg 189,162 77,241 111,921 43400001 bldg Steelton 44,000 32,167 11,833 009600032 BANK ONE LIGHTING PROJECT-RETROFIT 4,531 478 4,053 43400073 PARK LOT/PAVING-BRNC 54,678 38,958 15,720 43400072 LANDSCAP/SHRUBS-BRNC 3,316 2,363 953 43400026 CARPETING (BRANCH) 4,192 4,192 - 325,849 155,400 170,449 1456 Point Pleasant - North Asset # Asset Description Cost Acc. Depre Net Book 44101681 Land 20,000 - 20,000 44101648 Remodeling 85,500 65,191 20,309 44101654 Electrical Work 49,253 37,554 11,699 44101672 Building Architectural Services 38,974 29,717 9,258 44101653 Doors & Windows & Glass 15,000 11,437 3,563 44101673 Remodeling 14,521 11,072 3,449 44101647 Railing Aluminum vs. Wood 13,505 10,297 3,208 44101663 Building Steel & Misc. Metal 12,000 9,150 2,850 44101656 Heating & Air Conditioning 11,659 8,890 2,769 44103257 Lighting Retrofit Project 2,924 155 2,769 44101657 Building Masonry 11,633 8,870 2,763 44101678 Excavating & Backfill 9,500 7,243 2,257 44101661 Plumbing & Drainage 9,355 7,133 2,222 97076066 PAINT INTERIOR WALLS & TRIM 1,936 60 1,875 44101660 Painting 7,500 5,719 1,781 44102007 Roof Repairs 4,350 2,662 1,688 44101652 Remodeling Demolition 6,000 4,575 1,425 44101662 Roofing 5,000 3,812 1,188 44102019 Painting Building 2,430 1,484 946 44101655 Building Fire Escape repair 3,000 2,287 713 44101659 Building Mobilization 2,000 1,525 475 44101644 Building Survey Site 1,800 1,372 428 44102074 Tile Ceramic and Installation at No 688 393 296 44101641 Building Fee Bank Branch 1,100 839 261 44101651 Building Demobilization 1,000 763 238 44101664 Air Conditioning Temp. Entrance Sup 725 553 172 44101666 Window Grids Wooden 525 400 125 44101671 Building Architectural Services 445 339 106 44101640 Building Permit 317 241 75 44101646 Building Appraisal of Prof. Bldg. 200 152 48 44101677 Concrete Slab & Sidewalk 46,175 35,207 10,968 44101649 Concrete Foundation 11,000 8,387 2,613 44101680 Landscaping 4,750 3,622 1,128 44101650 Concrete Work 1,685 1,285 400 44101676 Paving of Alley 835 637 198 44101679 Landscaping Shrubbery & Mulch 689 526 164 44103261 Furnace Trane w/ 3 ton AC unit 7,132 1,087 6,044 44101810 Bookcase 507 507 - 44101811 Bookcase 192 192 - 44101812 File Cabinet with Four Dividers 285 285 - 44101681 Land 20,000 - 20,000 44101813 File Cabinet with Eight Dividers 298 298 - 44101814 Credenza 545 545 - 44101815 File Cabinet 154 154 - 44101816 Chair Lounge 108 108 - 44101817 Desk LP Main 812 812 - 44101818 Chair Posture 169 169 - 44101819 File Cabinet Special 299 299 - 44101820 Stool Teller 206 206 - 44101821 Stool Teller 206 206 - 44101822 Stool Teller 206 206 - 44101823 Table & Chairs 210 210 - 44101824 Pictures & Plaques 253 253 - 44101825 Stool Teller 206 206 - 44103182 Camera Polaroid Photo System for Cr 1,564 584 980 44102556 Typewriter IBM W/W 1 000 631 306 324 44101658 Equipment 3,000 3,000 - 44102520 Carpet for 421 MAIN ST. 829 306 523 44101645 Carpet 1,754 1,754 - 44101667 Carpet 384 384 - 44101669 Draperies & Blinds 598 598 - 44102284 Signs and installation 7,776 6,115 1,661 44101668 Signs 130 130 - 44101670 Signs Directional 950 950 - 44101674 Signs Directional 3,164 3,164 - 44101944 Sign 5,600 5,600 - 44101643 Vault, Lockers, Etc. 101,963 77,744 24,219 44101642 Teller Tube System Pneumatic 10,233 7,802 2,431 44102560 Encoders Check (2) Maverick Model 2 2,957 1,398 1,559 24847 NEW TOYOCOM MODEL 50 CURRENCY COUNT 1,479 211 1,267 44101665 Vault Floor Reinforcing 1,575 1,201 374 44101675 Counter Top 452 344 107 554,797 400,881 153,917 1457 Point Pleasant - Mini Asset # Asset Description Cost Acc. Depre Net Book 44101628 Tile 400 190 210 44101620 Glass Insulated 440 294 146 44101624 Electrical Work 139 77 61 44101936 Chair 451 451 - 44101629 Carpet & Tile 2,175 2,175 - 44101630 Draperies 2,340 2,340 - 44102285 Signs and istallation 15,646 12,303 3,342 44102378 Sign Merchandising, Drive Up Banner 627 411 216 44103272 Coin Sorter w/Stand and Printer 2,857 782 2,075 44103200 PAL Construction 2,591 604 1,987 44102233 Coin Sorter Brandt 953 2,666 2,250 416 30,331 21,877 8,454 1458 Point Pleasant - Main Office Asset # Asset Description Cost Acc. Depre Net Book 44101631 Building Musgrave 88,500 48,498 40,002 44101685 Remodel Musgrave Building 11,946 2,843 9,103 44102225 Roof Repair, Materials, and Labor 2,924 1,591 1,332 44101621 Building Service Breaker 1,865 1,049 816 44102002 Remodeling & Design 2,029 1,292 737 44101626 Electrical Work 1,190 658 532 44101622 Electrical Work 706 394 312 44101993 Remodeling 741 466 275 44102003 Remodeling & Design 692 441 251 44101636 Remodeling of Musgrave 8,884 8,721 163 44101625 Electrical Work 240 133 107 44101638 Heating & Air Cond. 3,597 3,531 66 44101639 Building Materials for Musgrave 2,584 2,522 62 44102222 Remodeling and Improvements 125 69 56 44101634 Remodeling of Musgrave 1,874 1,856 17 44101632 Remodeling of Musgrave 6,147 6,147 - 44101633 Remodeling of Musgrave 2,130 2,130 - 44102540 Furniture 2,724 890 1,835 44102550 Stools (5) Kimball Fully Upholstere 2,025 619 1,406 44102202 File Cabinets (3) Lateral 1,701 961 740 44101946 File Cabinet (5) 4 Drawer 4,738 4,068 670 44102555 Stools (2) Kimball Q354201 U Burgand 810 248 562 44101957 File Cabinet 4 Drawer Lateral 1,701 1,218 484 44102288 Table Oval Walnut 945 467 478 44102283 File Cabinet Fairfield Lateral 953 479 474 44101951 Furniture 2,103 1,644 459 44101950 Workstation 2,137 1,685 452 44102215 Furniture 953 529 424 44101683 Furnace Installation 1,860 1,439 421 44102088 File Cabinet Card 1,002 583 419 44102533 File Cabinet Unit Kimball Modular 610 206 403 44102021 File Cabinet Lateral 1,134 732 402 44102059 Pictures and Greenery 933 567 366 44102364 File Cabinet 4 Drawer Lateral ANDS 588 253 335 44101956 File Cabinet 4 Drawer Legal 1,146 820 326 44102546 Stool Kimball Q354201 U 405 128 277 44101945 File Cabinet (2) 4 Drawer 1,895 1,627 268 44102040 Chairs Conf 2 Side-Arm Chairs and 4 703 436 267 44102038 Pictures and Greenery 677 420 257 44102264 Furniture National 2421 CDAW Center 519 267 253 44102122 Chair Swivel Tilt 554 307 247 44102033 File Cabinet 4 Drawer Lateral 567 355 212 44101949 File Box Signature Card 3X5 1,060 849 211 44102041 Desk, Hutch, and Stand 532 330 202 44102065 Pictures (2) Prints and Decorations 528 332 195 44102008 File Cabinet 4 Drawer Lateral 567 383 184 44101948 File Cabinet 4 Drawer 948 784 164 44101947 File Cabinet (2) 4 Drawer 1,006 863 142 44102015 Chair St Timothy 392 259 134 44102016 Chair St Timothy 392 259 134 44102017 Chair St Timothy 392 259 134 44102018 Chair St Timothy 392 259 134 44101996 Desk 214 148 67 44101998 Furniture Hutch 181 125 56 44101635 Panels & Paint 65 65 - 44101826 Chair Steno 128 128 - 44101827 Chair Steno 128 128 - 44101829 File Cabinet Steel 330 330 - 44101830 File Cabinet 218 218 - 44101831 File Cabinet Fire Proof 2,079 2,079 - 44101832 Desk 173 173 - 44101833 Desk & Posture Chair 722 722 - 44101834 Desk & Posture Chair 722 722 - 44101835 Desk & Posture Chair 722 722 - 44101836 Furniture Computer 1,103 1,103 - 44101837 File Cabinet 684 684 - 44101839 File Cabinet Checks 1,015 1,015 - 44101840 File Cabinet & Chair 1,405 1,405 - 44101841 File 1,565 1,565 - 44101842 Chair 174 174 - 44101843 Chair 174 174 - 44101844 Chair 174 174 - 44101845 Workstation 964 964 - 44101846 Files 537 537 - 44101847 Storage Units 315 315 - 44101848 Furniture Computer 3,280 3,280 - 44101849 Storage File 520 520 - 44101850 Desk 461 461 - 44101851 File Cabinet 923 923 - 44101852 File Cabinet Fire Proof 236 236 - 44101853 File Cabinet Fire Proof 236 236 - 44101854 File Cabinet Fire Proof 236 236 - 44101855 File Cabinet Fire Proof 236 236 - 44101856 Stand Printer 313 313 - 44101858 File Cabinet Fire Proof 1,034 1,034 - 44101859 File Cabinet Fire Proof 1,034 1,034 - 44101860 Desk & Credenza 2,041 2,041 - 44101861 File Cabinet Fire Proof 977 977 - 44101862 File Cabinet Fire Proof 977 977 - 44101863 File Cabinet Fire Proof 977 977 - 44101864 File Cabinet Fire Proof 977 977 - 44101868 File Cabinet 977 977 - 44101869 File Cabinet 977 977 - 44101873 File Cabinet Fire Proof 977 977 - 44101877 Chair 488 488 - 44101878 File Cabinet 410 410 - 44101881 File Cabinet 215 182 182 - 44101882 File Cabinet 215 182 182 - 44101883 File Cabinet 215 182 182 - 44101884 File Cabinet 215 182 182 - 44101885 File Cabinet 215 182 182 - 44101886 File Cabinet 215 182 182 - 44101887 File Cabinet 215 182 182 - 44101888 File Cabinet 215 182 182 - 44101889 File Cabinet 215 182 182 - 44101890 File Cabinet 215 182 182 - 44101891 File Cabinet 215 182 182 - 44101892 File Cabinet 215 182 182 - 44101895 Chairs S-1213 225 225 - 44101896 Chairs S-1213 225 225 - 44101897 Chairs S-1213 225 225 - 44101898 Chairs S-1213 225 225 - 44101899 Chairs S-1213 225 225 - 44101900 Chairs S-1213 225 225 - 44101901 Chairs S-1213 225 225 - 44101902 Chairs S-1213 225 225 - 44101905 Chairs S-1213 225 225 - 44101906 Chairs S-1213 225 225 - 44101907 Chairs S-1213 225 225 - 44101908 Chairs S-1213 225 225 - 44101909 Chairs S-1213 225 225 - 44101910 Chairs S-1213 225 225 - 44101911 Chairs S-1213 225 225 - 44101912 Chairs S-1213 225 225 - 44101913 Chairs S-1213 225 225 - 44101914 Chairs S-1213 225 225 - 44101915 Chairs S-1213 225 225 - 44101916 Chairs S-1213 225 225 - 44101917 Chairs S-1213 225 225 - 44101918 Chairs S-1213 225 225 - 44101919 Chairs S-1 137 360 360 - 44101920 Chairs S-1 137 360 360 - 44101921 Chairs S-1 137 360 360 - 44101922 Chairs S-1 137 360 360 - 44101923 Chairs S-1 137 360 360 - 44101924 Chairs S-1 137 360 360 - 44101925 Chairs S-1 137 360 360 - 44101926 Chairs S-1 137 360 360 - 44101927 Loveseat St 337 518 518 - 44101928 Loveseat St 337 518 518 - 44101929 Chair 318 318 - 44101930 Chair 318 318 - 44101931 Chair 318 318 - 44101932 Chair 318 318 - 44101933 Chair Swivel 394 394 - 44101934 Credenza 345 345 - 44101935 File Cabinet 1,012 1,012 - 44101937 Chair Steel Base 186 186 - 44101938 Chair Steel Base 186 186 - 44101939 File Cabinet with Lock 1,528 1,528 - 44101940 File Cabinet 524 524 - 44102166 Alarm System 10,551 8,100 2,450 44102575 Equipment Popcorn Machine Kingery 2,067 875 1,192 44102545 Fax LDC-650 Mila 2,014 1,011 1,003 44102526 Fax Mita 2,300 1,307 994 44103181 Camera Polaroid Photo System for Cr 1,564 584 980 44102241 Alarm System 3,253 2,717 536 44102410 Copier 5034 1,060 659 401 44102557 Typewriter IBM W/W 1 000 631 306 324 44102521 Music Receivers (2) CD PLAYERS (2) 519 297 222 44102380 Vacuum Cleaner 636 416 219 44102544 Calculators (2) Canon BP-1225 403 202 201 44102363 Calculators (3) Canon model CP1213D 604 412 192 44102226 Fax Swintec 741 637 104 44102224 Security Terminal and Cable 739 635 104 44102181 Fax Panasonic 847 781 66 44102558 Fax Accura 144+/SOF 146 116 30 44101118 Typewriter S640 508 508 - 44101803 Copier 9,000 9,000 - 44101865 Typewriter 835 835 - 44101866 Typewriter 835 835 - 44101870 Typewriter 835 835 - 44101893 Microfiche Trays 182 182 - 44101894 Microfiche Trays 182 182 - 44102013 Typewriter S640 592 592 - 44102014 Copier 5046 777 777 - 44102103 Typewriter Swintec Typewriter 529 529 - 44101867 Draperies & Blinds 569 569 - 44101875 Carpet 1,916 1,916 - 44101879 Draperies 1,764 1,764 - 44101880 Draperies 192 192 - 44102305 Sign Interior signage, John Ryan Co 20,118 15,820 4,298 44102168 Sign Merchandising System 9,750 8,218 1,532 44102286 Signs and istallation 6,579 5,174 1,406 44102306 Sign Interior signage, John Ryan Co 1,223 962 261 44102310 Sign Merchandising System 324 253 71 44102559 Printer Laserjet 4 Printer 2,346 1,859 487 44102524 PC 486DX2 66MHZ VESA SYSTEM 2,248 2,068 180 44102563 Printer 2391 PRO IBM 247 193 54 44101952 Printer LX81 0 210 210 - 44101983 PC & Printer 2,303 2,303 - 44102028 Printer Epson LO Model I 1 70 24-Pin 932 932 - 44102029 PC 386 Equity SX/1 6 Plus, 2MB Hard 2,973 2,973 - 44102076 Phone System 30,436 30,436 - 44102078 Phone Equipment 1,500 1,500 - 44102079 Modem Internal, Mousw, 1 mb Simms 337 337 - 44102090 Phone Line Installation 45 45 - 44102097 Printer Laserjet III 1,723 1,723 - 44102110 Phone Line Equipment and Service 678 678 - 44102144 Printer Laser Model KX-P4410 and 2 1,245 1,245 - 44102155 PC Dell 433L, Modem, 120MB HD, 512K 2,494 2,494 - 44102169 PC Dell 433L 2,705 2,705 - 44102177 Printer HP LaserJet 1,485 1,485 - 44102203 PCs (4) & Printers (4) 2,080 2,080 - 44102217 Printer Panasonic KX-P441 0 Laser 1,044 1,044 - 44102218 PC 486DX Ultra 50 MHZ Mini Tower Ca 3,663 3,663 - 44102219 PC 486DX Ultra 50 MHZ Mini Tower Ca 3,663 3,663 - 44102240 PC 486DX 5OMHZ System 2,014 2,014 - 44102271 PC COMPAQ 386S/20N 720 720 - 44102337 PC 486DX 33MHz Vesa System 1,907 1,907 - 44102356 PC 486SLC 33MHz 795 795 - 44102369 Printer Panasonic KX-P4410 laser 742 742 - 44102320 ATM Surrounds 4,298 3,283 1,015 44101808 ATM Minibank 30,707 30,707 - 44102517 Software Loan Processor Plus Laser 874 847 27 44101317 Software Wordperfect 5.1 525 525 - 44101318 Software Lotus 1-2-3 v2.3 525 525 - 44102080 Software Windows 3.1, and MS Word f 510 510 - 44102209 Software Serengeti Trust Processing 424 424 - 44102338 Software Lotus 123; Wordperfect 6.0 711 711 - 44102120 Vehicle 91 Chevy S-1 0 Blazer 13,923 13,923 - 44101992 Teller VAT System Underground 12,183 7,758 4,424 44102010 Coin Sorter 3,582 2,217 1,365 44102426 Encoder Check Maverick M 201 Electr 1,776 1,075 701 44102230 Currency Counter Magner Model 35 1,479 1,259 219 44101995 Coin Sorter 542 345 197 44101874 Currency Counter 2,635 2,532 103 44101997 Drawer Pedestal 118 74 44 44101857 Safe Deposit Boxes 2,325 2,282 43 44101871 Terminal Display 1,152 1,116 36 44101872 Terminal Display 1,152 1,116 36 44101801 Vault Door 12,000 12,000 - 44101802 Teller Station (3) Drive-in 13,000 13,000 - 44101804 Vault Door and Frame 26,000 26,000 - 44101805 Safe Deposit Boxes (958) 9,800 9,800 - 44101806 Vault Safes (2) Door 9,000 9,000 - 44101807 Teller Driveup Equipment (4) 32,000 32,000 - 44101809 Teller Machines (7) 9,800 9,800 - 44101828 Coin Sorter 1,979 1,979 - 44101838 Safe Deposit Boxes 6,931 6,931 - 44101876 Coin Sorter WRl 00 18,512 18,512 - 44101953 Terminal Teller 321 321 - 44101954 Terminal Teller 321 321 - 44101955 Terminal Teller 321 321 - 44101958 Terminal Teller 1,017 1,017 - 44101959 Terminal Teller 1,017 1,017 - 44101960 Terminal Teller 1,017 1,017 - 44101961 Terminal Teller 1,017 1,017 - 44101962 Terminal Teller 1,017 1,017 - 44101963 Terminal Teller 1,017 1,017 - 44101964 Terminal Teller 1,017 1,017 - 44101965 Terminal Teller 1,017 1,017 - 44101966 Terminal Teller 1,017 1,017 - 44101967 Terminal Teller 1,017 1,017 - 44101968 Terminal Teller 1,017 1,017 - 44101969 Terminal Teller 1,017 1,017 - 44101970 Terminal Teller 1,017 1,017 - 44101971 Terminal Teller 1,017 1,017 - 44101972 Terminal Teller 1,017 1,017 - 44101973 Terminal Teller 1,017 1,017 - 44101974 Terminal Teller 1,017 1,017 - 44101975 Terminal Teller 1,017 1,017 - 44101976 Terminal Teller 1,017 1,017 - 44101977 Terminal Teller 1,017 1,017 - 44101978 Terminal Teller 1,017 1,017 - 44101979 Terminal Teller 1,017 1,017 - 44101980 Terminal Teller 1,017 1,017 - 44101981 Terminal Teller 1,017 1,017 - 44101982 Terminal Teller 1,017 1,017 - 628,527 534,986 93,541 SCHEDULE D ASSUMED CONTRACTS ----------------- TO BE PROVIDED SCHEDULE E LIST OF LEASES, SAFEKEEPING ITEMS AND AGREEMENTS ------------------------------------------------ New Martinsville - 207 Main Street - 1,174 Safe Deposit Boxes New Martinsville - Steelton - 638 North State Route 2 - 207 Safe Deposit Boxes Point Pleasant - Main Office - 421 Main Street - 1,777 Safe Deposit Boxes Point Pleasant - North - 2513 Jackson Avenue - 0 Safe Deposit Boxes Point Pleasant - Mini Branch - 332 Viand Street - 0 Safe Deposit Boxes SCHEDULE F FORM OF ASSIGNMENT AND ASSUMPTION OF LEASE AND ESTOPPEL CERTIFICATE ------------------------------------------------------------------- This Agreement made and entered into as of the day of , 199_ by and between Community Trust Bancorp, Inc., a Kentucky corporation (the "Assignor"), and The Peoples Banking and Trust Company, a _________________ corporation (the"Assignee"). WITNESSETH: WHEREAS, Assignor, or its prior party in interest, entered into a Lease Agreement (the "Lease") with ("Lessor") dated ________________, 199_ for the real property described in Exhibit A attached hereto and made a part hereof (the "Premises"); and WHEREAS, Assignor has the right to assign all or any portion of its interest in the Premises and Lease; and WHEREAS, Assignor desires to assign all of its right, title and interest in and to the Premises and the Lease to Assignee and Assignee desires to accept Assignor's interest in the Premises and the Lease. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by Assignor, the parties hereby agree as follows: 1. Assignor hereby assigns and transfers all of its right, title and interest in and under said Lease, to Assignee effective as of the date hereof for the term of said Lease, and all renewal terms, if any, subject to the rental, covenants, agreements, provisions and conditions of said Lease. 2. Assignee hereby assumes, for the benefit of the Lessor, and Assignor, the performance of all of the covenants, agreements, provisions and conditions of said Lease on the part of the Lessee to be performed and hereby agrees to perform all of said covenants, agreements, provisions and conditions hereof, and with the full force and effect as if the Assignee had signed the Lease originally as Lessee named therein. 3. Assignee agrees to indemnify, defend and hold Assignor harmless from and against any and all claims, damages, losses, costs or expenses arising out of or related to Assignee's failure to perform any of the covenants, provisions, and conditions of said Lease. IN WITNESS WHEREOF, the parties hereto have signed, sealed and delivered this instrument on the date first above written. Signed and acknowledged Community Trust Bancorp, Inc. in the presence of _____________________________ By:_____________________________ Witness ______________________________ The Peoples Banking and Trust Company Witness ______________________________ By:_____________________________ Witness _____________________________ Witness State of ___________) County of _________) ss: Before me, a Notary Public in and for said County and State, on this _____ day of ___________, 199__, personally appeared _______________ of Community Trust Bancorp, Inc., a Kentucky corporation and acknowledged the signing of the foregoing instrument as his free act and deed for, and on behalf of the association. ________________________________ Notary Public State of ____________ ) County of ___________ ) ss: Before me, a Notary Public in and for said County and State, on this ____ day of _________________, 199_, personally appeared __________________ of The Peoples Banking and Trust Company, a ______________ corporation and acknowledged the signing of the foregoing instrument as his free act and deed for the uses and purposes therein mentioned. __________________________________ Notary Public This Instrument prepared by: Edward A. Receski Greenebaum Doll & McDonald, PLLC 333 W. Vine Street, Suite 1400 Lexington, Kentucky 40507 Consent of Landlord and Release of Liability ____________________, hereby consents to the above Assignment and Assumption of Lease Agreement and hereby releases Community Trust Bancorp, Inc. from any and all liability under said Lease from and after the date hereof. Witnesses: ___________________________ ________________________ By:________________________ ________________________ By:________________________ SCHEDULE G DEPOSIT ACCOUNTS ---------------- TO BE PROVIDED SCHEDULE H OFFICE LOANS ------------ TO BE PROVIDED SCHEDULE I FORM OF CERTIFICATION OF BUYER ------------------------------ We hereby certify: (i) That the undersigned,_______________, is the _______________ and the undersigned ___________ is the ___________ of The Peoples Banking and Trust Company ("BUYER"); (2) That all representations and warranties of BUYER as set forth in the Office Purchase and Assumption Agreement dated December ___, 1997 by and between BUYER and Community Trust Bancorp, Inc. ("SELLER" herein; the "Agreement" herein), including those set forth in Section 3.2 of said Agreement, are true and correct in all material respects as of this date and with the same effect as though all such representations and warranties had been made on and as of this date; (3) That each and all of the covenants and agreements of BUYER to be performed or complied with at or prior to closing pursuant to said Agreement have been either duly performed and complied with in all material respects by BUYER, or waived in writing by SELLER; (4) That all filings and registrations with and notifications to all federal and state authorities required for BUYER's consummation of the Acquisition being the subject of said Agreement have been made, all approvals and authorizations of all federal and state authorities required for BUYER's consummation thereof have been received and are in full force and effect, and all applicable waiting periods have passed; (5) That the Board of Directors of BUYER has taken all corporate action necessary by it to effectuate the Agreement and the Acquisition contemplated thereby and said Agreement has been approved by the shareholders of BUYER to the extent required by law; and (6) That as of the date hereof there is no litigation, investigation, inquiry or proceeding pending or threatened in or by any court or agency of any government or by any third party which in the judgment of the executive officers of BUYER, with the advice of counsel, presents a bona fide claim to restrain, enjoin or prohibit consummation of the transaction contemplated by the Agreement or which might result in the rescission in connection with such transaction. Dated: _____________, _____________,199_ Attest: __________________________________ __________________________________ SCHEDULE J FORM OF OPINION OF COUNSEL FOR BUYER ------------------------------------ ______________, _____________, 199_ Community Trust Bancorp, Inc. Attention: ____________________ Gentlemen: We have acted as special counsel for The Peoples Banking and Trust Company, a corporation organized under the laws of ___________________ ("BUYER") in connection with BUYER's purchase of certain assets and assumption of certain liabilities of Community Trust Bancorp, Inc., a Kentucky corporation ("SELLER"). Such purchase and assumption is to be consummated pursuant to the terms of an Office Purchase and Assumption Agreement dated December ____, 1997 ("Agreement") between BUYER and SELLER. This opinion is furnished to you pursuant to Section 5.1(f) of the Agreement. We have examined such documents, records and matters of law as we have deemed necessary for purposes of this opinion, and based thereupon we are of the opinion that: 1. BUYER has been duly organized and is a validly existing corporation in good standing under the laws of _______________________. 2. BUYER has all requisite corporate power and authority to enter into the Agreement and the Agreement has been duly approved by all requisite corporate action of BUYER, has been duly executed and delivered by BUYER and is valid and binding upon BUYER, enforceable in accordance with its terms except to the extent limited by insolvency, reorganization, liquidation, readjustment of debt or other laws of general application relating to or affecting the enforcement of creditor's rights generally. 3. Neither the execution and delivery of the Agreement nor the consummation by BUYER of the transaction therein contemplated will result in the violation of any statute or regulation or any order or decree of any court or governmental authority (of which we have knowledge) binding upon BUYER, or its properties, or conflict with or result in a default under any of the terms and provisions of the Articles of Incorporation or ByLaws of BUYER or any indenture, loan agreement or other agreement known to us by which BUYER is bound. 4. We do not know of any litigation, investigation, inquiry or other proceeding or governmental investigation pending or threatened against or related to BUYER, its business or the transactions contemplated by the Agreement which, in the judgment of the undersigned, presents a bona fide claim to restrain, enjoin, or prohibit consummation of the transactions contemplated by the Agreement or which might result in rescission thereof. Very truly yours, SCHEDULE K FORM OF CERTIFICATION OF COMMUNITY TRUST BANCORP, INC. ----------------------------- We hereby certify: (1) That the undersigned is the _________________ and the undersigned is the ______________ of Community Trust Bancorp, Inc., a Kentucky corporation ("SELLER"). (2) That all representations and warranties of SELLER as set forth in the Office Purchase and Assumption Agreement dated __________________, 199_, by and between SELLER and The Peoples Banking and Trust Company ("BUYER"; the "Agreement" herein), including those set forth in Section 3.1 of said Agreement, are true and correct in all material respects as of this date and with the same effect as though all such representations and warranties had been made on and as of this date; (3) That each and all of the covenants and agreements of SELLER to be performed or complied with at or prior to closing pursuant to said Agreement have been either duly performed and complied with in all material respects by SELLER or waived in writing by BUYER; (4) That all filings and registrations with and notifications to all federal and state authorities required for SELLER's consummation of the Acquisition being the subject of said Agreement have been made, all approvals and authorizations of all federal and state authorities required for SELLER's consummation thereof have been received and are in full force and effect, and all applicable waiting periods have passed; (5) That the Board of Directors of SELLER has taken all corporate action necessary by them to effectuate the Agreement and the Acquisition contemplated thereby and said Agreement has been approved by the shareholders of SELLER to the extent required by law; and (6) That as of the date hereof there is no litigation, investigation, inquiry or proceeding pending or threatened in or by any court or agency of any government or by any third party which in the judgment of the executive officers of SELLER, with the advice of counsel, presents a bona fide claim to restrain, enjoin or prohibit consummation of the transaction contemplated by the Agreement or which might result in the rescission in connection with such transaction. Dated: ________________, 199_ Attest: Community Trust Bancorp, Inc. SCHEDULE L FORM OF OPINION OF COUNSEL FOR COMMUNITY TRUST BANCORP, INC. ------------------------------ _____________, __________ 199_ The Peoples Banking and Trust Company Attention: ___________________ Gentlemen: I am special counsel for Community Trust Bancorp, Inc. a corporation chartered under the laws of the Commonwealth of Kentucky ("SELLER") and have acted as special counsel for SELLER in connection with SELLER's sale of certain assets and assignment of certain liabilities to The Peoples Banking and Trust Company ("BUYER"). Such purchase and assumption is to be consummated pursuant to the terms of an Office Purchase and Assumption Agreement dated December ____, 1997, (the "Agreement" herein), by and between BUYER and SELLER; This opinion is furnished to you pursuant to Section 5.2(f) of the Agreement. I have examined such documents, records and matters of law as I have deemed necessary for purposes of this opinion, and based thereupon I am of the opinion that: 1. SELLER has been duly organized and is a validly existing corporation in good standing under the laws of the Commonwealth of Kentucky. 2. SELLER has all requisite corporate power and authority to enter into the Agreement and the Agreement has been duly approved by all requisite corporate action of SELLER, has been duly executed and delivered by SELLER and is valid and binding upon SELLER, enforceable in accordance with its terms except to the extent limited by insolvency, reorganization, liquidation, readjustment of debt or other laws of general application relating to or affecting the enforcement of creditor's rights generally. 3. Neither the execution and delivery of the Agreement nor the consummation by SELLER of the transaction therein contemplated will result in the violation of any statute or regulation or any order or decree of any court or governmental authority of which we have knowledge binding upon SELLER, or its properties, or conflict with or result in a default under any of the terms and provisions of the Articles of Incorporation or ByLaws of SELLER or any indenture, loan agreement or other agreement known to me by which SELLER is bound. 4. I do not know of any litigation, investigation, inquiry or other proceeding or governmental investigation pending or threatened against or related to SELLER, its business or the transactions contemplated by the Agreement which, in the judgment of the undersigned, presents a bona fide claim to restrain, enjoin, or prohibit consummation of the transactions contemplated by the Agreement or which might result in rescission thereof. Very truly yours, SCHEDULE M FORM OF ASSIGNMENT OF OFFICE LOANS, NOTES, AGREEMENTS AND PLEDGE ------------------------------------------ For value received, Community Trust Bancorp, Inc. ("SELLER"), does hereby assign, without recourse, representation or warranty, to The Peoples Banking and Trust Company, ("BUYER"), the promissory notes described in Exhibit "A" attached hereto and incorporated herein by reference evidencing an indebtedness to SELLER, as well as any and all documents or instruments evidencing liens securing such indebtedness. Dated: _________________, 199 Community Trust Bancorp, Inc. By: ______________________ Its: ______________________ FORM OF ASSIGNMENT OF PLEDGE KNOW ALL MEN BY THESE PRESENTS, that for good and valuable consideration, Community Trust Bancorp, Inc. ("SELLER"), does hereby assign, without recourse, representation or warranty, to The Peoples Banking and Trust Company ("BUYER"), all of SELLER's right, title and interest in the pledge of deposit accounts (the "Pledge" herein) and other documents or instruments relating to the liens providing security for the promissory notes (the "Notes"), described in Exhibit "A" attached hereto and made a part hereof. TN WITNESS WHEREOF, SELLER has duly executed this Assignment of Pledge this day of ___________, 199_ Assignor: Community Trust Bancorp, Inc. By: ___________________________ Its: ____________________________ FORM OF ASSIGNMENT OF AGREEMENTS KNOW ALL MEN BY THESE PRESENTS that for good and valuable consideration Community Trust Bancorp, Inc. ("SELLER"), does hereby assign, without recourse, representation or warranty, to The Peoples Banking and Trust Company ("BUYER"), all SELLER's right, title and interest in and to each of the checking account line of credit relationships between SELLER and a banking customer of SELLER providing for a checking account line of credit for such customer from SELLER, which relationships are identified in Exhibit A attached hereto and made a part hereof, and BUYER does hereby assume the obligations of SELLER to provide overdraft line of credit coverage to such customers following the Closing on such terms and conditions and for such periods as determined by BUYER. SELLER shall use reasonable efforts to have Banc One agree, upon BUYER's request, to provide a photocopy of the agreement(s) pursuant to which Banc One has provided such coverage to a customer, it being understood, however, that Banc One shall not be required to provide copies of such agreements in bulk. IN WITNESS WHEREOF, SELLER and BUYER have duly executed this Assignment of Agreements this ____ day _____________ of, 199_. Community Trust Bancorp, Inc. By: ___________________________________ its: __________________________________ The Peoples Banking and Trust Company By: ___________________________________ Its: __________________________________ SCHEDULE N FORM OF INSTRUMENT OF ASSUMPTION -------------------------------- Pursuant to the provisions of Section 6.3(a) of the Office Purchase and Assumption Agreement by and between Community Trust Bancorp, Inc. ("SELLER") and The Peoples Banking and Trust Company ("BUYER") dated December, __, 1997, (the "Agreement" herein), BUYER hereby unconditionally agrees to assume, perform and/or discharge, as applicable and as set forth below, the following obligations and/or liabilities attributable to the Offices of SELLER which obligations and liabilities are being purchased or assumed by BUYER pursuant to the Agreement. Capitalized terms used but not defined herein shall have the meanings specified in the Agreement. BUYER shall: (a) Assume, discharge, pay in full and perform all of SELLER's obligations and duties relating to the Deposit Liabilities in accordance with the provisions of Section 1.3(b) of the Agreement. (b) Assume, discharge, pay in full and perform all of SELLER's obligations and duties relating to the Third Party Lease in accordance with the provisions of Section 1.3(d) of the Agreement. (c) Assume, discharge, pay in full and perform all of SELLER's obligations and duties relating to the Assumed Contracts in accordance with the provisions of Sections 1.3(c) and (d) of the Agreement. (d) Assume and fully and timely perform and discharge, in accordance with the provisions of Section 1.3(c) of the Agreement, all lease and other obligations specified in Sections 1.3(c) and (d) of the Agreement. (e) Assume and, in the normal course of business, faithfully honor and fully and timely perform and discharge all the duties and obligations of SELLER arising from and after the date hereof (i) with respect to the safe deposit business of the Offices, including, but not limited to, the maintenance of all necessary facilities for the use of safe deposit boxes by the renters thereof during the periods for which such persons have paid rent therefor in advance to SELLER subject to the provisions of the applicable leases or other agreements relating to such boxes, and (ii) all safekeeping items and agreements delivered to BUYER by SELLER or Banc One pursuant to the Agreement, an itemized list of which items and agreements are annexed hereto as Exhibit A including, but not limited to, all applicable safekeeping agreements, memoranda or receipts so delivered to BUYER by SELLER or Banc One. (f) Fully and timely perform and discharge, in the normal course of business, as the same may be or become due, all additional liabilities and obligations of SELLER, if any, including, without limitation, the deferred expenses described in Section 1.3(d) of the Agreement, and which expenses are identified by name and the dollar amounts of which are set forth in Exhibit B, annexed hereto, and obligations pertaining to the Office Loans, the Assets, and the employees of the Offices as set forth in the Agreement. (g) Nothing contained in this Instrument of Assignment shall be construed in any manner as broadening the scope of liabilities assumed by BUYER pursuant to the Agreement or limiting BUYER's rights to indemnification provided in Section 8.3 of the Agreement. Dated this ____ day of _______________, 199__ ATTEST: By: _______________________ Its: ______________________ Community Trust Bancorp, Inc. hereby acknowledges receipt of the executed original of the foregoing Instrument of Assumption this ___ day of _____________, 199_. Community Trust Bancorp, Inc. By: ______________________________ Its:______________________________ SCHEDULE O FORM OF ASSIGNMENT, TRANSFER AND APPOINTMENT OF SUCCESSOR CUSTODIAN FOR INDIVIDUAL RETIREMENT ACCOUNTS ------------------------------------------------------ KNOW ALL MEN BY THESE PRESENTS THAT: WHEREAS, Community Trust Bancorp, Inc. ("SELLER") and The Peoples Banking and Trust Company ("BUYER") are parties to a certain Office Purchase and Assumption Agreement dated as of December, ____, 1997, (the "Agreement" herein), pursuant to which SELLER has agreed to assign and BUYER has agreed to assume the custodianship under certain of SELLER's Individual Retirement Accounts ("IRAs") and BUYER has agreed to assume such IRAs upon the terms and conditions contained in the Agreement; NOW THEREFORE, SELLER does hereby sell, assign and transfer to BUYER for valuable consideration paid by BUYER all of SELLER's right, title and interest in: 1. All the IRAs as described in Appendix A attached hereto and incorporated herein. Following the Closing Date, Appendix A shall be amended by attachment of a listing of IRAs as of the close of business on the Closing Date, which IRAs are booked at or attributed to the "Offices" as that term is defined in the Agreement. 2. All the records, files, correspondence and documentation relating to the IRAs. BUYER hereby represents that it has adopted or will adopt the Master Individual Retirement Plan and Custodial Account ("Plan") attached hereto as Appendix B and incorporated herein, and that BUYER will assume the responsibilities as Successor Custodian, and warrants to SELLER that it will adhere to all provisions contained in the Plan as now written, and shall only amend such applicable plan in accordance with its terms. Based upon the representations and warranties made by BUYER, SELLER, in accordance with and pursuant to section 8.10 of the Plan, hereby appoints BUYER Successor Custodian and transfers and assigns said IRAs to BUYER. SELLER hereby represents that all of the IRAs described in Appendix A hereto are governed by the Plan attached as Appendix B hereto. Capitalized terms used but not defined herein shall have the meanings specified in the Agreement. IN WITNESS WHEREOF, SELLER and BUYER have caused this Assignment to be signed by their proper officers, as of this day of December _____, 1997. Community Trust Bancorp, Inc. Attest: By: ___________________________________ Its: __________________________________ Attest: The Peoples Banking and Trust Company By: ___________________________________ Its: __________________________________ SCHEDULE P FORM OF PRELIMINARY CLOSING STATEMENT ------------------------------------- COMMUNITY TRUST BANCORP, INC. AND THE PEOPLES BANKING AND TRUST COMPANY Dated: _________________________ This Preliminary Settlement Statement for the Office Purchase and Assumption Agreement by and between Community Trust Bancorp, Inc. ("SELLER"), and The Peoples Banking and Trust Company ("BUYER" herein) dated December ____, 1997, (the "Agreement") relating to certain branch offices of BANK. Specific terms herein shall have the same meaning as set forth in the Agreement. CALCULATION OF CASH PAYMENT --------------------------- Deposit liabilities at business day immediately Values As of Close of preceding Closing Date. Business__________________ Core Deposits __________________________ ADD: Accrued interest payable __________________________ ADD: Deferred Expenses __________________________ LESS: Branch Cash On Hand __________________________ LESS: Fixed Assets __________________________ Owned Real Estate __________________________ Furniture Fixture & Equipment __________________________ LESS: Core Deposit Premium ____% x $____________ Core Deposits __________________________ LESS: Prepaid Expenses __________________________ LESS: Loans at business day immediately preceding Closing Date Deposit Account Loans __________________________ Overdraft Lines of Credit __________________________ Other Loans __________________________ Amount due Buyer __________________________ Community Trust Bancorp, Inc. The Peoples Banking and Trust Company By: __________________________ By:___________________________ Its: _________________________ Its:__________________________ SCHEDULE Q FORM OF FINAL SETTLEMENT STATEMENT ---------------------------------- COMMUNITY TRUST BANCORP, INC. AND THE PEOPLES BANKING AND TRUST COMPANY Date: __________________ This Final Statement for the Office Purchase and Assumption Agreement by and between Community Trust Bancorp, Inc. ("SELLER") and The Peoples Banking and Trust Company ("BUYER" herein), dated December _____, 1997 (the "Agreement") relating to certain branch offices of Banc One. Specific terms herein shall have the same meaning as set forth in the Agreement. CALCULATION OF CASH PAYMENT --------------------------- Deposit liabilities at Closing Date. Values As of Close of Business__________________ Core Deposits __________________________ ADD: Accrued interest payable __________________________ ADD: Deferred Expenses __________________________ LESS: Branch Cash On Hand __________________________ LESS: Fixed Assets __________________________ Owned Real Estate __________________________ Furniture Fixture & Equipment __________________________ LESS: Core Deposit Premium ____% x $____________ Core Deposits __________________________ LESS: Prepaid Expenses __________________________ LESS: Loans Deposit Account Loans __________________________ Overdraft Lines of Credit __________________________ Other Loans __________________________ Equals: Required Cash Payment - ----------------------------- Cash Payment Paid on Closing Date Amount Required Cash Payment Exceeds Cash Paid on Closing Date Interest at Average Fed Funds Rate __________________________ Total to be Paid to BUYER by SELLER or - -------------------------------------- Amount Cash Payment Paid on Closing Date Exceeds - ------------------------------------------------ Required Cash Payment - --------------------- ____________________________ Interest at Average Fed Funds Rate ____________________________ Total to be Paid to SELLER by BUYER ____________________________ Community Trust Bancorp, Inc. The Peoples Banking and Trust Company By: __________________________ By:___________________________ Its: __________________________ Its:___________________________ SCHEDULE R LISTING OF EMPLOYEES OF OFFICES ------------------------------- THE LISTING OF EMPLOYEES OF THE OFFICES IS SET FORTH IN CONFIDENTIAL ANNEX R INCORPORATED HEREIN BY REFERENCE Office Purchase and Assumption Agreement with Community Trust Bancorp, Inc., Pikeville, KY DATE 12/23/97 Schedule R Employees of Offices SNL BRANCH EMPLOYEE NAME EMPLOYEE JOB TITLE - ---- ---------------- ------------------------- ------------------------- 1450 New Martinsville Mason, Melba F. Personal Banker Frye, Connie D. Customer Service Unit Ldr Byard, Ted R. Customer Service Rep Hall, Erica L. Personal Banker Tuttle, Eileen L. Customer Service Rep James, Deborah A. Customer Service Rep Knowlton, Donald S. Banking Center Mgr Booher, Tina M. Administrative Asst 1451 Steelton Harrigan, Donna J. Lobby Services Spec Evans, Minerva R. Banking Center Mgr Merckle, Cynthia A. Lobby Services Spec Howard, Deserae M. Customer Service Rep Pixler, Julie A. Customer Service Rep 1456 Point Pleasant - North Shell, Margaret Marie Customer Service Rep 1457 Point Pleasant - Mini Branch Daugherty, Juanita A. Customer Service Rep Craig, Linda Lois P. Customer Service Rep Bryant, Debra L. Customer Service Rep Kay, Wanda M. Customer Service Rep Bowcott, Doris Marie Customer Service Unit Ldr Birchfield, Sonia G. Customer Service Rep Stapleton, Sharon D. Customer Service Rep Weaver, Roxanne Customer Service Unit Ldr 1458 Point Pleasant - Main Office Shamblin, Terry Lynn Personal Banker Davis, Shelby J. Administrative Asst Rollins, Krista Lynn Personal Banker Musgrave, Lisa G. Customer Service Rep Herdman, Jeannette D. Customer Svc Spec Byus, Loril Telephone Operator II Proffitt, Rachel E. Personal Banker McWhorter, Judith Ann Branch Administrator Baisden, Lisa A. Customer Service Rep Gilley, Julie C. Customer Service Rep Krebs, Geneth Geraldine Lobby Services Spec Morgan, Stella C. Customer Service Rep Bain, Karen S. Customer Service Unit Ldr Siders, Holly J. Customer Service Rep Brady, Sue Allison Banking Center Asst Mgr Epling, Sandra K. Personal Banker King, Paula R. Personal Banker Wandling, Karen Michelle Personal Banker Duncan, Geraldine Adron H. Personal Banker Dewees, Janette Smith Lobby Services Spec Holland, Joshua T. Courier Nichols, Jennifer C. Customer Service Rep Shaw, Virginia Retail Lender II Bush, Joyce Laurane Customer Service Rep SCHEDULE S PUT PROVISION FOR OFFICE LOANS ------------------------------ Each and every of the terms and provisions, including definitions, set forth in the Agreement to which this schedule is attached and incorporated by reference are also incorporated herein by reference. In addition, for purposes of this schedule and the agreement: "Business Day" shall mean a day on which SELLER is open for business and which is not a Saturday, Sunday, or Federal Holiday. "Book Value" unless otherwise expressly provided herein, shall mean the dollar amount of any Office Loan on the books of SELLER as of the Closing Date on an unconsolidated basis, after adjustment by SELLER for any differences in amounts, suspense items, unposted debits and credits, and other similar adjustments and corrections. Book value shall be determined exclusive of any reserves, and shall be reduced by any unearned discount on addon interest for installment loans or installment loans in process, all as reflected on the books of SELLER as of the Closing Date, but shall not otherwise be adjusted for unearned income. "CutOff Date" shall mean, for any Office Loan put back to SELLER pursuant to this Agreement, the date specified in BUYER'S notice of its intent to put back such Office Loan which date shall be not less than ten (10) Business Days prior to the Option Exercise Date (as hereinafter defined) for such Office Loan. "Disqualifying Event" shall mean, with respect to any Office Loan, any of the following actions taken by BUYER without the written consent of SELLER with respect to such Office Loan: (i) Any advance of funds or credit (including additional indebtedness drawn as a part of a line of credit or credit or created by means of an overdraft) to any borrower or any obligor on such office Loan, and any commitment to advance any funds or credit to any such borrower or other obligor (except as provided in subsection (iv) of this definition); or (ii) Any modification, extension, forgiveness, or other material change in the terms or conditions of such Office Loan, including, but not limited to, any change in the term, interest rate, or method of computation of interest (other than interest adjustments required under the terms of the Office Loan); or (iii) Any release of collateral, in whole or in part (other than a release of collateral made in connection with the substitution of new collateral of equivalent value or a release of collateral in connection with a reduction by cash payment in the outstanding principle balance of an Office Loan, provided that after such payment the balance of the Office Loan is fully secured by a valid first lien), foreclosure, or other change in the collateral position which SELLER held at the Closing Date with respect to such Office Loan; or (iv) Any sale, transfer, pledge, hypothecation, or assignment, in whole or in part, of any right, title, or interest in or to the Office Loans (including, without limitation, any interest thereon or any collateral related thereto) to any third party prior to the Option Exercise Date without the express prior written consent on SELLER, provided, however, that the term "Disqualifying Event" shall not include any Protective Advance or any advance of funds or credit with respect to any Office Loan as to which there is a commitment by SELLER to provide additional funding to or on behalf of the Borrower if (a) any such advance is made in accordance with prudent banking standards and practices, (b) all such advances, in the aggregate, do not exceed the original commitment with the respect to the Office Loan in the case of any Office Loan, (c) (together with any such additional advances) is fully secured by a valid first lien, and (d) is made consistently with each and every term and condition of the relevant Office Loan. "Lien" shall mean, with respect to any Office Loan, any mortgage, deed of trust, pledge, security interest, hypothecation, assignment, deposit arrangement, charge, encumbrance, lien (statutory or other), priority or other security agreement or written preferential arrangement of any kind or nature whatsoever with respect to such Office Loan (including, without limitation, any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of any financing statement under the Uniform Commercial Code or comparable law of any jurisdiction). "Office Loan Settlement Date" shall mean the first Business Day following the expiration of one hundred twenty (120) calender days after the Banc One Closing Date, subject to extension at the sole discretion of SELLER upon five (5) Business Days' advance notice to the BUYER of such extension; provided, however, that in no event will the Office Loan Settlement Date be extended beyond one hundred eighty (180) calendar days after the Banc One Closing Date. "Option Exercise Date" shall mean the date which is 90 calendar days following the Banc One Closing Date, exclusive of the Banc One Closing Date and inclusive of the 90th calendar day. "Protective Advance" shall mean any advance of funds or credit with respect to any Office Loan which (a) is made in accordance with prudent banking standards and practices, (b) is used to remove a prior lien on the collateral, if any, securing such office Loan including, without limitation, a Lien for taxes due but not yet paid, or for the payment of premiums on insurance obtained in respect of any such collateral, including without limitation, title insurance, public liability insurance, and fire insurance, and (c) does not exceed, together with all other advances made by BUYER in respect of such Office Loan, the greater of (i) ten percent (10%) of the outstanding principal balance of such Office Loan as the Banc One Closing Date, and (ii) ten percent (10%) of the value (based upon the most recent existing appraisal report) of the collateral securing such Office Loan less the amount of any indebtedness secured by a prior Lien on such collateral. "Repurchase Price" shall mean, with respect to the Office Loans, the sum of (a) the purchase price at which such Office Loan was transferred to Buyer pursuant to this Agreement, minus (b) any monies received between the Banc One Closing Date and the applicable Option Exercise Date, plus (c) the amount of any increase in book value since Banc One Closing Date resulting from any advances, restructuring or other modifications approved in writing by SELLER or made in accordance with the terms of this Agreement, plus (d) interest on such purchase price from the Banc One Closing Date to the date of payment at the Settlement Interest Rate calculated on a daily basis after taking into account the adjustments contemplated by subsections (b) and (c) herein. As used in this definition, the phrase "any monies received" shall include, without limitation, all principal payments, interest payments, fees, net proceeds realized from sales of collateral, dividends, and any and all other monies received in respect of the relevant Office Loan. "Settlement Interest Rate" shall mean, for the calender quarter in which the Banc One Closing Date occurs, the 90 day U.S. Treasury Bill discount rate in effect of the Banc One Closing Date (as established by the auction held on the date closest preceding such date), and (ii) for each calender quarter thereafter, the Treasury Bill Discount rate in effect as of the first day of such quarter (as established by the auction held on the date closest preceding such date). Put Option for Office Loans --------------------------- Office Loans. Subject to the terms and conditions hereinafter set forth, the BUYER agrees to purchase form SELLER, and SELLER hereby agrees to sell, assign, transfer, convey and deliver to the BUYER, as of the earlier of the Option Exercise Date or such date as Banc One may consent in writing to the transfer and assignment of the Office Loans to BUYER, all right, title and interest of SELLER in and to all of the Office Loans as of the Closing Date, at the respective purchase prices provided in this Agreement; provided, however, that BUYER shall have the right to put back to SELLER, not later than the Option Exercise Date, any Office Loan to be transferred to BUYER pursuant to this Agreement in the event that, (i) as of the Closing Date, there exists a breach of a representation or warranty of SELLER with respect to such Office Loan, (ii) in the event that documentation relating to the collateral for such Office Loan is incorrect such that a security interest in favor of Banc One (or SELLER as transferee) is not in the amount, or applicable to the collateral, as described in the applicable documentation relating to such Office Loan, or (iii) in the event that documentation relating to collateral supporting such Office Loan is incomplete or missing, thereby resulting in an invalid or unenforceable security interest in favor of Banc One (or SELLER as transferee) in the underlying collateral. SELLER shall make available all files relating to the Office Loans to be transferred to BUYER pursuant hereto when received from Banc One for the purpose of BUYER's review and determination of Office Loans with respect to which BUYER desires to exercise its put rights. BUYER's right to put back any such Office Loan shall be subject in all instances, in addition to the other conditions precedent provided for herein, to material compliance by BUYER with each and every of the terms and conditions set forth in this Agreement and provided no Disqualifying Event has occurred with respect to such Office Loan. Buyer shall acquire each Office Loan to be transferred under this Agreement subject to any and all arrangements, whether or not in writing, pursuant to which any Person (other than SELLER or an affiliate of SELLER) provides servicing for such Office Loan. SELLER hereby assigns, transfers, conveys and delivers to the BUYER, and BUYER hereby accepts, all right, title and interest of SELLER in and to any such arrangement. SELLER and BUYER hereby agree to enter into a service agreement mutually agreeable to BUYER and SELLER pursuant to which BUYER shall service the Office Loans during the period commencing on the Closing Date and terminating on the date the Office Loans are assigned pursuant to this Agreement (the "Service Period"). Such servicing agreement shall provide that BUYER collect and retain all payments on the Office Loans during the Service Period for disbursement in accordance with the provisions of this Schedule S and this Agreement. Purchase Price and Adjustments: ------------------------------- (a) Cash Payment. The Office Loans shall transfer at an initial transfer price of Book Value as of the Closing Date. The Repurchase Price for any such Office Loan put back to SELLER shall be based on the Book Value used in calculating the payment for such Office Loan as of the Banc One Closing Date, adjusted as otherwise provided in the definition of Repurchase Price. On or before the Office Loan Settlement Date, SELLER shall pay the BUYER, or the BUYER shall pay to SELLER, as the case may be, an amount in cash equal to the Repurchase Price for the Office Loans put back to SELLER, together with interest thereon at the Settlement Interest Rate from the Banc One Closing Date to the date of such payment. Manner of Conveyance; No Warranty; Nonrecourse; Etc; (a) "As Is,""Where Is." SELLER represents and warrants that, as of the Closing Date, the Office Loans are not past due more than 30 days in accordance with their respective terms, not on nonaccrual status on the books of SELLER as of the Closing Date, and no Office Loan is classified as a grade 6 or 7 asset (corresponding to asset classifications by the Office of the Comptroller of the Currency as "Substandard" or "Doubtful", respectively) on the books of SELLER. The conveyance of Office Loans shall be on an "as is" "where is" basis, without recourse and, except as otherwise specifically provided in the Agreement, without any warranties whatsoever, express or implied, including, without limitation, any warranties with respect to title, enforceability, collectibility, documentation or freedom from Liens or encumbrances (in whole or part). BUYER acknowledges that SELLER will not release its security interests or other Liens, if any, in such Office Loans until earlier or the expiration of the Option Exercise Date or the waiver by BUYER of its right to put back such Office Loans to SELLER. In the event that BUYER, in good faith, disagrees with the grade classification of any Office Loan on the books of SELLER as of the Closing Date, BUYER shall notify SELLER in writing of such disagreement and shall provide to SELLER detailed written analysis and support for such disagreement not later than the CutOff Date. Following receipt of such notice, SELLER and BUYER shall select a mutually acceptable third party to analyze and review any such Office Loans and to provide written findings and recommendations as to the proposed classification of such Office Loans, including analysis and support therefor, which findings and recommendations shall be provided to SELLER not later than midnight on the 30th calendar day following receipt by SELLER of such notice. The cost and expense of any such third party review shall be shared equally by BUYER and SELLER, and the findings of such third party review as to the recommended grade of such Office Loans shall be binding upon BUYER and BANK ONE for purposes of this section. (b) Additional Title Documents. SELLER shall prepare and deliver documents of assignment relating to the Office Loans in the form as set forth in Schedule M attached hereto and incorporated herein by reference. BUYER shall prepare and deliver to SELLER all such other and further instruments, agreements, and documents of conveyance (in form and substance satisfactory to SELLER) as shall be reasonably necessary to vest in the BUYER the full legal or equitable title of SELLER in and to the Office Loans; provided, however, that SELLER may, in its discretion, elect to delay the execution and delivery of any such instruments or documents of conveyance until the earlier of the expiration of the Option Exercise Date or the waiver by BUYER of its right to put back such assets to SELLER. BUYER shall be solely responsible for recording any such instruments and documents of conveyance, as well as any intervening assignments, at its own expense. Putback of Office Loans: - ------------------------ (a) BUYER's right to put Office Loans back to SELLER in accordance with this Agreement shall be exercised by the BUYER giving written notice to SELLER as noted below not later than the CutOff Date (for each individual Office Loan) and shall terminate upon the expiration of the Option Exercise Date. Commencing on the Closing Date (for each individual Office Loan), and ending on the CutOff Date, BUYER shall notify SELLER in writing of all Office Loans which BUYER intends to put back to SELLER. Such notice shall specify the Office Loans being put back and the basis for the putback, shall identify any liabilities associated with such Office Loans which were assumed by the BUYER under this Agreement, and shall state the Repurchase Price of the Office Loans put back (specifying the calculation thereof), all in form and substance satisfactory to SELLER. BUYER shall prepare and deliver to SELLER all required instruments of transfer and reconveyance of the Office Loans and any collateral (in form and substance reasonably satisfactory to SELLER) and the documents and instruments evidencing such Office Loans and all Records relating thereto, and BUYER shall take such other reasonable actions as shall be necessary to transfer such Office Loans and any related liabilities and collateral from BUYER to SELLER. (b) BUYER's notice of its intent to put back any Office Loan shall include a calculation of the Repurchase Price for each such Office Loan. Such Repurchase Price shall be determined as of the applicable CutOff Date for such Office Loan. BUYER shall collect and hold any and all monies received in respect of such Office Loan after the CutOff Date for the account of SELLER, and shall remit such monies to SELLER not later that one (1) business day following receipt thereof, together with interest thereon from the date of receipt by BUYER to the date of payment at the Settlement Interest Rate. (c) On the Option Exercise Date, BUYER shall transfer such Office Loans and any related liabilities to SELLER. SELLER shall pay to the BUYER an amount equal to the Repurchase Price for each such Office Loan less the book value (as of the applicable CutOff Date) of any reassumed related liability not later that the Office Loan Settlement Date. (d) It shall be a condition to BUYER's right to put back any Office Loans hereunder that (i) such Office Loans be free and clear of any and all Liens created by, or securing any indebtedness of, BUYER or any of its Affiliates, including, without limitation, any indebtedness of BUYER for liabilities assumed pursuant to this Agreement which are not put back to SELLER, (ii) such Office Loans shall have been serviced in accordance with prudent banking standards and practices and the terms and conditions of such Office Loan until such Office Loans are repurchased by SELLER, (iii) no Disqualifying Event shall have occurred with respect to such Office Loans, (iv) SELLER has received written notice from Banc One that SELLER may put such Office Loans to Banc One and Banc One agrees to accept such put, and (v) Buyer shall have complied with each and every other term, condition, duty, and obligation imposed on BUYER under this Agreement. SELLER, in its sole discretion, may elect to waive any conditions set forth in this subsection. (e) Buyer shall indemnify and shall hold harmless SELLER and its subsidiaries and affiliates and its and their respective officers, directors, employees, agents, and contractors, from and against any and all liability, loss, cost, and expense, including attorney fees, arising directly or indirectly in conjunction with any claims, demands, judgements, or defenses which may be asserted by any borrower or other party as a result of management of the Office Loans which are put back to SELLER in conjunction with this Agreement by BUYER or its affiliates or its or the respective officers, employee, contractors, or agents, including but not limited to actions or inactions in relation thereto occurring between the Closing Date and the date on which SELLER reasserts management and control over the relevant Office Loan. (f) BUYER acknowledges and agrees that the Office Loans which are to be put back to SELLER may not be sold, transferred, pledged, hypothecated, or assigned, in whole or in part, to any third party prior to the Option Exercise Date without the express prior written consent of SELLER. Community Trust Bancorp, Inc. 208 North Mayo Trail Pikeville, Kentucky 41502 January 20, 1998 Robert E. Evans The Peoples Banking and Trust Company 138 Putnam Street Marietta, Ohio 45750 Dear Mr. Evans: This letter agreement (the "Letter Agreement") is being entered into as of the date, and immediately following the execution and delivery of, that certain Office Purchase and Assumption Agreement dated January 20, 1998 (the "P&A Agreement"), by and between The Peoples Banking and Trust Company ("Buyer") and Community Trust Bancorp, Inc., and its designee ("Seller"). Capitalized terms not otherwise defined herein and defined int he P&A Agreement shall have the meanings given them in the P&A Agreement. For good and valuable consideration, the receipt and adequacy of which is acknowledged by the parties hereto, the parties hereby agree that, in addition to the consideration to be paid by Buyer to Seller pursuant to the P&A Agreement, Buyer shall, at the Closing, pay to Seller, in immediately available funds, an amount equal to one percent (1.0%) of the Core Deposits used to determine Acquisition Consideration pursuant to Section 1.4(a)(4) of the P&A Agreement. In witness whereof, the parties hereto acknowledge that this is a binding and enforceable agreement and have executed this Letter Agreement by their duly authorized officer as of the date and year fist above written. Community Trust Bancorp, Inc. By: /s/ BURLIN COLEMAN Burlin Coleman, Chairman and Chief Executive Officer Read and Agreed to: The Peoples Banking and Trust Company By: /s/ ROBERT E. EVANS Robert E. Evans, Chairman and Chief Executive Officer LETTER AGREEMENT This Letter Agreement (the "Agreement") is entered into and effective as of the 4th day of June, 1998, by and between The Peoples Banking and Trust Company, an Ohio banking corporation ("Peoples"), and Community Trust Bancorp, Inc. ("Community Trust"), a Kentucky corporation. Recitals: -------- A.Bank One West Virginia, National Association, Bank One Wheeling-Steubenville, National Association (collectively "Bank One") and Community Trust entered into that certain Office Purchase and Assumption Agreement dated December 30, 1997 and that certain Letter Agreement dated December 30, 1997 pursuant to which Community Trust agreed to purchase, through one or more wholly-owned subsidiary depository institutions, certain assets and liabilities owned and operated by Bank One. B.Community Trust and Peoples entered into that certain Office Purchase and Assumption Agreement dated January 20, 1998 ("P&A Agreement") and that certain Letter Agreement dated January 20, 1998 ("Letter Agreement") pursuant to which Community Trust, through one or more wholly-owned subsidiary depository institutions, agreed to sell, and Peoples agreed to purchase, the assets and liabilities of the Bank One branches located in Point Pleasant and New Martinsville, West Virginia. C.Peoples and Community Trust now desire to enter into this Agreement to modify and amend the terms and conditions of the P&A Agreement and Letter Agreement as provided for herein. Capitalized terms not otherwise defined herein and defined in the P&A Agreement shall have the meanings given them in the P&A Agreement. Agreement: --------- Now, Therefore, the parties hereby agree as follows: 1. Definitions. --------------- 1.1 Bank One Agreement. The term "Bank One Agreement" shall mean that certain agreement between Community Trust and Bank One dated June 4, 1998. 1.2 Closing Acquisition Consideration. The term "Closing Acquisition Consideration" shall mean the Deposit Premium multiplied by the Discounted Closing Deposit Balance. 1.3 Closing Deposit Balance. The term "Closing Deposit Balance" shall mean the average Core Deposits (including interest posted thereto) for the Point Pleasant Branches for the five (5) business day period immediately preceding the Closing Date. 1.4 Deposit Premium. The term "Deposit Premium" shall mean nine and seven tenths percent (9.7%). 1.5 Discounted Closing Deposit Balance. The term "Discounted Closing Deposit Balance" shall mean eighty percent (80%) multiplied by the Closing Deposit Balance. 1.6 Main Branch. The term "Main Branch" shall mean the Point Pleasant Main Branch, Point Pleasant, West Virginia (Bank One branch #1458). 1.7 Mini Branch. The term "Mini Branch" shall mean the Point Pleasant Mini Branch, Point Pleasant, West Virginia (Bank One branch # 1457). 1.8 Mini Branch Closing Date. The term "Mini Branch Closing Date" shall mean May 15, 1998. 1.9 Peoples. The term "Peoples" shall mean The Peoples Banking and Trust Company, an Ohio banking corporation, Marietta, Ohio. 1.10 Point Pleasant Branches. The term "Point Pleasant Branches" shall mean the Main Branch, the Mini Branch and the Point Pleasant North Branch (Bank One branch #1456) located in Point Pleasant, West Virginia and shall, after the Mini Branch Closing Date include the deposits of the Mini Branch consolidated with and into the Point Pleasant Main Branch pursuant to Section 2.2 of this Agreement. 1.11 Post-Closing Adjustment Date. The term "Post-Closing Adjustment Date" shall mean the date ninety (90) days after the Mini-Branch Closing Date. 1.12 Post-Closing Deposit Balance. The term "Post-Closing Deposit Balance" shall mean the average Core Deposits (including interest posted thereto) for the Point Pleasant Branches for the five (5) business day period immediately preceding the Post- Closing Adjustment Date. 2. Actions Regarding Mini Branch. --------------------------------- 2.1 Closing Mini Branch. Anything to the contrary herein notwithstanding, the ATM presently located at the Mini Branch shall remain open and operated by Community Trust, or its predecessor in interest, at its sole option until the earlier of (i) the installation and operation of the ATM at the Main Branch, or (ii) the Closing. 2.2 Mini Branch Employees. All employees of the Mini Branch as of the Mini Branch Closing Date became employees of the Main Branch or the Point Pleasant North Branch. 2.3 ATM Relocation. (a) Notwithstanding anything contained in the P&A Agreement to the contrary, Peoples shall not purchase and is under no obligation to purchase or pay for the ATM currently located in the Mini Branch and Community Trust is under no obligation to transfer and convey such ATM. (b) Community Trust, and Bank One in accordance with the Bank One Agreement, shall, subject to any and all necessary consents, approvals, permits or licenses, fully cooperate with Peoples in the selection of a new site at the Main Branch for the location of either a walk-up ATM or a drive-through ATM. (c) Community Trust shall pay to Peoples $10,000 for the ATM at the Mini Branch not being transferred by Community Trust to Peoples pursuant to the P&A Agreement. Peoples shall purchase the ATM to be located at the Main Branch. Bank One, pursuant to the Bank One Agreement, shall install the ATM to be located at the Main Branch and, except as otherwise provided for herein or in the Bank One Agreement, be solely responsible for all costs associated with such installation. Peoples shall own the ATM installed at the Main Branch. Peoples shall coordinate the purchase of the ATM at the Main Branch with Community Trust to ensure that such ATM is compatible with existing Bank One systems and shall be responsible for the cost of a kiosk in the event that Peoples elects to erect a drive-through ATM. Community Trust or Bank One, in accordance with the Bank One Agreement, shall retain custody and ownership of the ATM located in the lobby of the Mini Branch. 3. Purchase Price Calculations for Point Pleasant Branches. ----------------------------------------------------------- 3.1 Exclusivity of Determination. Notwithstanding anything contained in the P&A Agreement or the Letter Agreement to the contrary, the Acquisition Consideration for the Core Deposits of the Point Pleasant Branches shall be determined solely in accordance with the provisions of this Agreement. 3.2 Closing Date Determinations. On the Closing Date, Peoples shall pay Community Trust the Closing Acquisition Consideration for the Point Pleasant Branches. 3.3 Post-Closing Adjustment. Not more that three (3) business days after the Post-Closing Adjustment Date, Peoples shall deliver to Community Trust a summary of the Deposit Liabilities for the Point Pleasant Branches as of the Post- Closing Adjustment Date and: (a) in the event that the Post-Closing Deposit Balance is more than ninety percent (90%) of the Closing Deposit Balance then Peoples shall pay to Community Trust an amount equal to the Deposit Premium multiplied by the difference between (i) ninety percent (90%) of the Closing Deposit Balance, and (ii) the Discounted Closing Deposit Balance; or (b) in the event that the Post-Closing Deposit Balance is less than or equal to ninety percent (90%) of the Closing Deposit Balance then no adjustment to the Acquisition Consideration shall be made pursuant to this Agreement and no additional payment shall be made by Peoples to Community Trust. 3.4 Additional Consideration. (a) Community Trust and Peoples hereby acknowledge that the additional consideration to be paid by Peoples to Community Trust pursuant to the Letter Agreement shall be equal to one percent (1%) of the Core Deposits on which the Closing Acquisition Consideration is based pursuant to Section 3.2 of this Agreement. (b) Not more than three (3) business days after the Post- Closing Adjustment Date, Peoples shall deliver to Community Trust a summary of the Deposit Liabilities for the Point Pleasant Branches as of the Post-Closing Adjustment Date and: (1) in the event that the Post-Closing Deposit Balance is more than ninety percent (90%) of the Closing Deposit Balance Peoples shall pay to Community Trust an amount equal to one percent (1%) multiplied by the difference between (1) ninety percent (90%) of the Closing Deposit Balance, and (2) the Discounted Closing Deposit Balance; or (2) in the event that the Post-Closing Deposit Balance is less than or equal to ninety percent (90%) of the Closing Deposit Balance then no adjustment to the additional consideration paid by Peoples pursuant to this Section 3.4 and the Letter Agreement shall be made. 4. Cooperative Efforts Regarding Deposit Retention. From the date of this Letter Agreement until and including the Post- Closing Adjustment Date, Community Trust, and Bank One in accordance with the Bank One Agreement, agree to cooperate in good faith with Peoples regarding notifications to employees and customers of the Point Pleasant Branches and community leaders regarding the closing of the Mini Branch, the relocation of the ATM and any other improvements to the Point Pleasant Main Branch. Bank One, in accordance with the Bank One Agreement, shall be solely responsible for all costs associated with employee and customer notifications required in connection with the closing of the Mini Branch. 5. Acknowledgment Regarding P&A Agreement. Notwithstanding anything contained in the P&A Agreement, Community Trust and Peoples hereby acknowledge that the Deposit Liabilities associated with Mini Branch will be (i) consolidated into the Main Branch in accordance with Section 2.2 of the Bank One Agreement, and (ii) transferred to Peoples on the Closing Date in accordance with Section 3 of this Agreement, subject to the terms of the P&A Agreement and Letter Agreement not amended hereby. 6. Covenants. Peoples hereby covenants and agrees that after the Closing Date and through the Post-Closing Adjustment Date Peoples, except as may be otherwise required by a regulatory authority having jurisdiction over Peoples, without the prior written consent of Community Trust, which consent shall not be unreasonably withheld, shall not: (a) cause any Point Pleasant Branch to engage in any material transaction or incur or sustain any obligation which, in the aggregate, is material to such branch's business, condition (financial or otherwise), or operations except in the ordinary course of business (provided, however, that an ATM may be installed as contemplated by Section 2.4); (b) cause any Point Pleasant Branch to transfer to Peoples' other operations any Deposit Liabilities except in the ordinary course of business at the unsolicited request of depositors or cause any of Peoples' other operations to transfer to any Point Pleasant Branch any Deposits Liabilities, except in the ordinary course of business at the unsolicited request of depositors; provided, however, that Peoples shall be permitted to make such transfers of any deposits to or from any Point Pleasant Branch as are in the normal course of business and do not violate the foregoing restrictions; and (c) make any material change to Peoples' policies for setting rates on deposits offered at any offices in the market area of the Point Pleasant Branches except such changes made in response to competitive market pressures or are otherwise agreed upon by Community Trust and Peoples. 7. Continuing Obligations. Except as set forth in this Agreement (i) nothing contained in this Agreement shall be deemed to constitute a release of Peoples from the duties and obligations of Peoples set forth in the P&A Agreement and the Letter Agreement, (ii) nothing contained in this Agreement and the Letter Agreement shall be deemed to constitute a release of Community Trust from the duties and obligations of Community Trust set forth in the P&A Agreement and the Letter Agreement, and (iii) the P&A Agreement and the Letter Agreement shall remain in full force and effect by and between Community Trust and Peoples. In Witness Whereof, the parties have entered into this Agreement as of the date first written above. Community Trust Bancorp, Inc. By: /s/ JEAN R. HALE Jean R. Hale Title: Executive Vice President ("Community Trust") The Peoples Banking and Trust Company By: /s/ ROBERT E. EVANS Robert E. Evans Title: President & CEO ("Peoples") EX-11 3 COMPUTATION OF EARNINGS PER SHARE EXHIBIT 11 - ---------- PEOPLES BANCORP INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE - ------------------------------------- (dollars in thousands, except share data) For the Three For the Six Months Ended Months Ended June 30, June 30, 1998 1997 1998 1997 BASIC EARNINGS PER SHARE ======================== EARNINGS: Net income $2,800 $2,125 $5,176 $4,127 AVERAGE SHARES OUTSTANDING: Weighted average Common Shares outstanding 5,754,541 5,174,951 5,750,750 5,171,895 - ------------------------------------------------------------------------------ BASIC EARNINGS PER SHARE $0.49 $0.41 $0.90 $0.80 ============================================================================== DILUTED EARNINGS PER SHARE ========================== EARNINGS: Net income $2,800 $2,125 $5,176 $4,127 AVERAGE SHARES OUTSTANDING: Weighted average Common Shares outstanding 5,754,541 5,174,951 5,750,750 5,171,895 Net effect of the assumed exercise of stock options based on the treasury stock method 202,733 154,881 196,609 139,322 - ------------------------------------------------------------------------------ Total 5,957,274 5,329,832 5,947,359 5,311,217 - ------------------------------------------------------------------------------ DILUTED EARNINGS PER SHARE $0.47 $0.40 $0.87 $0.78 ============================================================================== * Adjusted for 3-for-2 stock split issued April 30, 1998, to shareholders of record as of April 13, 1998. EX-27 4 FINANCIAL DATA SCHEDULE
9 This schedule contains summary financial information extracted from the Form 10-Q filed as of June 30, 1998. 1,000 6-MOS DEC-31-1998 JAN-01-1998 JUN-30-1998 28,621 3,382 52,750 0 208,962 0 0 533,264 9,171 866,344 615,831 31,370 7,712 44,121 0 0 50,578 31,411 866,344 24,154 5,611 1,334 31,099 12,301 14,851 16,248 1,242 431 10,858 7,787 5,176 0 0 5,176 0.90 0.87 4.58 1,013 478 0 0 8,356 706 279 9,171 9,171 0 1,936
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