UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to ____
Commission file number 0-16772
PEOPLES BANCORP INC.
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(Exact name of Registrant as specified in its charter)
Ohio
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(State or other jurisdiction of incorporation or organization)
31-0987416
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(I.R.S. Employer Identification No.)
138 Putnam Street, P. O. Box 738, Marietta, Ohio 45750
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (740) 373-3155
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Shares,No Par Value (6,499,825 outstanding at February 26, 2001
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based upon the closing price of the Common Shares of the Registrant on The
NASDAQ National Market as of February 26, 2001, the aggregate market value of
the Common Shares of the Registrant held by nonaffiliates on that date was
$103,186,000. For this purpose, certain executive officers and directors are
considered affiliates.
Documents Incorporated by Reference:
Portions of Registrant's definitive Proxy Statement relating to the Annual
Meeting to be held April 12, 2001, are incorporated by reference into Part III
of this Annual Report on Form 10-K.
TABLE OF CONTENTS
PART I Page
Item 1. Business 3
Item 2. Properties 13
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 32
Item 8. Financial Statements and Supplementary Data 32
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 32
PART III
Item 10. Directors and Executive Officers of the Registrant 55
Item 11. Executive Compensation 55
Item 12. Security Ownership of Certain Beneficial Owners and Management 56
Item 13. Certain Relationships and Related Transactions 56
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K 57
Signatures 58
Exhibit Index 59
PART I
ITEM 1. BUSINESS.
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INTRODUCTION
Peoples Bancorp Inc. ("Peoples") was organized as a bank holding company in
1980. At December 31, 2000, Peoples' wholly-owned subsidiaries included Peoples
Bank, National Association ("Peoples Bank") and Northwest Territory Life
Insurance Company. Peoples Bank also owns an insurance agency subsidiary and an
asset management subsidiary.
Peoples operates 40 sales offices in the states of Ohio, West Virginia and
Kentucky. At December 31, 2000, Peoples had total assets of $1.1 billion, total
loans of $737.0 million, total deposits of $757.6 million, and total
stockholders' equity of $83.2 million. At December 31, 2000, Peoples Bank held
approximately $500 million of trust assets (market value). For the year ended
December 31, 2000, Peoples' return on average assets was 1.02% and return on
average stockholders' equity was 14.92%.
Peoples provides an array of financial products and services to its customers
through Peoples Bank, including checking accounts; NOW and Super NOW accounts;
money market deposit accounts; savings accounts; time certificates of deposit;
commercial, installment, and commercial and residential real estate mortgage
loans; credit and debit cards; lease financing; corporate and personal trust
services; and safe deposit rental facilities. Peoples also sells travelers
checks, money orders and cashier's checks. Services are provided through
ordinary walk-in offices, automated teller machines ("ATMs"), automobile
drive-in facilities called "Motor Banks," banking by phone, and Internet-based
banking. Peoples Insurance Agency, Inc. ("Peoples Insurance") offers a complete
line of life and health and property and casualty products. In addition, a full
line of investment products is offered through an unaffiliated registered broker
dealer.
At December 31, 2000, Peoples had 388 full-time equivalent employees (including
27.5 full-time equivalent employees at the parent company level). Peoples'
principal executive office is located at 138 Putnam Street, Marietta, Ohio
45750, and its telephone number is (740) 373-3155. Peoples' common stock is
traded through the NASDAQ National Market System under the symbol PEBO and its
web site is www.peoplesbancorp.com.
In the past five years, Peoples has experienced significant growth in assets and
increased its capital position, primarily through acquisitions as well as
purchases of full-service banking centers and associated assets and liabilities.
For the five-year period ended December 31, 2000, Peoples' assets grew at a
13.0% compound annual growth rate, while stockholders' equity grew at a compound
annual growth rate of 8.2%. Peoples has also had a history of consistent
earnings growth, as earnings per share grew at a compound rate of 6.9% for the
five-year period ended December 31, 2000. Over that same period, Peoples' annual
return on average assets and stockholders' equity averaged 1.18% and 13.83%,
respectively.
Peoples routinely explores opportunities for additional growth and expansion of
its core financial service businesses, including the acquisition of companies
engaged in similar activities. Management also focuses on internal growth as a
method for reaching performance goals and reviews key performance indicators on
a regular basis to measure Peoples' success. There can be no assurance, however,
that Peoples will be able to grow, or if it does, that any such growth or
expansions will result in an increase in Peoples' earnings, dividends, book
value or the market value of its common shares.
Recent Acquisitions and Additions
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On January 26, 2000, Peoples Bank opened a full-service sales office within a
newly constructed Wal-Mart superstore located at 2900 Pike Street, Parkersburg,
West Virginia. This sales office is the third office to open within Wal-Mart
supercenters and offers a wide variety of financial products and services
including ATM access.
On January 2, 2001, Peoples Bank opened a full-service office at 3411 Emerson
Avenue in Parkersburg, West Virginia. The office offers an ATM access as well as
an Internet Cafe, an "Investment Resource Center" complete with a large screen
television, financial magazines and newspapers and a "Home Resource Center" that
provides opportunities for clients to retrieve information from the Internet and
other reference materials regarding buying or renting homes. These areas contain
sales areas where associates can assist clients with all their financial needs.
Effective at the close of business on February 23, 2001, Peoples acquired Lower
Salem Commercial Bank for a total consideration of $2.4 million ($0.9 million in
cash and $1.5 million in common stock). Lower Salem Commercial Bank has one
full-service banking office located in Lower Salem, Ohio and at December 31,
2000, had total assets of $22.9 million, deposits of $18.1 million and
shareholders' equity of $2.2 million. Peoples now operates the former Lower
Salem Commercial Bank as a full-service sales office of Peoples Bank.
CUSTOMERS AND MARKETS
Peoples' service area has a diverse economic structure. Principal industries in
the area include metals, plastics and petrochemical manufacturing; oil, gas and
coal production; and related support industries. In addition, tourism, education
and other service-related industries are important and growing industries.
Consequently, Peoples is not dependent upon any one industry segment for its
business opportunities.
Peoples Bank originates various types of loans, including commercial and
commercial real estate loans, residential real estate loans, home equity lines
of credit, real estate construction loans, and consumer loans (including loans
to individuals, credit card loans, and indirect loans). In general, Peoples Bank
retains most of its originated loans and, therefore, secondary market activity
has been minimal. Loans are spread over a broad range of industrial
classifications. Management believes that it has no significant concentrations
of loans to borrowers engaged in the same or similar industries and it has no
loans to foreign entities. The lending market areas served are primarily
concentrated in southeastern Ohio and neighboring areas of Kentucky and West
Virginia. In addition, loan production offices in central Ohio provide
opportunities to serve customers in that economic region.
Legal Lending Limit
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At December 31, 2000, Peoples Bank had not extended credit to any one borrower
in excess of its legal lending limit of approximately $15.3 million at the time
the loan was closed.
Commercial Loans
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At December 31, 2000, Peoples had approximately $310.6 million in commercial
loans (including commercial, financial and agricultural loans) outstanding,
representing approximately 42.1% of the total aggregate loan portfolio as of
that date.
LENDING PRACTICES. Commercial lending entails significant additional risks as
compared with consumer lending (i.e., single-family residential mortgage
lending, installment lending, credit card loans and indirect lending). In
addition, the payment experience on commercial loans typically depends on
adequate cash flow of a business and thus may be subject, to a greater extent,
to adverse conditions in the general economy or in a specific industry. Loan
terms include amortization schedules commensurate with the purpose of each loan,
the source of repayment and the risk involved. Approval from the Board of
Directors is required for loans to borrowers whose aggregate total debt,
including the principal amount of the proposed loan, exceeds $3.0 million. The
primary analysis technique used in determining whether to grant a commercial
loan is the review of a schedule of cash flows to evaluate whether anticipated
future cash flows will be adequate to service both interest and principal due.
In addition, collateral is reviewed to determine its value in relation to the
loan.
Peoples periodically evaluates all new commercial loans greater in amount than
$250,000 and on an annual basis, all loans greater in amount than $500,000. If
deterioration has occurred, Peoples takes effective and prompt action designed
to assure repayment of the loan. Upon detection of the reduced ability of a
borrower to meet cash flow obligations, the loan is considered an impaired loan
and reviewed for possible downgrading or placement on non-accrual status.
Consumer Loans
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At December 31, 2000, Peoples had outstanding consumer loans (including indirect
loans and credit cards) in an aggregate amount of approximately $122.8 million
or approximately 16.7% of the aggregate total loan portfolio.
LENDING PRACTICES. Consumer loans generally involve more risk as to
collectibility than mortgage loans because of the type and nature of the
collateral and, in certain instances, the absence of collateral. As a result,
consumer lending collections are dependent upon the borrower's continued
financial stability, and thus are more likely to be adversely affected by
employment loss, personal bankruptcy, or adverse economic conditions. Credit
approval for consumer loans requires demonstration of sufficiency of income to
repay principal and interest due, stability of employment, a positive credit
record and sufficient collateral for secured loans. It is the policy of Peoples
to review its consumer loan portfolio monthly and to charge off loans that do
not meet its standards and to adhere strictly to all laws and regulations
governing consumer lending. A qualified compliance officer is responsible for
monitoring performance in this area and for advising and updating loan
personnel.
Peoples Bank makes credit life insurance and health and accident insurance
available to all qualified buyers, thus reducing risk of loss when a borrower's
income is terminated or interrupted. Peoples Bank also offers its customers
credit card access through its consumer lending department.
Real Estate Loans
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At December 31, 2000, Peoples had approximately $303.6 million ($257.2 million,
$26.1 million, and $20.3 million, respectively) of residential real estate
loans, home equity lines of credit and construction mortgages outstanding,
representing 41.2% of total loans outstanding.
LENDING PRACTICES. Peoples requires that the residential real estate loan amount
be no more than 90% of the purchase price or the appraisal value of the real
estate securing the loan, unless private mortgage insurance is obtained by the
borrower for the percentage exceeding 90%. On occasion, Peoples may lend up to
100% of the appraised value of the real estate. The risk conditions of these
loans are considered during underwriting for the purposes of establishing an
interest rate compatible with the risks inherent in mortgage lending and based
on the equity of the home. Loans made in this lending category are generally one
to five year adjustable rate, fully amortized mortgages. Peoples also generates
fixed rate real estate loans and generally retains these loans. All real estate
loans are secured by first mortgages with evidence of title in favor of Peoples
in the form of an attorney's opinion of the title or a title insurance policy.
Peoples also requires proof of hazard insurance with Peoples Bank named as the
mortgagee and as the loss payee. Licensed appraisals are required in the case of
loans in excess of $250,000.
HOME EQUITY LOANS. Home equity lines of credit are generally made as second
mortgages by Peoples Bank. The maximum amount of a home equity line of credit is
generally limited to 80% of the appraised value of the property less the balance
of the first mortgage. Peoples Bank will lend up to 100% of the appraised value
of the property at higher interest rates that are considered compatible with the
additional risk assumed in these types of equilines. The home equity lines of
credit are written with ten-year terms, but are subject to review upon request
for renewal. For the past two years, Peoples Bank has generally charged a fixed
rate on home equity loans for the first five years. At the end of the five-year
period, the equiline reverts to a variable interest rate product.
CONSTRUCTION LOANS. Construction financing is generally considered to involve a
higher degree of risk of loss than long-term financing on improved, occupied
real estate. Risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction and the estimated cost (including interest) of construction. If the
estimate of construction cost proves to be inaccurate, Peoples Bank may be
required to advance funds beyond the amount originally committed to permit
completion of the project.
COMPETITION
Peoples experiences significant competition in attracting depositors and
borrowers. Competition in lending activities comes principally from other
commercial banks, savings associations, insurance companies, governmental
agencies, credit unions, brokerage firms and pension funds. The primary factors
in competing for loans are interest rate and overall lending services.
Competition for deposits comes from other commercial banks, savings
associations, money market funds and credit unions as well as from insurance
companies and brokerage firms. The primary factors in competing for deposits are
interest rates paid on deposits, account liquidity, convenience of office
location and overall financial condition. Peoples believes that its size
provides flexibility, which enables the company to offer an array of banking
products and services. Peoples' financial condition also contributes to a
favorable competitive position in the markets it serves.
Peoples primarily focuses on non-major metropolitan markets in which to provide
products and services. Management believes Peoples has developed a niche and a
certain level of expertise in serving these communities.
Peoples historically has operated under a "needs-based" selling approach that
management believes has proven successful in serving the financial needs of many
customers. Management anticipates that in future periods, Peoples will continue
to increase its investment in sales training and education to assist in the
development of Peoples' associates and their identification of customer service
opportunities.
It is not Peoples' strategy to compete solely on the basis of interest rate.
Management believes that a focus on customer relationships and incentives that
promote customers continued use of Peoples' financial products and services will
lead to enhanced revenue opportunities. Management believes the integration of
traditional financial products with the recent entry into insurance product
offerings will lead to enhanced revenues through complementary product offerings
that satisfy customer demands for high quality, "one-stop shopping."
SUPERVISION AND REGULATION
The following is a summary of certain statutes and regulations affecting Peoples
and its subsidiaries and is qualified in its entirety by reference to such
statutes and regulations:
General
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BANK HOLDING COMPANY. Peoples is a bank holding company under the Bank Holding
Company Act of 1956, which restricts the activities of Peoples and the
acquisition by Peoples of voting stock or assets of any bank, savings
association or other company. Peoples is also subject to the reporting
requirements of, and examination and regulation by, the Federal Reserve Board.
Peoples' subsidiary bank, Peoples Bank, is subject to restrictions imposed by
the Federal Reserve Act on transactions with affiliates, including any loans or
extensions of credit to Peoples or its subsidiaries, investments in the stock or
other securities thereof and the taking of such stock or securities as
collateral for loans to any borrower; the issuance of guarantees, acceptances or
letters of credit on behalf of Peoples and its subsidiaries; purchases or sales
of securities or other assets; and the payment of money or furnishing of
services to Peoples and other subsidiaries. Peoples is prohibited from acquiring
direct or indirect control of more than 5% of any class of voting stock or
substantially all of the assets of any bank holding company without the prior
approval of the Federal Reserve Board. Peoples and Peoples Bank are prohibited
from engaging in certain tying arrangements in connection with extensions of
credit and/or the provision of other property or services to a customer by
Peoples or its subsidiaries.
On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley
Act (better known as or "GLB", or the Financial Services Modernization Act of
1999) which, effective March 11, 2000, permitted bank holding companies to
become financial holding companies and thereby affiliate with securities firms
and insurance companies and engage in other activities that are financial in
nature. A bank holding company may become a financial holding company if each of
its subsidiary banks is well capitalized, is well managed and has at least a
satisfactory rating under the Community Reinvestment Act, by filing a
declaration that the bank holding company wishes to become a financial holding
company. Also effective March 11, 2000, no regulatory approval is required for a
financial holding company to acquire a company, other than a bank or savings
association, engaged in activities that are financial in nature or incidental to
activities that are financial in nature, as determined by the Federal Reserve
Board. While qualified to become a Financial Holding Company, Peoples remains a
bank holding company.
A national bank also may engage, subject to limitations on investment, in
activities that are financial in nature, other than insurance underwriting,
insurance company portfolio investment, real estate development and real estate
investment, through a financial subsidiary of the bank, if the bank is well
capitalized, well managed and has at least a satisfactory Community Reinvestment
Act rating. Peoples decision to reorganize its banking subsidiaries by merging
them into a single national charter was made, in part, in an effort to better
position the Company under GLB. See further discussion of the merger under
"Future Outlook" on page 29.
BANKING SUBSIDIARIES. Peoples Bank is a national banking association chartered
under the National Bank Act and is regulated by the Office of the Comptroller of
the Currency. Peoples Bank provides FDIC insurance on its deposits and is a
member of the Federal Home Loan Bank of Cincinnati.
Federal Deposit Insurance Corporation
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The FDIC insures the deposits of Peoples Bank, which is subject to the
applicable provisions of the Federal Deposit Insurance Act. Insurance of
deposits may be terminated by the FDIC upon a finding that the institution has
engaged in unsafe or unsound practices, is in an unsafe or unsound condition to
continue operations, or has violated any applicable law, regulation, rule, order
or condition enacted or imposed by the bank's regulatory agency.
Federal Home Loan Bank
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The FHLBs provide credit to their members in the form of advances. As a member
of the FHLB of Cincinnati, Peoples Bank must maintain an investment in the
capital stock of that FHLB in an amount equal to the greater of 1% of the
aggregate outstanding principal amount of its respective residential mortgage
loans, home purchase contracts and similar obligations at the beginning of each
year, or 5% of its advances from the FHLB.
Capital Requirements
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FEDERAL RESERVE BOARD. The Federal Reserve Board has adopted risk-based capital
guidelines for bank holding companies. The risk-based capital guidelines include
both a definition of capital and a framework for calculating weighted-risk
assets by assigning assets and off-balance sheet items to broad risk categories.
For further discussion regarding Peoples' risk-based capital requirements, see
Note 13 of the Notes to the Consolidated Financial Statements included in Item 8
of this Form 10-K.
OFFICE OF THE COMPTROLLER OF CURRENCY. National bank subsidiaries, such as
Peoples Bank, are subject to similar capital requirements adopted by the
Comptroller of the Currency.
Limits on Dividends
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Peoples' ability to obtain funds for the payment of dividends and for other cash
requirements largely depends on the amount of dividends declared by Peoples Bank
and Peoples' other subsidiaries. However, the Federal Reserve Board expects
Peoples to serve as a source of strength to Peoples Bank. The Federal Reserve
Board may require Peoples to retain capital for further investment in Peoples
Bank, rather than pay dividends to its shareholders. Peoples Bank may not pay
dividends to Peoples if, after paying those dividends, Peoples Bank would fail
to meet the required minimum levels under the risk-based capital guidelines and
the minimum leverage ratio requirements. Peoples Bank must have the approval
from the Office of the Comptroller of Currency if a dividend in any year would
cause the total dividends for that year to exceed the sum of the current year's
net earnings and the retained earnings for the preceding two years, less
required transfers to surplus. These provisions could limit Peoples' ability to
pay dividends on its outstanding common shares. For further discussion regarding
the payment of dividends by Peoples, see Note 13 of the Notes to the
Consolidated Financial Statements included in Item 8 of this Form 10-K.
Federal and State Laws
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Peoples Bank is subject to regulatory oversight under various consumer
protection and fair lending laws. These laws govern, among other things,
truth-in-lending disclosure, equal credit opportunity, fair credit reporting and
community reinvestment. Failure to abide by federal laws and regulations
governing community reinvestment could limit the ability of a bank to open a new
branch or engage in a merger transaction. Community reinvestment regulations
evaluate how well and to what extent a bank lends and invests in its designated
service area, with particular emphasis on low-to-moderate income communities and
borrowers in such areas.
MONETARY POLICY AND ECONOMIC CONDITIONS
The business of financial institutions is affected not only by general economic
conditions, but also by the policies of various governmental regulatory
agencies, including the Federal Reserve Board. The Federal Reserve Board
regulates money and credit conditions and interest rates in order to influence
general economic conditions primarily through open market operations in U.S.
government securities, changes in the discount rate on bank borrowings, and
changes in the reserve requirements against depository institutions' deposits.
These policies and regulations significantly affect the overall growth and
distribution of loans, investments and deposits, and the interest rates charged
on loans, as well as the interest rates paid on deposits and accounts.
The monetary policies of the Federal Reserve Board have had a significant effect
on the operating results of financial institutions in the past and are expected
to continue to have significant effects in the future. In view of the changing
conditions in the economy and the money markets and the activities of monetary
and fiscal authorities, Peoples can make no definitive predictions as to future
changes in interest rates, credit availability or deposit levels.
EFFECT OF ENVIRONMENTAL REGULATION
Peoples' primary exposure to environmental risk is through its lending
activities. In cases when management believes environmental risk potentially
exists, Peoples mitigates its environmental risk exposures by requiring
environmental site assessments at the time of loan origination to confirm
collateral quality as to commercial real estate parcels posing higher than
normal potential for environmental impact, as determined by reference to present
and past uses of the subject property and adjacent sites. Environmental
assessments are typically required prior to any foreclosure activity involving
non-residential real estate collateral.
In regards to residential real estate lending, management reviews those loans
with inherent environmental risk on an individual basis and makes decisions
based on the dollar amount of the loan and the materiality of the specific
credit.
Peoples anticipates no material effect on capital expenditures, earnings or the
competitive position of itself or any subsidiary as a result of compliance with
federal, state or local environmental protection laws or regulations.
STATISTICAL FINANCIAL INFORMATION REGARDING PEOPLES
The following listing of statistical financial information provides comparative
data for Peoples over the past three and five years, as appropriate. These
tables should be read in conjunction with Item 7 of this Form 10-K
("Management's Discussion and Analysis of Financial Condition and Results of
Operation") and the Consolidated Financial Statements of Peoples and its
subsidiaries found at pages 33 through 54 of this Form 10-K.
Average Balances and Analysis of Net Interest Income:
(Dollars in Thousands) 2000 1999 1998
Average Average Average
Average Income/ Yield/ Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------------- ---------- -------- ----------- ---------- -------- ----------- ---------- --------
Securities (1):
Taxable $ 290,728 $ 20,031 6.89% $ 258,924 $ 16,600 6.41% $ 183,372 $ 11,671 6.36%
Nontaxable (2) 34,927 2,641 7.56% 43,805 3,287 7.50% 34,653 2,677 7.72%
------------- ---------- -------- ----------- ---------- -------- ----------- ---------- --------
Total 325,655 22,672 6.96% 302,729 19,887 6.57% 218,025 14,348 6.58%
------------- ---------- -------- ----------- ---------- -------- ----------- ---------- --------
Loans (3) (4):
Commercial 299,313 27,591 9.22% 247,141 21,515 8.71% 186,746 17,156 9.19%
Real estate 274,668 22,828 8.31% 242,899 20,052 8.26% 234,141 20,176 8.62%
Consumer 124,163 13,044 10.51% 113,635 11,766 10.35% 111,824 11,684 10.45%
Valuation reserve (10,979) (10,121) (9,134)
------------- ---------- -------- ----------- ---------- -------- ----------- ---------- --------
Total 687,165 63,463 9.09% 593,554 53,333 8.83% 523,577 49,016 9.20%
------------- ---------- -------- ----------- ---------- -------- ----------- ---------- --------
Short-term Investments:
Interest-bearing 479 22 4.59% 3,390 143 4.22% 3,967 222 5.60%
deposits
Federal funds sold 142 8 5.63% 5,074 244 4.81% 20,671 1,104 5.34%
------------- ---------- -------- ----------- ---------- -------- ----------- ---------- --------
Total 621 30 4.83% 8,464 387 4.57% 24,638 1,326 5.38%
------------- ---------- -------- ----------- ---------- -------- ----------- ---------- --------
Total earning assets 1,013,441 86,165 8.50% 904,747 73,607 8.14% 766,240 64,690 8.45%
Other assets 77,103 80,496 65,056
============ =========== ===========
Total assets $ 1,090,544 $ 985,243 $ 831,296
============ =========== ===========
Deposits:
Savings $ 83,246 $ 1,964 2.36% $ 95,606 $ 2,290 2.40% $ 97,262 $ 2,764 2.84%
Interest-bearing demand 234,311 10,193 4.35% 213,342 7,560 3.54% 168,035 6,002 3.57%
Time 341,020 19,102 5.60% 321,460 16,106 5.01% 321,920 17,284 5.37%
------------- ---------- -------- ----------- ---------- -------- ----------- ---------- --------
Total 658,577 31,259 4.75% 630,408 25,956 4.12% 587,217 26,050 4.44%
------------- ---------- -------- ----------- ---------- -------- ----------- ---------- --------
Borrowed Funds:
Short-term 99,324 6,162 6.20% 54,394 2,655 4.88% 44,959 2,241 4.98%
Long-term 144,018 7,418 5.15% 114,388 5,647 4.94% 38,885 2,205 5.67%
------------- ---------- -------- ----------- ---------- -------- ----------- ---------- --------
Total 243,342 13,580 5.58% 168,782 8,302 4.92% 83,844 4,446 5.30%
------------- ---------- -------- ----------- ---------- -------- ----------- ---------- --------
Total interest-bearing
liabilities 901,919 44,839 4.97% 799,190 34,258 4.29% 671,061 30,496 4.54%
------------- ---------- -------- ----------- ---------- -------- ----------- ---------- --------
Non-interest bearing
demand deposits 81,205 78,799 70,064
Other liabilities 32,829 26,474 7,904
------------- ----------- -----------
Total liabilities 1,015,953 904,463 749,029
Stockholders' 74,591 80,780 82,267
equity
============= =========== ===========
Total liabilities
and stockholders' $ 1,090,544 $ 985,243 $ 831,296
equity
============= =========== ===========
Interest rate spread $ 41,326 3.53% $ 39,349 3.85% $ 34,194 3.91%
---------- -------- ---------- -------- ----------- --------
Interest income/earning assets 8.50% 8.14% 8.45%
Interest expense/earning assets 4.42% 3.79% 3.98%
======== ======== ========
Net yield on earning assets (net interest 4.08% 4.35% 4.47%
margin)
======== ======== ========
<FN>
(1) Average balances of investment securities based on carrying value.
(2) Computed on a fully tax equivalent basis using a tax rate of 35%. Interest
income was increased by $1,036, $1,261 and $1,046 for 2000, 1999 and 1998,
respectively.
(3) Nonaccrual and impaired loans are included in the average balances listed.
Related interest income on nonaccrual loans prior to the loan being put on
nonaccrual is included in loan interest income.
(4) Loan fees included in interest income for 2000, 1999 and 1998 were $708,
$650 and $551, respectively.
</FN>
Rate Volume Analysis:
(Dollars in Thousands)
Change from 1999 to 2000 (1) Change from 1998 to 1999 (1)
Increase (decrease) in: Volume Rate Total Volume Rate Total
- ------------------------------------------------------------------------------------------------------------------------
Investment income: (2)
Taxable $ 2,134 $ 1,297 $ 3,431 $ 4,843 $ 86 $ 4,929
Nontaxable (671) 25 (646) 689 (79) 610
- ------------------------------------------------------------------------------------------------------------------------
Total 1,463 1,322 2,785 5,532 7 5,539
- ------------------------------------------------------------------------------------------------------------------------
Loan Income
Commercial 4,751 1,325 6,076 5,298 (939) 4,359
Real estate 2,640 136 2,776 739 (863) (124)
Consumer 1,104 174 1,278 212 (130) 82
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Total 8,495 1,635 10,130 6,249 (1,932) 4,317
- ------------------------------------------------------------------------------------------------------------------------
Short-term investments (408) 51 (357) (789) (150) (939)
- ------------------------------------------------------------------------------------------------------------------------
Total interest income 9,550 3,008 12,558 10,992 (2,075) 8,917
========================================================================================================================
Interest expense:
Savings (292) (34) (326) (47) (427) (474)
Interest-bearing 794 1,839 2,633 1,606 (48) 1,558
demand deposits
Time 1,019 1,977 2,996 (25) (1,153) (1,178)
Short-term borrowings 2,641 866 3,507 461 (48) 413
Long-term borrowings 1,517 254 1,771 3,762 (320) 3,442
- ------------------------------------------------------------------------------------------------------------------------
Total interest expense 5,679 4,902 10,581 5,757 (1,996) 3,761
========================================================================================================================
$ 3,871 $ (1,894) $ 1,977 $ 5,235 $ (79) $ 5,156
========================================================================================================================
<FN>
(1)The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the dollar
amounts of the change in each.
(2) Presented on a fully tax equivalent basis.
</FN>
Loan Maturities at December 31, 2000:
Due in
(Dollars in Thousands) One Year Due
Due in Through After
One Year Five Five
Loan Type Or Less Years Years Total
Commercial loans:
Fixed $ 31,705 $ 38,629 $ 15,639 $ 85,973
Variable 74,822 46,314 103,449 224,585
- -------------------------------------------------------------------------------
106,527 84,943 119,088 310,558
===============================================================================
Real estate loans:
Fixed 12,552 45,886 60,460 118,898
Variable 54,784 67,761 62,147 184,692
- -------------------------------------------------------------------------------
67,336 113,647 122,607 303,590
===============================================================================
Consumer loans:
Fixed 46,795 65,042 1,710 113,547
Variable 8,065 849 356 9,270
- -------------------------------------------------------------------------------
54,860 65,891 2,066 122,817
===============================================================================
Total $ 228,723 $ 264,481 $ 243,761 $ 736,965
===============================================================================
Loan Portfolio Analysis:
(Dollars in Thousands)
Year-end balances: 2000 1999 1998 1997 1996
Commercial, financial and agricultural $ 310,558 $ 272,219 $ 212,530 $ 159,035 $ 127,927
Real estate 283,323 252,427 233,550 228,689 175,505
Real estate, construction 20,267 14,067 10,307 19,513 9,944
Consumer 115,913 114,412 104,718 107,158 102,044
Credit card 6,904 6,708 6,812 7,175 6,993
- -----------------------------------------------------------------------------------------------------------------
Total $ 736,965 $ 659,833 $ 567,917 $ 521,570 $ 422,413
- -----------------------------------------------------------------------------------------------------------------
Average total loans 698,144 603,922 532,711 468,229 400,264
Average allowance for loan losses (10,979) (10,121) (9,134) (7,521) (6,799)
- -----------------------------------------------------------------------------------------------------------------
Average loans, net of allowance $ 687,165 $ 593,801 $ 523,577 $ 460,708 $ 393,465
- -----------------------------------------------------------------------------------------------------------------
Allowance for loan losses, January 1 $ 10,264 $ 9,509 $ 8,356 $ 6,873 $ 6,726
Allowance for loan losses acquired -- -- -- 290 --
Loans charged off:
Commercial, financial and agricultural 780 306 101 354 342
Real estate 74 77 46 42 93
Consumer 1,018 932 1,220 1,258 1,726
Credit card 189 203 278 263 168
- -----------------------------------------------------------------------------------------------------------------
Total 2,061 1,518 1,645 1,917 2,329
- -----------------------------------------------------------------------------------------------------------------
Recoveries:
Commercial, financial and agricultural 78 44 55 124 36
Real estate 2 23 13 6 75
Consumer 303 304 378 374 391
Credit card 22 24 27 17 9
- -----------------------------------------------------------------------------------------------------------------
Total 405 395 473 521 511
- -----------------------------------------------------------------------------------------------------------------
Net chargeoffs:
Commercial, financial and agricultural 702 262 46 230 306
Real estate 72 54 33 36 18
Consumer 715 628 842 884 1,335
Credit card 167 179 251 246 159
- -----------------------------------------------------------------------------------------------------------------
Total 1,656 1,123 1,172 1,396 1,818
- -----------------------------------------------------------------------------------------------------------------
Provision for loan losses, December 31 2,322 1,878 2,325 2,589 1,965
- -----------------------------------------------------------------------------------------------------------------
Allowance for loan losses, December 31 $ 10,930 $ 10,264 $ 9,509 $ 8,356 $ 6,873
=================================================================================================================
Allocation of allowance for loan losses at December 31:
Commercial $ 5,992 $ 5,164 $ 3,757 $ 3,147 $ 2,741
Real estate 1,112 1,557 1,453 1,478 1,050
Consumer 2,701 2,161 2,556 2,255 2,078
Credit card 432 434 628 395 131
Unallocated 693 948 1,115 1,081 873
- -----------------------------------------------------------------------------------------------------------------
Total $ 10,930 $ 10,264 $ 9,509 $ 8,356 $ 6,873
=================================================================================================================
Percent of loans to total loans at December 31:
Commercial 42.1% 41.3% 37.4% 30.5% 30.3%
Real estate 38.4 38.3 41.1 43.8 41.5
Real estate, construction 2.8 2.1 1.9 3.8 2.3
Consumer 15.8 17.3 18.4 20.5 24.2
Credit card 0.9 1.0 1.2 1.4 1.7
- -----------------------------------------------------------------------------------------------------------------
Total 100.0% 100.0% 100.0% 100.0% 100.0%
=================================================================================================================
(Dollars in Thousands) 2000 1999 1998 1997 1996
Ratio of net chargeoffs to average total loans:
Commercial 0.10% 0.04% 0.01% 0.05% 0.08%
Real estate 0.01 0.01 0.01 0.01 0.00
Consumer 0.10 0.11 0.16 0.19 0.33
Credit card 0.02 0.03 0.04 0.05 0.04
- ---------------------------------------------------------------------------------------------------
Total 0.23% 0.19% 0.22% 0.30% 0.45%
- ---------------------------------------------------------------------------------------------------
Nonperforming assets:
Loans 90+ days past due 344 249 495 462 621
Renegotiated loans 518 747 392 -- --
Nonaccrual loans 4,280 1,109 687 1,220 999
- ---------------------------------------------------------------------------------------------------
Total nonperforming loans 5,142 2,105 1,574 1,682 1,620
Other real estate owned 86 207 396 19 28
- ---------------------------------------------------------------------------------------------------
Total nonperforming assets 5,228 2,312 1,970 1,701 1,648
- ---------------------------------------------------------------------------------------------------
Nonperforming loans as a percent of total loans 0.70% 0.32% 0.28% 0.32% 0.38%
- ---------------------------------------------------------------------------------------------------
Nonperforming assets as a percent of total assets 0.46% 0.21% 0.22% 0.22% 0.27%
- ---------------------------------------------------------------------------------------------------
Nonperforming loans are comprised of loans 90 days or more past due,
renegotiated loans and nonaccrual loans. Nonperforming assets are comprised of
nonperforming loans and other real estate owned.
Interest income on nonaccrual and renegotiated loans that would have been
recorded under the original terms of the loans for 2000, 1999 and 1998 was $204
(of which $32 was actually recorded), $102 (of which $66 was actually recorded)
and $59 (of which $30 was actually recorded), respectively.
Maturities of Certificates of Deposit $100,000 or More:
(Dollars in Thousands) 2000 1999 1998 1997
Under 3 months $ 17,430 $ 12,261 $ 19,121 $ 13,302
3 to 6 months 6,871 8,275 14,335 24,069
6 to 12 months 16,639 23,174 9,189 9,520
Over 12 months 24,209 11,872 9,262 10,698
- ------------------------------------------------------------------------------
Total $ 65,149 $ 55,582 $ 51,907 $ 57,589
- ------------------------------------------------------------------------------
ITEM 2. PROPERTIES
- -------------------
Peoples' sole banking subsidiary, Peoples Bank, generally owns its offices,
related facilities and unimproved real property. Peoples Bank operates offices
in Marietta (4 offices), Belpre (2 offices), Lowell, Lower Salem, Reno,
Nelsonville (2 offices), Athens (3 offices), The Plains, Middleport, Rutland,
Pomeroy (2 offices), Gallipolis, Caldwell, Chesterhill, McConnelsville,
Baltimore, Lancaster and Granville, Ohio. In West Virginia, Peoples operates
offices in Huntington, Parkersburg (3 offices), Vienna, Point Pleasant (2
offices), New Martinsville (2 offices) and Steelton. Office locations in
Kentucky include Catlettsburg, Grayson, Ashland and Russell.
Peoples Bank operates through 40 banking offices of which 11 are leased and the
rest are owned. Rent expense on the leased properties totaled $210,000 in 2000.
The following is a list of those properties that have leases expiring on or
before June 2002:
Location Address Lease Expiration Date
- --------------------------------------------------------------------------------
The Plains Office 70 North Plains Road, Suite 101 June 2001
The Plains OH 45750
Lancaster Lending Office 117 West Main Street October 2001
Lancaster OH 43130
Athens Mall Office 801 East State Street June 2002
Athens OH 45701
Additional information concerning the property and equipment owned or leased by
Peoples and its subsidiaries is incorporated herein by reference from Note 5 of
the Notes to the Consolidated Financial Statements included in Item 8 of this
Form 10-K.
ITEM 3. LEGAL PROCEEDINGS.
- ---------------------------
There are no pending legal proceedings to which Peoples or any of its
subsidiaries is a party or to which any of their property is subject other than
ordinary routine litigation to which Peoples' subsidiaries are parties
incidental to their respective businesses. Peoples considers none of such
proceedings to be material.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
- -------------------------------------------------------------
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
- ------------------------------------------------------------------------
The table presented below sets forth the high and low bids for the indicated
periods, and the cash dividends declared, with respect to Peoples' common
shares.
Quarterly Market and Dividend Information
PER SHARE
High Bid Low Bid Dividend
2000
Fourth Quarter $ 15.25 $ 12.00 $ 0.14
Third Quarter 15.25 13.00 0.14
Second Quarter 18.00 13.00 0.14
First Quarter $ 19.77 $ 15.75 $ 0.14
- ---------------------------------------------------------------------------
1999
Fourth Quarter $ 24.89 $ 17.95 $ 0.13
Third Quarter 27.27 24.32 0.13
Second Quarter 25.45 18.28 0.13
First Quarter $ 21.28 $ 18.28 $ 0.12
- ---------------------------------------------------------------------------
1998
Fourth Quarter $ 22.52 $ 17.77 $ 0.12
Third Quarter 25.52 20.25 0.11
Second Quarter 29.07 24.38 0.11
First Quarter $ 24.65 $ 21.63 $ 0.11
- ---------------------------------------------------------------------------
Peoples' common shares are traded on The NASDAQ National Market under the symbol
PEBO. Bid information has been obtained directly from The NASDAQ National
Market.
Peoples plans to continue to pay quarterly cash dividends, subject to certain
regulatory restrictions described in Note 13 to the Consolidated Financial
Statements included in Item 8.
The bid information and per share dividends have been retroactively adjusted for
a 10% stock dividend issued on March 14, 2000, a 10% stock dividend issued on
June 15, 1999, and a 3-for-2 stock split effective April 30, 1998.
Peoples had 1,198 stockholders of record at December 31, 2000.
ITEM 6. SELECTED FINANCIAL DATA.
- ---------------------------------
The information below has been derived from Peoples' Consolidated Financial
Statements.
(Dollars in Thousands, except Ratios and Per Share Data)
2000 1999 1998 1997 1996
Operating Data For the year ended:
Total interest income ................... $ 85,129 $ 72,346 $ 63,645 $ 53,836 $ 47,397
Total interest expense .................. 44,839 34,258 30,497 25,216 21,966
Net interest income ..................... 40,290 38,088 33,148 28,620 25,431
Provision for loan losses ............... 2,322 1,878 2,325 2,589 1,965
Gains (losses) on securities transactions 10 (104) 418 (28) 48
Other income ............................ 8,918 7,633 6,820 5,966 5,130
Intangible amortization expense ......... 2,284 2,639 2,093 1,138 625
Other expense ........................... 28,778 25,558 21,183 18,127 16,897
Net income .............................. $ 11,126 $ 10,718 $ 10,045 $ 8,605 $ 7,651
- -----------------------------------------------------------------------------------------------------------------
Balance Sheet Data
At year end:
Total assets ............................ $ 1,135,834 $ 1,075,450 $ 880,284 $ 758,158 $ 616,635
Total intangibles ....................... 17,848 20,154 22,117 12,796 6,433
Investment securities ................... 330,521 328,306 235,569 174,291 147,783
Net loans ............................... 726,035 649,569 558,408 513,214 415,540
Total deposits .......................... 757,621 728,207 714,168 611,107 504,692
Long-term borrowings .................... 138,511 150,338 40,664 28,577 29,200
Stockholders' equity .................... 83,194 72,874 86,014 78,818 56,193
Tangible assets (1) ..................... 1,117,986 1,055,296 858,167 745,362 610,202
Tangible equity (2) ..................... $ 65,346 $ 52,720 $ 63,897 $ 66,022 $ 49,760
- -----------------------------------------------------------------------------------------------------------------
Significant Ratios
Cash earnings to: (3)
Average tangible assets (4) ........ 1.19% 1.30% 1.41% 1.42% 1.37%
Average tangible equity (4) ........ 22.90 20.96 17.82 18.00 16.58
Net income to:
Average total assets ............... 1.02 1.09 1.20 1.29 1.29
Average stockholders' equity ....... 14.92 13.27 12.21 14.33 14.43
Average stockholders' equity
to average total assets ............ 6.8 8.2 9.9 9.0 8.9
Average loans to average deposits ....... 94.4 85.1 80.9 85.5 84.0
Risk-based capital ratio ................ 14.21 14.30 11.95 14.34 12.86
Dividend payout ratio ................... 33.1% 31.8% 30.4% 30.5% 30.5%
- -----------------------------------------------------------------------------------------------------------------
Per Share Data
Cash earnings: (3)
Basic .............................. $ 1.95 $ 1.83 $ 1.65 $ 1.48 $ 1.29
Diluted ............................ 1.93 1.79 1.60 1.44 1.28
Net income:
Basic .............................. 1.71 1.57 1.44 1.37 1.23
Diluted ............................ 1.69 1.53 1.40 1.32 1.21
Cash dividends paid ..................... 0.56 0.50 0.44 0.41 0.36
Book value at end of period ............. $ 12.81 $ 11.06 $ 12.39 $ 11.33 $ 8.99
Weighted average shares outstanding:
Basic .............................. 6,523,808 6,846,071 6,975,989 6,303,782 6,239,589
Diluted ............................ 6,600,160 7,023,921 7,186,616 6,502,386 6,324,294
- -----------------------------------------------------------------------------------------------------------------
<FN>
(1) Total assets less goodwill and core deposit intangibles.
(2) Total stockholders' equity less goodwill and core deposit intangibles.
(3) Excludes after-tax amortization of goodwill and core deposit intangibles.
(4) Defined as cash earnings as a percentage of average total assets or average
stockholders' equity minus average goodwill and core deposit intangibles.
</FN>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION.
- --------------------------------------------------------------------------------
INTRODUCTION
The following discussion and analysis of the Consolidated Financial Statements
of Peoples is presented to provide insight into management's assessment of the
financial results. Peoples' subsidiaries are Peoples Bank, National Association
("Peoples Bank") and Northwest Territory Life Insurance Company, an Arizona
corporation that reinsures credit life and disability insurance issued to
customers of Peoples' banking subsidiary. Peoples Bank also operates Peoples
Insurance Agency, Inc. ("Peoples Insurance"), which offers a full range of life,
property, and casualty insurance products to customers in Peoples' markets, and
Peoples Loan Services, Inc. ("PLS"), which manages a portion of Peoples' loan
portfolio.
Peoples Bank 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"). Peoples Bank offers complete financial products and services
through 40 financial service locations and 27 ATMs in the states of Ohio, West
Virginia, and Kentucky. Peoples Bank's e-banking service is Peoples OnLine
Connection, and can be found on the Internet at www.peoplesbancorp.com. Peoples
Bank provides an array of financial products and services to customers that
include traditional banking products such as deposit accounts, lending products,
credit and debit cards, corporate and personal trust services, and safe deposit
rental facilities. Peoples Insurance also offers investment and insurance
products. Peoples provides services through ordinary walk-in offices and
automobile drive-in facilities, automated teller machines, banking by phone, and
the Internet.
Peoples Bank also makes available other financial services through Peoples
Investments, which provides customer-tailored solutions for fiduciary needs,
investment alternatives, and asset management needs (securities are offered
exclusively through Raymond James Financial Services, member NASD/SIPC and an
independent broker/dealer, located at Peoples Bank).
This discussion and analysis should be read in conjunction with the audited
Consolidated Financial Statements and footnotes and the ratios and statistics
contained elsewhere in the Form 10-K.
References will be found in this Form 10-K to the following transactions that
have impacted or will impact Peoples' results of operations:
On April 20, 1999, Peoples sold, through PEBO Capital Trust I (a newly
formed subsidiary) $30.0 million of 8.62% Capital Securities ("Capital
Securities" or "Trust Preferred Securities"). The proceeds were used by the
PEBO Capital Trust I to purchase, from Peoples, Junior Subordinated
Deferrable Interest Debentures due May 1, 2029. In late April 1999, Peoples
invested $10.0 million in Peoples Bank. The remaining proceeds were used
for general corporate purposes, including the repurchase of a portion of
Peoples' outstanding common shares.
On December 10, 1999, Peoples announced approval to repurchase 165,000
shares (or approximately 2.5% of Peoples' outstanding common shares) from
time to time in open market or privately negotiated transactions ("2000
Stock Repurchase Program"). During 2000, Peoples repurchased approximately
101,000 common shares authorized under the 2000 Stock Repurchase Program
that expired on December 31, 2000.
On January 12, 2001, Peoples announced approval to repurchase 125,000
shares (or approximately 2% of Peoples' outstanding common shares) from
time to time in open market or privately negotiated transactions ("2001
Stock Repurchase Program"). The 2001 Stock Repurchase Program will expire
on December 31, 2001.
The combination of the issuance of Capital Securities in 1999 and the Stock
Repurchase Programs has impacted and will continue to impact several key
performance indicators of Peoples' future financial results. The impact, where
significant, is discussed in the applicable sections of this Management's
Discussion and Analysis.
OVERVIEW OF THE INCOME STATEMENT
Peoples had net income of $11,126,000 in 2000, an increase of $408,000 (or 3.8%)
from $10,718,000 in 1999. On a diluted basis, earnings per share reached $1.69
in 2000, up $0.16 (or 10.5%) compared to the previous year. Peoples' core
earnings increased due to net interest income growth and non-interest revenue
enhancements. Return on average equity in 2000 totaled 14.92% compared to 13.27%
in 1999. Return on average assets was 1.02% in 2000 compared to 1.09% the
previous year. Diluted cash earnings per share for the year ended December 31,
2000, was $1.93, up $0.14 (or 7.8%) from $1.79 in diluted cash earnings per
share in 1999. Cash earnings removes the after-tax impact of intangible
amortization expense. Return on tangible assets decreased to 1.19% in 2000
compared to 1.30% in 1999. Return on tangible assets is defined as cash earnings
as a percentage of average total assets minus goodwill and core deposit
intangibles. Return on tangible equity improved to 22.90% in 2000 compared to
20.96% last year. Return on tangible equity is defined as cash earnings as a
percentage of average total stockholders' equity minus goodwill and core deposit
intangibles.
Due to earning asset growth, net interest income in 2000 increased $2,202,000
(or 5.8%) to $40,290,000. The provision for loan losses in 2000 totaled
$2,322,000, an increase of $444,000 compared to 1999 as a result of increased
loan volume, less favorable loss experience, and general economic slowdowns in
Peoples' markets. Bolstered by growth in deposit account service charges and
insurance and investment commissions, non-interest income, excluding securities
and asset disposal gains, increased $1,427,000 (or 18.8%) to $9,027,000. In
2000, Peoples reported net gains on securities transactions of $10,000 compared
to net losses of $104,000 in 1999. In 2000, non-interest expense increased
$2,865,000 (or 10.2%) to $31,062,000 in part as a result of investments designed
to make financial services more convenient, flexible, and speedy for clients.
Peoples has grown through acquisitions accounted for as purchase transactions
which results in the amortization expense related to intangibles and affects
earnings per share as well as other performance ratios. Because of the impact of
purchase accounting and the related intangible amortization expense on Peoples'
results of operation, management also uses "cash earnings," which removes the
after-tax impact of intangible amortization expense, to evaluate the impact of
acquisitions on profitability and Peoples' return on its investment.
The discussion of cash earnings is also included in financial reporting to
facilitate the comparison of Peoples' results of operations to competitors
making acquisitions using pooling of interests accounting. Return on tangible
assets and return on tangible equity removes the after-tax impact of intangible
amortization expense and the balance sheet impact of average intangibles. In
2000, intangible amortization expense totaled $2,284,000 ($1,601,000 after
taxes) compared to $2,639,000 ($1,833,000 after taxes) last year. Due to
amortization, average balance sheet intangibles decreased to $19.0 million in
2000 compared to $20.9 million in 1999.
INTEREST INCOME AND EXPENSE
Net interest income, the amount by which interest income on earning assets
exceeds interest paid on interest-bearing liabilities, remains Peoples' primary
source of revenue. Interest-earning assets include loans and investment
securities while interest-bearing liabilities include interest-bearing deposits
and borrowed funds. Changes in market interest rates, as well as adjustments in
the mix of interest-earning assets and interest-bearing liabilities, impacted
net interest income in 2000.
Increased net interest income in 2000 resulted from balance sheet growth, due to
strong internal loan growth, and was the driving force behind Peoples' record
profits. Net interest income grew to $40,290,000 in 2000, compared to
$38,088,000 in 1999, an increase of $2,202,000 (or 5.8%). Total interest income
reached $85,129,000 while interest expense totaled $44,839,000. In 1999, Peoples
initiated an asset growth strategy to offset the costs to service the Trust
Preferred Securities, thereby leveraging Peoples' increased regulatory capital
levels ("Leverage Strategy"). The Leverage Strategy increased Peoples' earnings
asset base approximately $150 million and was funded primarily by FHLB
borrowings and other wholesale funding sources. The Leverage Strategy was
implemented throughout the second quarter of 1999 and was completed on June 30,
1999. While total asset levels were maintained and even grown in 2000, most of
the principal runoff from the investment portfolio was used to fund loan growth.
Average total earning assets reached $1.01 billion in 2000, a $109 million (or
12.0%) increase over 1999. Average loans, the largest earning asset component on
Peoples' balance sheet, grew $94.5 million (or 15.6%) in 2000. Due to the impact
of Peoples' Leverage Strategy, Peoples' average balances of investment
securities increased $23.0 million from $302.7 million in 1999 to $325.7 million
in 2000.
Included in interest income is $1,924,000 of tax-exempt income from investments
issued by and loans made to 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. The FTE yield on earning assets was 8.50%
in 2000, compared to 8.14% in 1999 while the cost of interest-bearing
liabilities increased 68 basis points to 4.97%.
Net interest margin is calculated by dividing FTE net interest income by average
interest-earning assets and serves as a measurement of the net revenue stream
generated by the mix and pricing of assets and liabilities from Peoples' balance
sheet. In 2000, net interest margin was 4.08% compared to 4.35% in 1999. Net
interest margin decreased in 2000 due to interest rate compression between loan
pricing and funding source costs, primarily as a result of rising interest rates
on short-term funding sources. Peoples' reliance on short-term funding has
increased due to recent loan growth. Peoples' management anticipates that net
interest margin could continue to be pressured in early 2001, although recent
interest rate reductions by the Federal Reserve are expected to result in
improved net interest margin later in 2001.
The increase in Peoples' earning asset yield, which rose to 9.09% in 2000
compared to 8.83% in 1999, is primarily attributable to the increase in Peoples'
loan portfolio yield and the mix of loans as a percent of earning assets.
Peoples also saw improvement in its investment portfolio yield, which increased
39 basis points to 6.96% in 2000.
The largest dollar volume of interest-bearing liabilities is deposits where
interest costs increased 63 basis points to 4.75% in 2000. The most significant
component of interest expense in 2000 was interest paid on time deposits
(Certificates of Deposits and Individual Retirement Accounts). In 2000, Peoples
paid interest of $19,102,000, or 5.60%, on average time deposit balances of
$341.0 million. In 1999, the average rate paid on time deposits was 5.01% on
balances of $321.5 million.
The increased deposit costs in 2000 resulted from the upward repricing of the
high dollar volume of Peoples' interest-bearing customer funding sources such as
certificates of deposit and money market accounts. Management expects deposit
pricing to be increasingly competitive and continues to focus its efforts toward
increasing balances in non-interest bearing demand deposits, which grew, on
average, $2.4 million to $81.2 million in average balances, and other lower cost
deposit products.
In addition to core deposit growth, Peoples continued to use a combination of
short-term and long-term borrowings as funding sources to fuel loan growth in
2000. The cost of borrowed funds increased 66 basis points to 5.58% in 2000.
Costs of borrowed funds have increased due to recent rises in market interest
rates as well as repricing of certain FHLB borrowings
Peoples' cash management services, offered to a variety of business customers,
have provided short-term funding in the form of rate sensitive overnight
repurchase agreements. In 2000, Peoples' average balances of these overnight
repurchase agreements (excluding balances of national market repurchase
agreements available through wholesale funding sources) increased $1.0 million
to $31.2 million. The average rate paid in 2000 on overnight repurchase
agreements totaled 5.39%, up 110 basis points from the prior year's average rate
of 4.29%. Average total overnight repurchase agreements comprised a significant
portion of Peoples' short-term borrowings. In late 1999 and continuing in 2000,
Peoples accessed national market repurchase agreements in an effort to diversify
Peoples' short-term funding sources as well as take advantage of marginally
attractive short-term financing rates. National market repurchase agreements
averaged $27.5 million in 2000 at an average rate of 6.37% compared to $18.6
million and an average rate of 5.69% in 1999.
Peoples also continued to use short-term FHLB advances to fund its earning
assets in 2000. Average short-term FHLB balances increased from $5.5 million in
1999 to $40.5 in 2000. Interest costs on these short-term borrowings grew to
$2,696,000, at an average rate of 6.55%, compared to $296,000, at an average
rate of 5.40%, in 1999. Management will continue to use short-term FHLB
borrowings as a funding source for earning assets when appropriate.
Long-term borrowing costs, which represent the largest average volume of
borrowed fund costs, also increased compared to 1999. The rate paid on average
long-term borrowings totaled 5.15% in 2000, up 21 basis points compared to 4.94%
in 1999. The majority of Peoples' long-term borrowings are fixed rate FHLB
borrowings with a call feature. Management plans to maintain access to long-term
FHLB borrowings, with appropriate repricing characteristics, as a funding
source.
PROVISION FOR LOAN LOSSES
In 2000, Peoples recorded a provision for loan losses of $2,322,000, compared to
1999's expense of $1,878,000. The provision is based upon management's
continuing evaluation of the adequacy of the allowance for loan losses and is
reflective of the volume concentrations, quality of the portfolio, and overall
management assessment of the inherent credit risk.
As a result of continuing anticipated loan growth, trends in losses and
delinquencies, and recent slowdowns affecting the economy, management
anticipates that loan loss provision will increase in the first quarter of 2001
compared to recent quarterly expense of $600,000. Loan loss provision after the
first quarter of 2001 will be dependent on loan delinquencies, portfolio risk,
overall loan growth, general economic conditions in Peoples' markets and other
factors management considers in evaluating the adequacy of the allowance.
Further information can be found later in this discussion under "Allowance for
Loan Losses."
NON-INTEREST INCOME
Peoples' non-interest income is generated from four primary sources: service
charges on deposit accounts, income derived from fiduciary activities, insurance
and investment commissions, and electronic banking revenues. During 2000,
Peoples' CONNECTIONS sales process, aimed at enhancing client service through
integrated, relationship-based selling initiatives, continued as the focal point
of the consolidated marketing activity to targeted customers and prospects. This
focus has led to loan and deposit growth, as well as increases in non-interest
income. Non-interest income from operations (excluding securities and asset
disposal transactions) reached new levels in 2000, totaling $9,027,000, an
increase of $1,427,000 (or 18.8%) compared to 1999.
Peoples' service charge income on deposit accounts is based on the recovery of
costs associated with services provided. Fee income generated from deposit
accounts totaled $3,243,000 in 2000, an increase of $513,000 (or 18.8%) compared
to $2,730,000 in 1999. Most of the increases are attributable to increases in
the volume of overdrafts and non-sufficient fund fees, as well as growth in
income generated from deposit services for business customers.
Income from fiduciary activities, which is based primarily on the market value
of assets being managed, totaled $2,608,000 in 2000, down $26,000 (or 1.0%) from
1999's total of $2,634,000. At December 31, 2000, Peoples Bank's Investment and
Trust Division managed assets with a market value of approximately $500 million
down from $560 million at year-end 1999 due primarily to the U.S. stock market
correction in 2000. Peoples continues to focus on strengthening its position in
its core markets in order to increase the number of clients served. Management
believes fiduciary revenues will continue to be significant contributors to
Peoples' non-interest income in the future.
In addition to traditional sources of non-interest income, Peoples also offers a
complete line of insurance and investment products through Peoples Insurance and
Peoples Investments. Management believes these services are integral to Peoples'
relationship and needs-based sales philosophy. Commissions on insurance and
securities sales generated revenues of $1,283,000 in 2000, a $787,000 (or 159%)
increase over the previous year. Peoples' life insurance and annuity sales
accounted for a majority of the revenue growth with property and casualty
insurance commission revenues also increasing during the last half of 2000 as
Peoples Insurance client service teams continue to expand the number of clients
served.
Peoples offers credit life and disability insurance, as well as life and
property insurance to consumers in Ohio and West Virginia. Insurance products
are underwritten by various insurance companies and are made available through
licensed insurance agency affiliates of Peoples.
Peoples Investments offers clients asset management services, corporate bonds,
municipal bonds, portfolio evaluation, asset allocation, tax shelters, unit
trusts, common/preferred stocks, government securities, mutual funds, retirement
planning, estate planning, tax-exempt securities, annuities, and financial
planning services. Securities are offered exclusively through Raymond James
Financial Services, member NASD/SIPC and an independent broker/dealer, located
at many of Peoples' sales offices.
Electronic banking, which includes ATM and debit card services, direct deposit
services, and Internet banking, is one of the many delivery channels offered by
Peoples to provide products and services to customers. In 2000, electronic
banking revenues totaled $1,220,000, an increase of $187,000 (or 18.1%) compared
to the same period last year. The increased revenues are due primarily to growth
in the number of debit card users as well as corresponding volume increases in
debit card usage. Management will continue to focus on electronic banking as a
source of revenue as the financial services industry develops additional
e-commerce capabilities.
Management believes the recent growth in non-interest income reflects the
success of Peoples' associates in professionally and quickly serving client
needs. Management expects non-interest income will increase modestly in 2001 due
to sustained insurance and investment revenue growth. Other traditional and
non-traditional financial service products and delivery channels are evaluated
regularly for potential inclusion in Peoples' product mix as management
continues to explore new methods of enhancing non-interest income.
GAIN (LOSS) ON SECURITIES TRANSACTIONS
Peoples recorded net gains on securities transactions of $10,000 in 2000
compared to net losses of $104,000 the previous year. The net gains in 2000 were
the result of normal portfolio management while the net losses in 1999 were due
to Peoples repositioning its investment portfolio to improve pledging
capabilities.
(LOSS) GAIN ON ASSET DISPOSALS
In 2000, losses on asset disposals, net of disposal gains, totaled $109,000
compared to net gains of $9,000 last year. In mid-2000, Peoples invested in a
larger central processing unit, causing the increased net losses on asset
disposals. Management believes the investment will enhance Peoples' processing
capabilities, better support the integrated sales processes, and improve client
service though speedier delivery of information, products, and services.
NON-INTEREST EXPENSE
Non-interest expense totaled $31,062,000 in 2000, up $2,865,000 (or 10.2%)
compared to 1999. Peoples implemented several strategic initiatives that
increased current operating expenses. In early 2000, Peoples merged its three
banking subsidiaries into a single national charter, which has enhanced
abilities to meet financial needs of clients. While the internal merger caused
increased expense in the near term, particularly professional fees and
regulatory costs, management believes the merger will result in greater
efficiencies in the long term.
When comparing 2000's non-interest expense information to 1999's results, a
portion of the increase is due to the costs associated with the Trust Preferred
Securities (combination of debt service expenses and amortization of associated
capitalized issuance costs) and the timing of its issuance in 1999. Costs
relating to the Trust Preferred Securities totaled $2,623,000 in 2000, an
increase of $783,000 (or 42.6%) compared to 1999.
Salaries and benefits expense represents the largest component of non-interest
expense. In 2000, salaries and benefits totaled $13,503,000 in 2000, up
$1,679,000 (or 14.2%) compared to a year ago, accounting for a majority of the
overall increase in non-interest expense. The increase in wages and benefits is
due to commissions paid to insurance and investment associates, wage increases
necessary to retain key personnel in the competitive labor market and
corresponding increases in benefits, as well as modest increases in the number
of Peoples' customer service associates. At December 31, 2000, Peoples had 388
full-time equivalent employees versus 385 at December 31, 1999. Management will
continue to leverage its resources while retaining key associates, effectively
optimizing customer service and return to shareholders.
Acquisitions and investments designed to enhance client service processes also
affected net occupancy and furniture and equipment expenses, in particular
depreciation expense. These expenses totaled $3,900,000, an increase of $274,000
(or 7.6%) compared to $3,626,000 in 1999. These increases can be attributed
primarily to the depreciation of assets acquired through recent market expansion
and construction projects at several of Peoples Bank's financial service centers
(specifically three Wal-Mart Financial Service Centers opened in 1999 and 2000,
as well as other banking center refurbishments), and increased depreciation of
additional expenditures on technology.
Peoples' increased investment in technology and other customer-service
enhancements, designed to add convenience and speed to product delivery, will
also impact depreciation expense in the future. Management believes that
Peoples' ability to serve a core sector of its markets in a cost effective
manner is tied to its technology-based delivery channels.
Maintaining acceptable levels of non-interest expense and operating efficiency
are key performance indicators for Peoples in its strategic initiatives. The
financial services industry uses 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 an important indicator of performance. Gains and losses on sales of
investment securities, as well as other nonrecurring charges, are not included
in the calculation of Peoples' efficiency ratio. Management also compares
non-interest income as a percentage of operational non-interest expense, which
totaled 31.4% in 2000 compared to 29.8% in 1999.
In 2000, Peoples' efficiency ratio was 57.12% compared to 1999's ratio of
53.94%. The combination of compressed net interest margins and increased levels
of non-interest expense have negatively affected Peoples' efficiency ratio.
Management believes current investments in and expansion of client service
efforts helps Peoples accomplish its goal of improving convenience, flexibility,
and speed for clients. In 2001, management will focus on reducing non-interest
expense growth rates without sacrificing client service levels or slowing
Peoples' expansion into non-traditional products and services.
RETURN ON EQUITY
After removing the impact of intangibles and corresponding amortization, return
on tangible equity increased to 22.90% in 2000 compared to 20.96% in 1999.
Peoples' return on average stockholders' equity ("ROE") was 14.92% in 2000
compared to 13.27% a year earlier.
Using a portion of the proceeds from the Trust Preferred Securities issuance,
Peoples implemented Stock Repurchase Programs that have favorably impacted ROE
through the reduction in the number of outstanding common shares and the
corresponding reduction in equity. Similar capital management enhancements to
ROE will depend on the timing of common share repurchases and the availability
of Peoples' common shares through the recently announced 2001 Stock Repurchase
Program.
Peoples and its banking subsidiaries are considered well-capitalized under
regulatory and industry standards of risk-based capital (as discussed in Note 13
of the Notes to Peoples' Consolidated Financial Statements) and such ratios grew
stronger in 2000.
RETURN ON ASSETS
After removing the impact of intangibles and corresponding amortization, return
on tangible assets was 1.19% in 2000 versus 1.30% in 1999. Return on average
assets ("ROA") was 1.02% in 2000 compared to 1.09% a year ago. The Leverage
Strategy implemented in 1999 significantly increased the Peoples' asset base and
caused a reduction in Peoples' tangible return on assets and ROA.
Additional net interest income from the Leverage Strategy was offset primarily
by the Trust Preferred Securities costs, resulting in lower ROA levels than
previous periods. Management anticipates that ROA will remain relatively
unchanged through the first part of 2001. Peoples will be challenged to employ
its asset base in a manner that will produce higher returns on assets.
Management intends to continue Peoples' strategic focus on ratios such as return
on tangible equity, return on equity, cash earnings per share, and earnings per
share.
INCOME TAX EXPENSE
Peoples has implemented tax reduction strategies, including investments in low
income housing and historic tax credits, to reduce tax burden and lower
effective tax rate. In 2000, Peoples' effective tax rate was 29.7% versus 31.0%
in 1999 reflecting the success of these strategies. At December 31, 2000,
Peoples' cumulative investment in these types of projects approximated $3.1
million. Peoples plans to make additional investments in various tax credit
pools over the next several years with the total investment not expected to
exceed $7 million. These investments are expected to benefit Peoples' future
results of operations by reducing Peoples' effective tax rate. Management
anticipates a similar effective tax rate in 2001 due to these investments and
continues to explore other ways to reduce Peoples' tax burden.
OVERVIEW OF THE BALANCE SHEET
Total assets were $1.14 billion at December 31, 2000, an increase of $60.4
million (or 5.6%) compared to year-end 1999. Loan volume increased $77.1 million
(or 11.7%) to $737.0 million, with most of the growth occurring in real estate
and commercial loans.
Total liabilities increased $50.0 million (or 5.1%) since year-end 1999 to $1.02
billion at December 31, 2000. Due to growth of Peoples' interest bearing
deposits, particularly money market accounts, Peoples' total deposits increased
$29.4 million (or 4.0%) to $757.6 million in 2000. Peoples' total short-term
borrowings increased $32.5 million (or 37.1%) to $119.9 million at December 31,
2000.
The April 1999 issuance of the Trust Preferred Securities is presented as
"Guaranteed Preferred Beneficial Interest in Junior Subordinated Debentures."
Peoples has classified the Trust Preferred Securities as "mezzanine" equity on
its balance sheet, net of issuance costs of approximately $1.0 million, which
are amortized over the term of the security indebtedness.
Stockholders' equity totaled $83.2 million at December 31, 2000, an increase of
$10.3 million (or 14.2%) since December 31, 1999. At December 31, 1999, Peoples
had $7.7 million of net unrealized losses on available-for-sale securities
compared to $3.0 million of unrealized losses on available-for-sale securities
at December 31, 2000. Peoples had a treasury share balance of $10.8 million at
year-end 1999, compared to $3.6 million at December 31, 2000. In the first
quarter of 2000, Peoples reissued treasury shares in connection with a 10% stock
dividend to shareholders. Peoples expects to purchase treasury shares through
the 2001 Stock Repurchase Plan, as appropriate and the stock benefit plans
repurchase program as well as the deferred compensation plan that permits
Peoples' directors to acquire common shares through deferral of director fees.
CASH AND CASH EQUIVALENTS
Peoples' cash and cash equivalents totaled $28.4 million at December 31, 2000, a
decrease of $15.3 million compared to 1999. At year-end 1999, Peoples retained
additional cash reserves for potential customer withdrawals related to the Y2K
date change. Since Peoples did not experience any significant withdrawals,
management redeployed the excess cash into earning assets in January 2000.
Normally, management directs liquid funds into higher-yielding assets such as
loans to meet loan demand in its markets and enhance profitability.
Management believes the current balance of cash and cash equivalents, readily
available access to traditional and non-traditional funding sources, and the
portions of the investment and loan portfolios that mature within one year
adequately serve Peoples' liquidity and performance needs. While total cash and
cash equivalents fluctuate on a daily basis due to transactions in process and
other liquidity needs, these other sources of funds should enable Peoples to
meet cash obligations and off-balance sheet commitments as they occur.
INVESTMENT SECURITIES
Investment securities totaled $330.5 million at year-end 2000, up $2.2 million
(or 0.7%) compared to December 31, 1999, as a result of modest increases in the
market value of the investment portfolio. All of Peoples' investment securities
are classified as available-for-sale. Management believes the available-for-sale
classification provides flexibility for Peoples in terms of selling securities
as well as interest rate risk management opportunities. At December 31, 2000,
the amortized cost of Peoples' investment securities totaled $335.1 million,
resulting in unrealized depreciation in the investment portfolio of $4.6 million
and a corresponding decrease in equity of $3.0 million.
Investments in U.S. Treasury securities and obligations of U.S. government
agencies and corporations increased $5.3 million to $106.0 million at December
31, 2000. In 2000, investments in mortgage-backed securities decreased $3.9
million to $143.5 million and represented the largest segment of Peoples'
investment securities portfolio. Peoples' balances in investment obligations of
states and political subdivisions totaled $38.5 million at December 31, 2000, an
increase of $3.3 million since year-end 1999. Corporate and other investments at
December 31, 2000, totaled $42.5 million, a decrease of $2.5 million since
year-end 1999.
Management may reduce investment securities in future periods as a mechanism to
fund higher-yielding assets such as loans. 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
Peoples' lending is primarily focused in central and southeastern Ohio, northern
West Virginia, and northeastern Kentucky markets, and consists principally of
retail lending, which includes single-family residential mortgages and other
consumer loans. Gross loans totaled $737.0 million at December 31, 2000, an
increase of $77.1 million (or 11.7%) since year-end 1999. Retail loan growth
occurred primarily in Peoples' existing markets, while some commercial lending
growth came from selected customers outside Peoples' primary geographic markets.
Peoples experienced significant loan growth during 2000 in commercial,
financial, and agricultural loans ("commercial loans"), which increased $38.3
million (or 14.1%) to $310.6 million. At December 31, 2000, commercial loans
comprised 42.1% of Peoples' total loan portfolio and represented the largest
portion of the loan portfolio. Economic conditions in Peoples' markets have
provided quality credit opportunities, in particular, in southeastern and
central Ohio. Management will continue to focus on the enhancement and growth of
the commercial loan portfolio while maintaining appropriate underwriting
standards and risk/price balance. Management expects commercial loan demand to
moderate somewhat in 2001. In addition to the anticipated additional in-market
penetration, Peoples will continue to selectively lend to customers outside its
primary markets.
Real estate loans to Peoples' retail customers (including real estate
construction loans) account for the second largest portion of the loan
portfolio, comprising 41.2% of Peoples' total loan portfolio. Real estate
mortgage loans totaled $303.6 million at December 31, 2000, up $37.1 million (or
13.9%) since year-end 1999.
Included in real estate loans are home equity credit lines ("Equilines"), which
totaled $26.1 million at December 31, 2000, compared to $22.2 million at
December 31, 1999. During 2000, Peoples offered a specially priced Equiline
product to qualifying customers, which contributed to the Equiline balance
increase. Management believes the Equiline loans are a competitive product with
an acceptable return on investment after risk considerations. Residential real
estate lending continues to represent a major focus of Peoples' lending due to
the lower risk factors associated with this type of loan and the opportunity to
provide additional products and services to these consumers at reasonable yields
to Peoples.
Consumer lending continues to be a vital part of Peoples' core lending. In 2000,
consumer loan balances (excluding credit card loans) increased $1.5 million (or
1.3%) to $115.9 million. The majority of Peoples' consumer loans are in the
indirect lending area, which had loan balances of $71.2 million at December 31,
2000, compared to $69.9 million at December 31, 1999.
Peoples' credit card balances at December 31, 2000, totaled $6.9 million, up
$0.2 million (or 2.9%) since year-end 1999. While management continues to
explore new opportunities to serve credit card customers, those plans do not
include the assumption of additional unnecessary risk merely for the sake of
growth.
Management is pleased with the performance and quality of Peoples' consumer loan
portfolio, which can be attributed to Peoples' commitment to a high level of
customer service and the continued demand for indirect loans in the markets
served by Peoples. Lenders use a tiered pricing system that enables Peoples to
apply interest rates based on the corresponding risk associated with the
indirect loan. Although consumer debt delinquency has increased in the financial
services industry (due mostly to credit card debt), management's actions to
reinforce Peoples' pricing system and underwriting criteria have tempered
indirect lending delinquencies. Management plans to continue its focus on the
use of this tiered pricing system in the future, combined with controlled growth
of the indirect lending portfolio if economic conditions remain strong.
LOAN CONCENTRATION
Peoples' largest concentration of commercial loans is in credits to assisted
living facilities/nursing homes, which comprised approximately 11.6% of Peoples'
outstanding commercial loans at December 31, 2000, compared to 7.2% at year-end
1999. These lending opportunities have arisen due to recent industry growth in
certain markets or contiguous areas. Management believes Peoples' loans to
assisted living facilities/nursing homes do not present more than the normal
amount of risk assumed in other types of lending.
While loans to assisted living facilities/nursing homes comprise the largest
portion, loans to lodging and lodging related companies also represent a
significant portion of Peoples' commercial loans. At December 31, 2000, lodging
and lodging related loans accounted for 10.6% of Peoples' outstanding commercial
loans, compared to 12.6% at year-end 1999.
ALLOWANCE FOR LOAN LOSSES
The loan portfolio analysis on pages 11 and 12 of this Form 10-K presents in
detail an analysis of Peoples' loan portfolio, the allowance for loan losses,
loan chargeoffs and recoveries by type of loan, and an allocation of the
allowance for loan losses by major loan type.
Management continually monitors the loan portfolio through its Loan Review
Department and Loan Loss Committee to determine the adequacy of the allowance
for loan losses. This formal analysis determines the appropriate level of the
allowance for loan losses, allocation of the allowance among loan types and the
adequacy of the unallocated component of the allowance. The portion of the
allowance allocated among the various loan types represents management's
estimate of expected losses based upon specific allocations for individual
lending relationships, historical loss experience for each category of loans,
and other economic factors. The individual loan reviews are based upon specific
qualitative and quantitative criteria, including the size of the loan and loan
grades below a predetermined level. The historical experience factor is based
upon historical loss experience, trends in losses and delinquencies, the growth
of loans in particular markets and industries, and known changes in economic
conditions in the particular lending markets.
Allowances for homogeneous loans (such as residential mortgage loans, credit
cards, personal loans, etc.) are collectively evaluated upon historical loss
experience, trends in losses and delinquencies, the growth of loans in
particular markets, and known changes in economic conditions in the particular
lending markets.
The unallocated portion of the allowance is based upon management's assessment
of qualitative risk factors that may not be evident in Peoples' historical
experience, such as, but not limited to, changes in specific markets in both
competition for loans and local economies. This assessment involves a high
degree of management judgment as well as higher amounts of uncertainty.
Assessment of the adequacy of the allowance is a dynamic process that requires
management to continually refine the process as markets, economic conditions,
and the company change. Differences between actual loss experiences and
estimated events are compared on a quarterly basis, allowing management to
regularly modify loss provisions as deemed appropriate based on market
conditions and other factors previously described.
The results of this analysis at December 31, 2000, indicated an increase in the
amount allocated to the commercial category resulting from recent increases in
Peoples' commercial loans outstanding and recent loss trends. The amount
allocated to the remaining categories and the unallocated portion reflect the
growth in the portfolios and changes in economic conditions. Management expects
continued loan growth in 2001 and believes that the provision for losses will
increase in the first quarter of 2001compared to the recent quarterly expense of
$600,000.
Peoples' consumer loan net chargeoffs continue to comprise the largest portion
of total net chargeoffs, reaching $715,000 in 2000 and accounting for 43.2% of
total net chargeoffs. In comparison to 1999, consumer loan net chargeoffs
increased $87,000 (or 13.9%) due to increased indirect loan chargeoffs.
Commercial loan net chargeoffs totaled $702,000 in 2000, an increase of $440,000
over 1999. Although commercial loan net chargeoffs in 2000 grew significantly
higher in comparison to 1999, management believes 2000's results are more
reflective of Peoples' historical commercial loan chargeoff experience. Credit
card net chargeoffs decreased $12,000 in comparison to 1999 to $167,000 in 2000.
Real estate loan net chargeoffs were insignificant in 2000, demonstrating the
quality of the portfolio.
Management evaluates Peoples' loan portfolio quality by monitoring the amount of
nonperforming loans as a percentage of total loans. Nonperforming loans include
loans 90 days or more past due, renegotiated loans, and loans classified as
nonaccrual. At December 31, 2000, nonperforming loans totaled $5,142,000
compared to $2,105,000 in 1999 or 0.70% and 0.32% of total outstanding loans,
respectively. The increase in nonperforming loans is due primarily to
approximately $2 million of commercial loans from several different industries
being placed on nonaccrual status in late 2000. Management considered these
loans in establishing the allowance for loan losses at December 31, 2000.
Peoples has taken aggressive steps to deal with the nonperforming loans. Despite
the increase, management believes the current level of nonperforming loans is
below peer group levels and is a reflection of the overall quality of Peoples'
loan portfolio.
A loan is considered impaired when, based on current information and events, it
is probable that Peoples will be unable to collect the scheduled payments of
principal or interest when due according to the contractual terms of the loan
agreement. The measurement of potential impaired loan losses is generally based
on the present value of expected future cash flows discounted at the loan's
historical effective interest rate, or the fair value of the collateral if the
loan is collateral dependent. If foreclosure is probable, impairment loss is
measured based on the fair value of the collateral.
At December 31, 2000, the recorded investment in loans that were considered to
be impaired under Statement of Financial Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS No. 114"), as amended by SFAS No.
118, was $9.1 million of which $5.3 million was accruing interest, and $3.8
million was nonaccrual loans. Included in this amount is $5.9 million of
impaired loans for which the related allowance for loan losses is $2.0 million.
The remaining impaired loan balances of $3.2 million do not have a related
allocation of the allowance for loan losses as a result of write-downs, being
well-secured, or possessing characteristics demonstrating ability to repay the
loan. The average recorded investment in impaired loans in 2000 was
approximately $8.8 million. In 2000, Peoples recognized interest income on
impaired loans of $535,000, or 0.63% of Peoples' total interest income in the
same period.
FUNDING SOURCES
Peoples considers a number of alternatives, including but not limited to
deposits, short-term borrowings, and long-term borrowings when evaluating
funding sources. Traditional deposits continue to be the most significant source
of funds for Peoples, totaling $757.6 million, or 74.6% of Peoples' funding
sources at December 31, 2000.
Non-interest bearing deposits are core funding sources for Peoples. At December
31, 2000, non-interest bearing balances totaled $85.0 million, a $1.7 million
(or 2.1%) increase compared to year-end 1999. Management intends to continue to
focus on maintaining its base of lower-costing funding sources through product
offerings that benefit customers who enhance their relationship with Peoples by
using multiple products and services.
Interest-bearing deposits totaled $672.6 million at December 31, 2000, an
increase of $27.7 million (or 4.3%) compared to year-end 1999. Interest-bearing
transaction accounts were the largest growth component of Peoples' deposits,
increasing $41.7 million (or 19.5%) to $256.5 million at December 31, 2000, due
primarily to growth in Peoples' money market account balances. Peoples' money
market accounts offer variable, competitive rates that allow clients some
flexibility of transactions and the opportunity to earn higher investment
yields.
In addition to growth of balances in money market accounts, Peoples offered a
17-month CD "special" throughout 2000. This product provided an attractive rate
of return for customers, increased Peoples' competitive position to retain and
grow deposits and helped fund loan growth. In early 2001, Peoples replaced the
17-month CD "special" with a 7-month CD "special." Management will continue to
emphasize deposit-gathering in the future by offering special "relationship
accounts" (both non-interest bearing and interest-bearing) based on other
products and services offered while balancing deposit growth with adequate net
interest margin to meet Peoples' strategic goals.
While traditional deposits serve as core funding sources, Peoples also accesses
both short-term and long-term borrowings to fund its operations and investments.
Peoples' short-term borrowings consist of federal funds purchased, commercial
deposits held in overnight repurchase agreements, wholesale funds such as term
repurchase agreements, and various FHLB borrowings. At December 31, 2000,
short-term borrowings totaled $119.9 million, an increase of $32.5 million (or
37.1%) over year-end 1999.
The largest component of Peoples' short-term borrowing at December 31, 2000, was
FHLB advances of $65.2 million, an increase of $42.7 million (or 190%), of which
$11.5 million of the increase can be attributed to repayments of certain
long-term, callable FHLB advances using short-term, repo-based FHLB advances.
Growth in borrowings, such as FHLB advances, was due primarily to fund loan
growth. In addition to short-term FHLB advances, Peoples had total short-term,
national market repurchase agreement balances of $25.8 million at December 31,
2000, a decrease of $8.2 million (or 24.1%) compared to year-end 1999. Peoples
also had $28.8 million of commercial overnight repurchase agreement balances
with its customers at December 31, 2000, down $1.7 million (or 5.6%) from a year
ago.
Short-term FHLB advances and national market repurchase agreements were accessed
heavily at the end of 1999 to fund Peoples' Y2K cash reserves for potentially
large customer deposit withdrawals. Those borrowings were repaid in early
January 2000; however, Peoples continued to access these funding sources at
various times during the year to balance liquidity needs and fund loan growth.
Peoples also maintains long-term borrowing capacity with the FHLB. Long-term
FHLB advances decreased $11.5 million (or 7.8%) since year-end 1999, totaling
$136.4 million at December 31, 2000. Peoples' long-term FHLB advances are
primarily 10-year borrowings, with fixed rate features for periods of two,
three, or four years, depending on the specific advance. Each advance, at the
discretion of the FHLB, may reprice after its initial fixed rate period, and
Peoples has the option to repay any repriced advance without penalty, or allow
the borrowing to reprice to a LIBOR based, variable product. In June 2000,
management opted to repay long-term FHLB advances that would have repriced to
current market rates of interest to take advantage of potential cost savings
using other available short-term advances. Management plans to maintain access
to long-term FHLB borrowings as an appropriate funding source.
Peoples also has a variable rate, long-term note with an unaffiliated financial
institution. The original principal balance of the note was $3.0 million and was
used to finance an acquisition in early 1997. Principal payments began in 1998
and continue semiannually over the next three years. At December 31, 2000, the
balance was $2.1 million, a decrease of $0.3 million since year-end 1999.
CAPITAL/STOCKHOLDERS' EQUITY
During the year ended December 31, 2000, stockholders' equity increased
approximately $10.3 million (or 14.2%) to $83.2 million. In 2000, Peoples had
net income of $11.1 million and paid dividends of $3.7 million, a dividend
payout ratio of 33.1% of earnings, compared to a ratio of 31.8% in 1999.
Management believes recent dividends represent an acceptable payout ratio for
Peoples and anticipates similar payout ratios in future periods through
quarterly dividends.
At December 31, 2000, the adjustment for the net unrealized holding loss on
available-for-sale securities, net of deferred income taxes, totaled $3.0
million, a change of $4.7 million since year-end 1999. Since all the investment
securities in Peoples' portfolio are classified as available-for-sale, both the
investment and equity sections of Peoples' balance sheet are more sensitive to
the changing market values of investments. The changes in market value of
Peoples' investment portfolio directly impacted Peoples' stockholders' equity.
Management believes Peoples' capital continues to provide a strong base for
profitable growth.
Banking regulators have established risk-based capital requirements designed to
measure capital adequacy and the relative risks of various assets banks hold in
their portfolios through risk-based capital ratios. As part of these
requirements, each asset is assigned a risk weight category of 0% (lowest risk
assets), 20%, 50%, or 100% (highest risk assets). Peoples and Peoples Bank have
complied with these requirements. Detailed information concerning Peoples'
risk-based capital ratios can be found in Note 13 of the Notes to the
Consolidated Financial Statements.
At December 31, 2000, Peoples' and Peoples Bank's risk-based capital ratios were
above the minimum standards for a well-capitalized institution. Peoples'
risk-based capital ratio of 14.21% at December 31, 2000, is well above the
well-capitalized standard of 10%. Peoples' Tier 1 capital ratio of 12.83% also
exceeded the well-capitalized minimum of 6%. The Leverage ratio at year-end 2000
was 9.62% and was also above the well-capitalized standard of 5%.
Since April 1999, Peoples has repurchased common shares through the 1999 and
2000 Stock Repurchase Programs. During 2000, Peoples purchased 103,000 shares in
open market and privately negotiated transactions at a weighted average price of
$16.17 per share. Peoples is authorized to purchase up to 125,000 shares (or 2%
of outstanding shares) in 2001 as part of the 2001 Stock Repurchased Program.
The timing of the purchases and the actual number of common shares purchased
have depended and will continue to depend on market conditions.
In June 1998, Peoples implemented a formal plan to purchase treasury shares for
use in its stock option plans. The formal plan serves as the basis for treasury
purchases in anticipation of Peoples' projected stock option exercises and is
based upon specific criteria related to market prices, as well as the number of
common shares expected to be reissued under Peoples' stock option plans. Under
the plan, Peoples is currently authorized to repurchase 18,150 common shares
each quarter. During 2000, Peoples purchased 56,450 treasury shares at a
weighted-average price of $17.64 per share, totaling $1.0 million. Management
expects to purchase similar share amounts in future quarters for use in its
stock option plans. Future changes, if any, to Peoples' systematic share
repurchase program may be necessary to respond to the number of common shares
expected to be reissued for Peoples' stock option plans. Management intends to
continue its systematic quarterly treasury share program.
Peoples also maintains the Peoples Bancorp Inc. Deferred Compensation Plan
("Deferred Compensation Plan") for the directors of Peoples and its
subsidiaries. The Deferred Compensation Plan is designed to recognize the value
to Peoples of the past and present service of its directors and encourage their
continued service through implementation of a deferred compensation plan. The
Deferred Compensation Plan allows directors to direct the fees earned for their
services into deferred accounts that are invested either in Peoples' common
shares or in time deposits, at the specific director's discretion at the time of
entering the Plan. As a result and in accordance with accounting regulations,
the account balances invested in Peoples' common shares are reported as treasury
stock in Peoples' financial statements. At December 31, 2000, the Deferred
Compensation Plan and its participants were entitled to $0.9 million of Peoples'
common shares, which is a reduction to the equity balance of Peoples. Management
does not expect the Deferred Compensation Plan to have a material impact on
future financial statements or results of operations of Peoples.
LIQUIDITY AND INTEREST RATE SENSITIVITY
The objective of Peoples' asset/liability management function is to maintain
consistent growth in net interest income within Peoples' policy guidelines. This
objective is accomplished through management of Peoples' balance sheet liquidity
and interest rate risk exposure based on changes in economic conditions,
interest rate levels, and customer preferences.
Interest Rate Risk
- ------------------
The most significant risk resulting from Peoples' normal business of extending
loans and accepting deposits, is interest rate risk. Interest rate risk ("IRR")
is the potential for economic loss due to future interest rate changes which can
impact both the earnings stream as well as market values of financial assets and
liabilities. Peoples' management has charged the ALCO with the overall
management of Peoples' and its subsidiary bank's balance sheet and off-balance
sheet transactions related to the management of IRR. The ALCO strives to keep
Peoples focused on the future, anticipating and exploring alternatives, rather
than simply reacting to change after the fact.
To this end, the ALCO has established an interest rate risk management policy
that sets the minimum requirements and guidelines for monitoring and controlling
the level and amount of interest rate risk. The objective of the interest rate
risk policy is to encourage management to adhere to sound fundamentals of
banking while allowing sufficient flexibility to exercise the creativity and
innovations necessary to meet the challenges of changing markets. The ultimate
goal of these policies is to optimize net interest income within the constraints
of prudent capital adequacy, liquidity, and safety.
Peoples' ALCO relies on different methods of assessing interest rate risk
including simulating net interest income, monitoring the sensitivity of the net
present market value of equity, and monitoring the difference or gap between
maturing or rate-sensitive assets and liabilities over various time periods. The
ALCO places emphasis on simulation modeling as the most beneficial measurement
of interest rate risk because it is a dynamic measure. By employing a simulation
process that measures the impact of potential changes in interest rates and
balance sheet structures and by establishing limits on changes in net income and
net market value, the ALCO is better able to evaluate the possible risks
associated with alternative strategies.
The simulation process starts with a base case simulation that represents
projections of current balance sheet growth trends. Base case simulation results
are prepared under an assumed flat interest rate scenario and at least two
alternative interest rate scenarios, one rising and one declining, assuming
parallel yield curve shifts. Comparisons showing the earnings variance from the
flat rate forecast illustrate the risks associated with the current balance
sheet strategy. When necessary, additional balance sheet strategies are
developed and simulations prepared. These additional simulations are run with
the same interest rate scenarios used with the base case simulation and/or using
different yield curves. The additional strategies are used to measure yield
curve risk, prepayment risk, basis risk, and index lag risk inherent in the
balance sheet. Comparisons showing the earnings and equity value variance from
the base case provide the ALCO with information concerning the risks associated
with implementing the alternative strategies. The results from model simulations
are reviewed for indications of whether current interest rate risk strategies
are accomplishing their goal and, if not, the ALCO evaluates alternative
strategies. The ALCO periodically reviews the appropriateness of the assumptions
used in the modeling and the overall techniques employed.
Peoples monitors interest rate risk for both the short and long-term. Therefore,
to effectively evaluate results from model simulations, limits on changes in net
interest income and the value of the balance sheet have been established. To
monitor the short-term exposure to interest rate risk, the ALCO limited the
earnings at risk of the bank to 10% or less from base case for each 1% shift in
interest rates. To monitor the long-term exposure to interest rate risk,
management has limited the negative impact on net equity value to 40% or less
when interest rates shift 2% and 75% when rates shift 4%, respectively. For an
assessment of the current interest rate risk position, the ALCO reviews static
gap measures for specific time periods focusing on one-year cumulative gap.
Based on historical trends and performance, the ALCO has determined that the
ratio of the one-year cumulative gap should be within 15% of earning assets.
The following table is provided to show the estimated earnings at risk and value
at risk positions of Peoples at December 31, 2000 (dollars in thousands):
Immediate
Interest Rate Estimated Estimated
Increase (Decrease) in (Decrease) Increase (Decrease) Increase in
Basis Points In Net Interest Income Economic Value of Equity
300 $ (5,351) (13.4)% $(10,052) (9.6)%
200 (3,550) (8.9) (7,118) (6.8)
100 (1,766) (4.4) (3,779) (3.6)
(100) 1,513 3.8 3,259 3.1
(200) 3,010 7.6 6,946 6.6
(300) $ 4,492 11.3 % $ 11,102 10.6 %
The interest risk analysis shows that Peoples is moderately liability sensitive.
This means that downward moving interest rates should favorably impact net
interest income and upward moving interest rates should negatively impact net
interest income. The analysis also shows that for all simulations and all
scenarios, Peoples is within the interest rate risk limits that the ALCO has
established in the policy. Peoples was within the policy limits at all measured
points during the preceding year.
The liability sensitivity increased in the past twelve months due to the loan
growth Peoples experienced in 2000. To protect earnings streams should there be
an increase in interest rates (or hedge the liability sensitivity), the ALCO
authorized the purchase of interest rate options, termed caps, that will provide
additional income if there is a significant increase in interest rates.
Liquidity
- ---------
Maintenance of a sufficient level of liquidity is a primary objective of the
ALCO. Liquidity, as defined by the ALCO, is the ability to meet anticipated and
unanticipated operating cash needs, loan demand, and deposit withdrawals,
without incurring a sustained negative impact on profitability. The ALCO's
policy for liquidity management sets limits on the net liquidity position of
Peoples and the concentration of non-core funding sources.
The main source of liquidity for Peoples is deposit growth. Liquidity is also
provided from cash generated from assets such as maturities, principal payments
and income from loans and investment securities. In 2000, cash provided by
financing activities totaled $44.5 million due to the growth of short-term
borrowings and interest-bearing deposit growth, while outflows from investing
activity totaled $75.7 million. The majority of the increase in cash outflows
from investing activities occurred as a result of the growth in Peoples' loan
portfolio. Peoples, when appropriate, takes advantage of external sources of
funds such as advances from the Federal Home Loan Bank, national market
repurchase agreements, and brokered funds. These external sources often provide
attractive interest rates and flexible maturity dates that enable Peoples to
match funding dates with contractual maturity dates of assets. Securities in the
investment portfolio that are available for sale can be utilized as an
additional source of liquidity.
The net liquidity position of Peoples is calculated by subtracting volatile
liabilities, non-core deposits and brokered funds, from liquid assets,
short-term investments and unpledged available-for-sale securities. As of
December 31, 1999, the net liquidity position of Peoples was $105.2 million (or
9.81% of total assets). As of December 31, 2000, the net liquidity position of
Peoples was $99.2 million (or 8.74% of total assets). The decrease in 2000 is
the result of maturities in available-for-sale securities, which were used to
fund loan growth. The liquidity position as of year-end was within Peoples'
policy limit of negative 10% of total assets. The ALCO believes Peoples has
sufficient liquidity to meet current obligations to borrowers, depositors, debt
holders, and others.
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
Despite recent challenges facing the financial services industry, Peoples
attained several key financial goals in 2000 including double-digit growth in
earnings per share, enhanced return on shareholders' equity, growth in loan
balances, increased non-interest revenues, and continued expansion of Peoples'
integrated, needs-based sales process using its CONNECTIONS theme to
successfully grow client relationships. Part of the reason for Peoples'
financial success in 2000 was the execution of the Stock Repurchase Programs,
which helped to enhance return on shareholders' equity and earnings per share.
Peoples' ability to achieve similar success in 2001 will be influenced by
potential stock purchases under the 2001 Stock Repurchase Program, as well as
numerous factors that affect the financial services industry such as interest
rate changes.
Peoples experienced growth in net interest income in 2000 even though rising
interest rates, which negatively impacted Peoples' interest-bearing liabilities,
were a continuing challenge. Management continues to refine and update its
Asset/Liability simulation modeling process, most recently in response to
interest rate reductions by the Federal Reserve in early 2001. Despite these
reductions, net interest income and margins will be challenged in early 2001 as
pricing pressure from other competitors further compresses margins, a challenge
facing the entire financial services industry. Management has already taken
steps to reduce longer-term interest rate exposure by lowering CD and IRA rates
and terms from a 17-month "special" offered throughout 2000 to a 7-month
"special." While this change should result in improved net interest income, any
improvement will be at least partially offset by decreases in prime based
commercial loans resulting from the Federal Reserve's recent 100 basis point
decrease in rates.
In early 2000, Peoples merged its three banking subsidiaries into a single
national charter and incurred additional expenses, such as professional fees and
regulatory costs, for first-year integration costs. The consolidation gives
Peoples' clients access to all 40 sales offices, 27 ATMs, and Internet banking
in addition to connecting the northeastern Kentucky markets with contiguous Ohio
and West Virginia markets. While the merger has already produced many positive
results in 2000, including enhanced ability to meet all the financial needs of
Peoples' clients and reduced regulatory burden, Peoples' focus in 2001 will be
further product integration and market penetration.
The start of 2001 has already been marked by expansion with the opening of
Peoples' Emerson Avenue Financial Services Center, Peoples' fourth banking
center in Wood County, West Virginia. The office includes some unique features
compared to Peoples' other sales offices such as a "Home Resource Center", an
"Investment Resource Center" and an "Internet Cafe". Since opening on January 2
in Parkersburg, the Emerson Avenue Financial Services Center has been featured
in AmericanBanker.com, local and regional newspapares, and other media outlets,
for its creative layout and inviting customer service areas. Management believes
the Emerson Avenue Financial Services Center is a model that can be duplicated
in some of Peoples' existing sales office.
In addition to the opening of the Emerson Avenue Financial Services Center,
Peoples Bank opened its 40th sales office with the completion of the merger
acquisition of Lower Salem Commercial Bank of Lower Salem, Ohio, on February,
23, 2001. Lower Salem represents an opportunity for Peoples to expand its
presence in northern Washington County. Management's focus now shifts to the
integration of non-traditional products, such as investments and insurance, with
the traditional products Lower Salem currently offers.
Peoples' personal relationships and electronic access connect clients with
Peoples in ways not available a decade ago. E-commerce has generated much hype
in recent years; however, Peoples has approached the e-world with the same
"progressively conservative" attitude that has proven successful in its banking
model. While technology such as the Internet, Peoples OnLine Connection and
Peoples' TeleBank continue to be areas of focus, Peoples does not plan to
supplant the personal contact that Peoples' traditional banking centers
currently offer. Management believes such technology provides Peoples with new
ways of enhancing product and service delivery and strengthening client
relationships.
In 2001, Peoples will continue to focus on increasing its fee-based business
since the margin-based business is dependent on the unpredictable interest rate
environment. One of Peoples' main goals is the complete integration of its
traditional products with newer, non-traditional products, such as investments
and insurance. Through this integration and continued focus, Peoples' clients
will have access to a world of financial products through their preferred
delivery channel. Management anticipates that a significant portion of future
earnings growth will be derived from the expanded fee-base business.
Mergers and acquisitions remain a viable strategic option for continuing growth
of operations and scope of client service as well as a viable method of
enhancing Peoples' earnings potential. Management will continue to pursue
appropriate business opportunities that complement existing company locations
and revenue growth strategies through a variety of means including mergers and
acquisitions. Future acquisitions, if they occur, may not be limited to specific
geographic location or proximity to current market, but ultimately will depend
upon opportunities that complement Peoples' core competencies and strategic
intent.
Management believes Peoples is positioned for continued revenue growth in 2001
and beyond. Although competition for loans and deposits, as well as short-term
borrowing costs, continue to impact Peoples' short-term profitability due to
challenges to net interest income levels, management will continue to analyze
and implement strategies designed to enhance the long-term value of Peoples.
Peoples' many sales associates are firmly committed to client service and
long-term stakeholder success.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995
The statements in this Form 10-K 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
economic conditions, the impact of competitive products and pricing, and other
risks detailed in Peoples' Securities and Exchange Commission filings. Although
management believe that the expectations in these forward-looking statements are
based on reasonable assumptions within the bounds of management's knowledge of
Peoples' business and operations, it is possible that actual results may differ
materially from these projections.
COMPARISON OF 1999 TO 1998
Peoples reported an increase in net income of 6.7%, to $10.7 million in 1999
from $10.0 million in 1998. Diluted earnings per share totaled $1.53 for the
year ended December 31, 1999, compared to $1.40 in 1998. Cash basis earnings,
which removes the after-tax impact of intangible amortization expense, increased
$0.19 to $1.79 per diluted share for the year ended December 31, 1999, compared
to $1.60 in 1998. Peoples' core earnings increased due to stronger earnings in
existing business units and additional revenue streams associated with business
acquisitions.
For the year ended December 31, 1999, return on average assets was 1.09%,
compared to 1.20% in 1998. The Leverage Strategy implemented during the second
quarter of 1999 significantly increased Peoples' asset base thus causing the
decrease in ROA. In 1999, return on stockholders' equity increased to 13.27%
compared to 12.21% in 1998. Using a portion of the proceeds from the Trust
Preferred Securities issuance, Peoples implemented the 1999 Stock Repurchase
Program that reduced the number of outstanding common shares and total equity
and enhanced ROE in 1999.
Peoples recorded net interest income of $38.1 million in 1999, an increase of
17.5% compared to 1998, as total interest income reached $72.3 million and
interest expense totaled $34.2 million. Net interest margin decreased in 1999 to
4.35% from 4.47% in 1998. Yield on earning assets totaled 8.14% in 1999,
compared to 8.45% the prior year. A significant contributor to this decline was
the decrease in Peoples' loan portfolio yield, which dropped 37 basis points to
8.83% in 1999 as a result of increased demand for loans in the markets Peoples
serves. Compared to 1998, cost of interest-bearing liabilities decreased 25
basis points to 4.29% in 1999. Deposit costs decreased due to a combination of
lowering time deposit rates and the acquisition of lower interest cost funding
sources from the West Virginia Banking Center Acquisition.
Peoples' provision for loan losses totaled $1,878,000 in 1999, down $447,000
compared to 1998, a decrease of 19.2%. Overall improvement in the loan
portfolio's quality and associated credit risk combined with an adequate
allowance for loan losses provided the basis to reduce the provision for loan
losses during 1999. At December 31, 1999, Peoples' allowance for loan losses as
a percentage of total loans was 1.56%, compared to a year-end 1998 ratio of
1.67%.
Non-interest income from operations (excluding securities transactions) totaled
$7,633,000 in 1999, an increase of 11.9% compared to 1998. In 1999, deposit
account service charge income increased $497,000 (or 22.3%) to $2,730,000. A
primary cause for this increase was a full-year's impact of the West Virginia
Banking Center Acquisition and its associated $121 million in deposits, which
provided the base for increased fee income. Income from fiduciary activities
totaled $2,634,000, an increase of 13.3% compared to 1998. Electronic banking
income totaled $1,033,000 in 1999, up $116,000 (or 12.6%) over the prior year.
Electronic banking income increased primarily due to growth in the number of
debit card users and the associated volume increases in debit card usage.
For the year ended December 31, 1999, non-interest expense totaled $28,197,000,
up $4,921,000 (or 21.1%) compared to 1998. The majority of the increase in
1999's non-interest expense is the result of acquisitions and the Trust
Preferred Securities issuance. Compared to 1998, salaries and benefits expense
increased $1,728,000 (or 17.1%) to $11,824,000 in 1999. Furniture and equipment
expenses totaled $1,787,000 in 1999, up $59,000 (or 3.4%), and net occupancy
expense totaled $1,839,000 in 1999, an increase of $242,000 (or 15.2%) compared
to the previous year. These increases can be attributed primarily to the
depreciation of the assets purchased in business acquisitions (in particular the
West Virginia Banking Center Acquisition), and the completion of various branch
banking office construction projects during 1999. Non-operational items also
contributed to the increase in non-interest expense. In particular, amortization
of intangibles totaled $2,639,000, up 546,000 (or 26.1%) compared to 1998, with
most of the increase due to the West Virginia Banking Center Acquisition in
1999.
Total assets reached $1.08 billion at December 31, 1999, up $195 million
compared to year-end 1998. Asset growth can be attributed primarily to the
Leverage Strategy implemented during the second quarter of 1999 with the largest
growth occurring in the investment securities portfolio, which increased $95.7
million (or 39.4%) from year-end 1998 to $328.3 million at December 31, 1999.
Loans continued to be the largest earning asset component for Peoples totaling
$659.8 million at year-end 1999, an increase of $92.0 million (or 16.2%)
compared to year-end 1998 due to continued loan demand in Peoples' established
markets. While each of Peoples' loan categories experienced strong growth, a
majority of the growth occurred in the commercial loan portfolio. Average loans
totaled 85.1% of average deposits in 1999, up from 80.9% at year-end 1998.
While Peoples considers a variety of funding sources, traditional deposits
continue to be the most significant source of funds totaling $782.2 million, or
75.4% of Peoples' funding sources at December 31, 1999. In additional to
traditional deposits, Peoples utilizes both short-term and long-term borrowings
to fund operations and investments. Short-term borrowings totaled $87.4 million
at year-end 1999, up $54.9 million since year-end 1998 while long-term
borrowings totaled $150.3 million at December 31, 1999, compared to $40.7
million a year earlier. Short-term FHLB advances and national market repurchase
agreements, which were accessed heavily at year-end 1999 to fund Peoples' Y2K
cash reserves, accounted for a majority of the increase in short-term
borrowings. As for the increase in long-term borrowings, Peoples advanced $110
million in FHLB borrowings to fund investment securities purchased in the
Leverage Strategy.
Total stockholders' equity decreased approximately $13.1 million to $72.9
million at December 31, 1999. This decrease is the result of implementing the
1999 Stock Repurchase Program and increased net unrealized holding losses on
available-for-sale securities. At December 31, 1999, the adjustment for the net
unrealized holding losses on available-for-sale securities totaled $7.6 million,
a change of $11.2 million from the previous year. Peoples had a treasury share
balance of $10.8 million at December 31, 1999, compared to $1.8 million at
year-end 1998. In 1999, Peoples' dividend payout ratio was 31.8% of earnings
compared to 30.4% in 1998.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
- ------------------------------------------------------------------------
Please refer to pages 27 and 28 in Item 7 of this Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
- --------------------------------------------------------
The Consolidated Financial Statements and accompanying notes, and the report of
independent auditors, are set forth immediately following Item 9 of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
- --------------------------------------------------------------------------
No response required.
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands except Share Data)
December 31,
ASSETS 2000 1999
Cash and cash equivalents:
Cash and due from banks $ 28,242 $ 42,713
Interest-bearing deposits in other banks 207 1,038
- -------------------------------------------------------------------------------
Total cash and cash equivalents 28,449 43,751
- -------------------------------------------------------------------------------
Available-for-sale investment securities,
at estimated fair value (amortized cost
of $335,111 in 2000 and $340,082 in 1999) 330,521 328,306
- -------------------------------------------------------------------------------
Loans, net of deferred fees and costs 736,965 659,833
Allowance for loan losses (10,930) (10,264)
- -------------------------------------------------------------------------------
Net loans 726,035 649,569
- -------------------------------------------------------------------------------
Bank premises and equipment, net 15,565 15,321
Other assets 35,264 38,503
- -------------------------------------------------------------------------------
TOTAL ASSETS $ 1,135,834 $ 1,075,450
===============================================================================
LIABILITIES
Deposits:
Non-interest bearing $ 84,974 $ 83,267
Interest bearing 672,647 644,940
- -------------------------------------------------------------------------------
Total deposits 757,621 728,207
- -------------------------------------------------------------------------------
Short-term borrowings:
Federal funds purchased and securities
sold under agreements to repurchase 54,729 64,989
Federal Home Loan Bank advances 65,186 22,450
- -------------------------------------------------------------------------------
Total short-term borrowings 119,915 87,439
- -------------------------------------------------------------------------------
Long-term borrowings 138,511 150,338
Accrued expenses and other liabilities 7,572 7,606
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 1,023,619 973,590
- -------------------------------------------------------------------------------
Guaranteed preferred beneficial interests
in junior subordinated debentures
("Trust Preferred Securities") 29,021 28,986
Stockholders' Equity
Common stock, no par value,
12,000,000 shares authorized,
6,679,028 shares issued in 2000 and
6,387,509 issued in 1999,including
shares in treasury 66,364 65,043
Accumulated comprehensive income, net of
deferred income taxes (2,983) (7,654)
Retained earnings 23,381 26,241
- -------------------------------------------------------------------------------
86,762 83,630
Treasury stock, at cost, 189,357 shares
in 2000 and 398,662 shares in 1999 (3,568) (10,756)
- -------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 83,194 72,874
- -------------------------------------------------------------------------------
TOTAL LIABILITIES, MINORITY INTERESTS
AND STOCKHOLDERS' EQUITY $ 1,135,834 $ 1,075,450
===============================================================================
See Notes to Consolidated Financial Statements.
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands, except Per Share Data) Year ended December 31,
2000 1999 1998
INTEREST INCOME:
Interest and fees on loans $ 63,352 $ 53,223 $ 48,857
Interest and dividends on:
Obligations of U.S. government and its agencies 16,405 13,450 9,500
Obligations of states and political subdivisions 1,798 2,261 1,886
Other interest income 3,574 3,412 3,402
- ------------------------------------------------------------------------------------------------------------------------------
Total interest income 85,129 72,346 63,645
- ------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest on deposits 31,259 25,956 26,051
Interest on short-term borrowings 6,162 2,655 2,241
Interest on long-term borrowings 7,418 5,647 2,205
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense 44,839 34,258 30,497
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income 40,290 38,088 33,148
Provision for loan losses 2,322 1,878 2,325
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 37,968 36,210 30,823
- ------------------------------------------------------------------------------------------------------------------------------
OTHER INCOME:
Service charges on deposit accounts 3,243 2,730 2,233
Income from fiduciary activities 2,608 2,634 2,325
Investment and insurance commissions 1,283 496 431
Electronic banking income 1,220 1,033 917
Gain (loss) on securities transactions 10 (104) 418
Other 564 740 914
- ------------------------------------------------------------------------------------------------------------------------------
Total other income 8,928 7,529 7,238
- ------------------------------------------------------------------------------------------------------------------------------
OTHER EXPENSES:
Salaries and employee benefits 13,503 11,824 10,096
Trust Preferred Securities expense 2,623 1,840 --
Amortization of intangibles 2,284 2,639 2,093
Net occupancy 2,043 1,839 1,597
Equipment 1,857 1,787 1,728
Data processing and software 1,033 966 763
Supplies 653 661 779
Other 7,066 6,641 6,220
- ------------------------------------------------------------------------------------------------------------------------------
Total other expenses 31,062 28,197 23,276
- ------------------------------------------------------------------------------------------------------------------------------
Income before income taxes 15,834 15,542 14,785
- ------------------------------------------------------------------------------------------------------------------------------
Income taxes:
Current 4,886 4,556 4,869
Deferred (178) 268 (129)
- ------------------------------------------------------------------------------------------------------------------------------
Total income taxes 4,708 4,824 4,740
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 11,126 $ 10,718 $ 10,045
==============================================================================================================================
EARNINGS PER SHARE:
Basic $ 1.71 $ 1.57 $ 1.44
- ------------------------------------------------------------------------------------------------------------------------------
Diluted $ 1.69 $ 1.53 $ 1.40
- ------------------------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic 6,523,808 6,846,071 6,975,989
- ------------------------------------------------------------------------------------------------------------------------------
Diluted 6,600,160 7,023,921 7,186,616
- ------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in Thousands, except Share and Per Accumulated
Share Data)
Other
Common Stock Retained Comprehensive Treasury
Shares Amount Earnings Income (1) Stock Total
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1997 3,831,206 $ 50,001 $ 26,448 2,369 $ 0 $ 78,818
- -----------------------------------------------------------------------------------------------------------------------------------
Adjustment for the effect of 3-for-2
common stock split 1,915,603
Comprehensive Income: 10,045 10,045
Net Income
Other Comprehensive income, net of tax:
Unrealized gains on available-for-sale
securities,
Net of reclassification adjustment 1,219 1,219
----------
Total comprehensive income 11,264
Purchase of treasury stock, 71,057 shares (2,059) (2,059)
Exercise of common stock options
(reissued 19,026 treasury shares) 28,451 370 237 607
Issuance of common stock under dividend
reinvestment plan 14,888 436 436
Cash dividends declared of $0.44 per share (3,052) (3,052)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 5,790,148 $ 50,807 $ 33,441 3,588 $ (1,822) $ 86,014
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 10,718 10,718
Other Comprehensive income, net of tax:
Unrealized loss on available-for-sale
securities,
Net of reclassification adjustment (11,242) (11,242)
----------
Total comprehensive income (524)
Purchase of treasury stock, 379,636 shares (10,256) (10,256)
Distribution of treasury stock from deferred
compensation plan 5 5
10% stock dividend 579,505 14,512 (14,512)
Exercise of common stock options
(reissued 43,368 treasury shares) (838) 1,317 479
Tax benefit from exercise of stock options 121 121
Issuance of common stock under dividend
reinvestment plan 17,856 441 441
Cash dividends declared of $0.50 per share (3,406) (3,406)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 6,387,509 $ 65,043 $ 26,241 (7,654) $ (10,756) $ 72,874
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive Income:
Net Income 11,126 11,126
Other Comprehensive income, net of tax:
Unrealized gains on available-for-sale
securities,
Net of reclassification adjustment 4,671 4,671
----------
Total comprehensive income 15,797
Purchase of treasury stock, 148,321 shares (2,717) (2,717)
Distribution of treasury stock from deferred
compensation plan 125 125
10% stock dividend 269,597 1,469 (10,308) 8,839
Exercise of common stock options
(reissued 39,517 treasury shares) (552) 941 389
Tax benefit from exercise of stock options 58 58
Issuance of common stock under dividend
reinvestment plan 21,922 346 346
Cash dividends declared of $0.56 per share (3,678) (3,678)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 6,679,028 $ 66,364 $ 23,381 (2,983) $ (3,568) $ 83,194
- -----------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Disclosure of reclassification amount for the years ended: 2000 1999 1998
Net unrealized appreciation (depreciation) arising during period, net of tax $ 4,678 $ (11,310) $ 1,491
Less: reclassification adjustment for net securities gains (losses) included in
net income, net of tax 7 (68) 272
- ----------------------------------------------------------------------------------------------------------------------------------
Net unrealized appreciation (depreciation) on investment $ 4,671 $ (11,242) $ 1,219
- ----------------------------------------------------------------------------------------------------------------------------------
</FN>
See Notes to Consolidated Financial Statements.
PEOPLES BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands) Year ended December 31,
2000 1999 1998
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 11,126 $ 10,718 $ 10,045
Adjustments to reconcile net income to net cash provided:
Provision for loan losses 2,322 1,878 2,325
(Gain) loss on securities transactions (10) 104 (418)
Depreciation, amortization, and accretion 4,613 4,997 5,095
Increase in interest receivable (1,029) (1,572) (630)
Increase in interest payable 256 712 257
Deferred income tax (benefit) expense (178) 268 (129)
Deferral of loan origination fees and costs (116) (1) 56
Other, net (1,054) (3,225) (3,325)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 15,930 13,879 13,276
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale securities (23,391) (174,750) (138,141)
Proceeds from sales of available-for-sale securities 3,242 21,565 20,349
Proceeds from maturities of available-for-sale securities 25,337 43,507 58,964
Net increase in loans (78,375) (92,169) (26,955)
Purchase of loans -- -- (11,772)
Expenditures for premises and equipment (2,427) (2,156) (3,011)
Proceeds from sales of other real estate owned 296 277 200
Acquisitions, net of cash received -- 4,010 100,170
Investment in limited partnership and tax credit funds (400) (1,336) (2,036)
- -------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (75,718) (201,052) (2,232)
- -------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in non-interest bearing deposits 1,707 576 5,234
Net increase (decrease) in interest bearing deposits 27,720 8,331 (19,489)
Net increase (decrease) in short-term borrowings 32,476 54,925 (3,596)
Proceeds from long-term borrowings -- 127,000 37,973
Payments on long-term borrowings (11,827) (17,326) (25,886)
Cash dividends paid (3,262) (2,926) (2,538)
Purchase of treasury stock (2,717) (10,255) (2,059)
Proceeds from issuance of common stock for stock options 389 478 607
Proceeds from issuance of Trust Preferred Securities -- 30,000 --
- -------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 44,486 190,803 (9,754)
- -------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents (15,302) 3,630 1,290
Cash and cash equivalents at beginning of year 43,751 40,121 38,831
- -------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 28,449 $ 43,751 $ 40,121
===============================================================================================================================
Supplemental cash flow information:
Interest paid $ 39,415 $ 29,760 $ 26,831
- -------------------------------------------------------------------------------------------------------------------------------
Income taxes paid $ 3,960 $ 4,035 $ 5,542
- -------------------------------------------------------------------------------------------------------------------------------
See Notes to Consolidated Financial Statements.
PEOPLES BANCORP INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies:
The accounting and reporting policies of Peoples Bancorp Inc. and
Subsidiaries ("Peoples") conform to accounting principles generally
accepted in the United States and to general practices within the banking
industry. Peoples considers all of its principal activities to be banking
related. The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States 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. Certain reclassifications have
been made to prior period amounts to conform to the 2000 presentation.
Such reclassifications had no impact on net income.
The following is a summary of significant accounting policies followed in
the preparation of the financial statements:
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Peoples
Bancorp Inc. and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
CASH AND CASH EQUIVALENTS:
Cash and cash equivalents include cash and due from banks, interest
bearing deposits in other banks, and federal funds sold, all with
original maturities of ninety days or less.
INVESTMENT SECURITIES:
Management determines the appropriate classification of investment
securities at the time of purchase. Held-to-maturity securities are
those securities that Peoples has the positive intent and ability to
hold to maturity and are recorded at amortized cost. Available-for-sale
securities are those securities that would be available to be sold in
the future in response to Peoples' liquidity needs, changes in market
interest rates, and asset-liability management strategies, among
others. Available-for-sale securities are reported at fair value, with
unrealized holding gains and losses reported in a separate component of
other comprehensive income, net of applicable deferred income taxes.
The cost of securities sold is based on the specific identification
method.
ALLOWANCE FOR LOAN LOSSES:
The allowance for loan losses is maintained at a level believed
adequate by management to absorb losses in the loan portfolio.
Management's determination of the adequacy of the allowance for loan
losses is based on a quarterly evaluation of the portfolio, historical
loan loss experience, current national and local economic conditions,
volume, growth and composition of the portfolio, and other relevant
factors. This evaluation is inherently subjective and requires
management to make estimates of the amounts and timing of future cash
flows on impaired loans, consisting primarily of non-accrual and
restructured loans. The allowance for loan losses related to impaired
loans is based on discounted cash flows using the loan's initial
effective interest rate or the fair value of the collateral for certain
collateral dependent loans.
BANK PREMISES AND EQUIPMENT:
Bank premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed on the straight-line method over
the estimated useful lives of the related assets.
OTHER REAL ESTATE:
Other real estate owned, included in other assets on the consolidated
balance sheet, represents properties acquired by Peoples' subsidiary
banks in satisfaction of a loan. Real estate is recorded at the lower
of cost or fair value based on appraised value at the date actually or
constructively received, less estimated costs to sell the property.
INTANGIBLES:
Intangible assets representing the present value of future net income
to be earned from deposits are being amortized on an accelerated basis
over a ten year period. The excess of cost over the fair value of net
assets acquired (goodwill) is being amortized on a straight-line basis
over periods ranging from 10 to 15 years.
INCOME RECOGNITION:
Interest income is recognized by methods which result in level rates of
return on principal amounts outstanding. Amortization of premiums has
been deducted from and accretion of discounts has been added to the
related interest income. Nonrefundable loan fees and direct loan costs
are deferred and recognized over the life of the loan as an adjustment
of the yield. The subsidiary bank discontinues the accrual of interest
when, in management's opinion, collection of all or a portion of
contractual interest has become doubtful, which generally occurs when a
loan is 90 days past due. When deemed uncollectible, previously accrued
interest recognized in income in the current year is reversed and
interest accrued in prior years is charged against the allowance for
loan losses. Interest received on non-accrual loans is included in
income only if principal recovery is reasonably assured. A non-accrual
loan is restored to accrual status when it is brought current, has
performed in accordance with contractual terms for a reasonable period
of time, and the collectibility of the total contractual principal and
interest is no longer in doubt.
INTEREST RATE RISK MANAGEMENT:
The premium paid to purchase interest rate caps is included in other
assets and amortized to interest expense over the original term of the
agreements.
INCOME TAXES:
Deferred income taxes (included in other assets) are provided for
temporary differences between the tax basis of an asset or liability
and its reported amount in the financial statements at the statutory
tax rate. The components of other comprehensive income included in the
Consolidated Statements of Stockholders' Equity have been computed
based upon a 35% effective tax rate.
EARNINGS PER SHARE:
Basic earnings per share is determined by dividing net income by the
weighted-average number of shares outstanding. Diluted earnings per
share is determined by dividing net income by the weighted-average
number of shares outstanding increased by the number of shares that
would be issued assuming the exercise of stock options.
OPERATING SEGMENTS:
Peoples' business activities are currently confined to one segment
which is community banking. As a community banking entity, Peoples
offers its customers a full range of products through various delivery
channels.
NEW ACCOUNTING PRONOUNCEMENTS:
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133, Accounting for Derivative Instruments and Hedging Activities.
This statement, as amended by Statement Nos. 137 and 138, establishes
new accounting and reporting requirements for derivative instruments,
including certain derivative instruments embedded in other contracts
and hedging activities. Peoples adopted Statement No. 133 on January 1,
2001 as required. Because of Peoples' limited use of derivatives, the
adoption of the new Statement is not expected to have a significant
effect on Peoples' earnings or financial position.
2. Fair Values of Financial Instruments:
The following methods and assumptions were used by Peoples in estimating
its fair value disclosures for financial instruments in accordance with
SFAS No. 107:
CASH AND CASH EQUIVALENTS:
The carrying amounts reported in the balance sheet for these captions
approximate their fair values.
INVESTMENT SECURITIES:
Fair values for investment securities are based on quoted market
prices, where available. If quoted market prices are not available,
fair values are estimated using quoted market prices of comparable
securities.
LOANS:
The fair value of performing variable rate loans that reprice
frequently and performing demand loans, with no significant change in
credit risk, is based on carrying value. The fair value of certain
mortgage loans is based on quoted market prices of similar loans sold
in conjunction with securitization transactions, adjusted for
differences in loan characteristics. The fair value of other performing
loans (e.g., commercial real estate, commercial and consumer loans) is
estimated using discounted cash flow analyses and interest rates
currently being offered for loans with similar terms to borrowers of
similar credit quality.
The fair value for significant nonperforming loans is based on either
the estimated fair value of underlying collateral or estimated cash
flows, discounted at a rate commensurate with the risk. Assumptions
regarding credit risk, cash flows, and discount rates are determined
using available market information and specific borrower information.
DEPOSITS:
The carrying amounts of demand deposits, savings accounts and certain
money market deposits approximate their fair values. The fair value of
fixed maturity certificates of deposit is estimated using a discounted
cash flow calculation that applies current rates offered for deposits
of similar remaining maturities.
SHORT-TERM BORROWINGS:
The carrying amounts of federal funds purchased, Federal Home Loan Bank
advances, and securities sold under repurchase agreements approximate
their fair values.
LONG-TERM BORROWINGS:
The fair value of long-term borrowings is estimated using discounted
cash flow analysis based on rates currently available to Peoples for
borrowings with similar terms.
TRUST PREFERRED SECURITIES:
The fair value of the Trust Preferred Securities is estimated using
discounted cash flow analysis based on current market rates of
securities with similar risk and remaining maturity.
INTEREST RATE CAPS AND FLOORS:
Fair values for interest rate caps and floors are based on quoted
market prices.
FINANCIAL INSTRUMENTS:
The fair value of loan commitments and standby letters of credit is
estimated using the fees currently charged to enter into similar
agreements considering the remaining terms of the agreements and the
counterparties' credit standing. The estimated fair value of these
commitments approximates their carrying value.
The estimated fair values of Peoples' financial instruments are as
follows:
2000 1999
Carrying Fair Carrying Fair
(Dollars in Thousands) Amount Value Amount Value
Financial assets:
Cash and cash equivalents $ 28,449 $ 28,449 $ 43,751 $ 43,751
Investment securities 330,521 330,521 328,306 328,306
Loans 726,035 726,874 649,919 650,128
Financial liabilities:
Deposits $ 757,621 $ 759,801 $ 728,207 $ 728,558
Short-term borrowings 119,915 119,908 87,439 87,439
Long-term borrowings 138,511 136,278 150,338 147,546
Other financial instruments:
Trust Preferred Securities $ 29,021 $ 25,041 $ 28,986 $ 26,994
Off-balance sheet instruments:
Interest rate caps $ 238 $ 92 $ -- $ --
Interest rate floors -- -- 6 --
Bank premises and equipment, customer relationships, deposit base,
banking center networks, and other information required to compute
Peoples' aggregate fair value are not included in the above
information. Accordingly, the above fair values are not intended to
represent the aggregate fair value of Peoples.
3. Investment Securities:
The estimated maturities presented in the tables below may differ from the
contractual maturities because borrowers may have the right to call or
prepay obligations without call or prepayment penalties. Rates are
calculated on a taxable equivalent basis using a 35% federal income tax
rate. The portfolio contains no single issue (excluding U.S. government
and U.S. agency securities) that exceeds 10% of stockholders' equity.
Securities classified as available-for-sale Gross Gross
At December 31, 2000 Amortized Unrealized Unrealized Estimated
(Dollars in Thousands) Cost Gains Losses Fair Value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations $ 107,434 $ 436 $ (1,851) $ 106,019
Obligations of states and political subdivisions 38,117 544 (154) 38,507
Mortgage-backed securities 143,572 789 (856) 143,505
Other securities 45,988 1,511 (5,009) 42,490
- -----------------------------------------------------------------------------------------------
Total available-for-sale securities $ 335,111 $ 3,280 $ (7,870) $ 330,521
===============================================================================================
Maturity distribution of available-for-sale securities
Contractual maturities at December 31, 2000
(Dollars in Thousands)
U.S. Treasury Obligations
securities and of states Total
obligations of and Mortgage- available-
U.S. government political backed Other for-sale
agencies subdivisions securities securities securities
Within one year
Amortized cost $ 7,647 $ 325 $ 132 $ -- $ 8,104
Fair value $ 7,635 $ 140 $ 130 $ -- $ 7,905
Average yield 6.01 % 6.34 % 10.24 % -- % 6.09 %
1 to 5 years
Amortized cost 29,629 1,652 2,348 1,836 35,465
Fair value 28,887 1,665 2,361 1,798 34,711
Average yield 6.03 % 6.23 % 6.65 % 6.65 % 6.12 %
5 to 10 years
Amortized cost 66,755 9,185 7,867 1,502 85,309
Fair value 66,066 9,602 8,013 1,452 85,133
Average yield 6.47 % 7.42 % 6.40 % 6.94 % 6.57 %
Over 10 years
Amortized cost 3,403 26,955 133,225 42,650 206,233
Fair value 3,431 27,100 133,001 39,240 202,772
Average yield 7.15 % 7.13 % 6.77 % 8.50 % 7.18 %
- ----------------------------------------------------------------------------------------------------
Total amortized cost $ 107,434 $ 38,117 $ 143,572 $ 45,988 $ 335,111
Total fair value $ 106,019 $ 38,507 $ 143,505 $ 42,490 $ 330,521
Total average yield 6.34 % 7.15 % 6.75 % 8.38 % 6.89 %
====================================================================================================
Securities classified as available-for-sale Gross Gross
At December 31, 1999 Amortized Unrealized Unrealized Estimated
(Dollars in Thousands) Cost Gains Losses Fair Value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations $ 105,169 $ 200 $ (4,680) $ 100,689
Obligations of states and political subdivisions 36,805 125 (1,774) 35,156
Mortgage-backed securities 152,788 203 (5,560) 147,431
Other securities 45,320 2,711 (3,001) 45,030
- -------------------------------------------------------------------------------------------------------------
Total available-for-sale securities $ 340,082 $ 3,239 $ (15,015) $ 328,306
=============================================================================================================
Securities classified as available-for-sale Amortized Gross Gross Estimated
At December 31, 1998 Unrealized Unrealized
(Dollars in Thousands) Cost Gains Losses Fair Value
U.S. Treasury securities and obligations of
U.S. government agencies and corporations $ 49,249 $ 1,034 $ (40) $ 50,243
Obligations of states and political subdivisions 44,007 1,541 (15) 45,533
Mortgage-backed securities 104,067 811 (117) 104,761
Other securities 32,726 2,428 (122) 35,032
- -------------------------------------------------------------------------------------------------------------
Total available-for-sale securities $ 230,049 $ 5,814 $ (294) $ 235,569
=============================================================================================================
In 2000, 1999 and 1998, gross gains of $204,000, $229,000, and $523,000
and gross losses of $194,000, $333,000, and $105,000 were realized,
respectively. At December 31, 2000 and 1999, investment securities having
a carrying value of $237,550,000 and $112,310,000, respectively, were
pledged to secure public and trust department deposits and repurchase
agreements in accordance with federal and state requirements.
4. Loans:
Loans are comprised of the following at December 31:
(Dollars in Thousands) 2000 1999
Commercial, financial, and agricultural $ 310,558 $ 272,219
Real estate, construction 20,267 14,067
Real estate, mortgage 283,323 252,427
Consumer 122,817 121,120
- ----------------------------------------------------------------------------
Total loans $ 736,965 $ 659,833
============================================================================
Changes in the allowance for loan losses for each of the three years in
the period ended December 31, 2000, were as follows:
(Dollars in Thousands) 2000 1999 1998
Balance, beginning of year $ 10,264 $ 9,509 $ 8,356
Charge-offs (2,061) (1,518) (1,645)
Recoveries 405 395 473
- -------------------------------------------------------------------------
Net charge-offs (1,656) (1,123) (1,172)
Provision for loan losses 2,322 1,878 2,325
Balances of acquired subsidiaries -- -- --
- -------------------------------------------------------------------------
Balance, end of year $ 10,930 $ 10,264 $ 9,509
=========================================================================
Peoples' lending is primarily focused in the local southeastern Ohio market and
consists principally of retail lending, which includes single-family residential
mortgages and other consumer lending. Peoples' largest groups of business loans
consist of credits to assisted living facilities\nursing homes, as well as
lodging and lodging related companies. Assisted living facilities\nursing homes
loans totaled $35,877,000 and $19,563,000 at December 31, 2000 and 1999,
respectively. The credits were subjected to Peoples' normal commercial
underwriting standards and did not present more than the normal amount of risk
assumed in other lending areas. Loans to lodging and lodging related companies
totaled $32,991,000 and $34,379,000 at December 31, 2000 and 1999, respectively.
Peoples does not extend credit to any single borrower or group of related
borrowers in excess of the combined legal lending limits of its subsidiary bank.
Impaired loans at December 31, 2000, totaled $9,057,000 and the average
investment in impaired loans was $8,814,000 for the year ended December 31,
2000. Impaired loans at December 31, 1999, and the average investment in
impaired loans for the year then ended were immaterial to the financial
statements.
In the normal course of its business, Peoples' subsidiary banks have granted
loans to executive officers and directors of Peoples and to their associates.
Related party loans were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
loans with unrelated persons and did not involve more than normal risk of
collectibility. The following is an analysis of activity of related party loans
for the year ended December 31, 2000:
(Dollars in Thousands)
Balance, January 1, 2000 $ 23,092
New loans 11,728
Repayments (12,308)
Other changes 959
- -----------------------------------------------------
Balance, December 31, 2000 $ 23,471
=====================================================
5. Bank Premises and Equipment:
The major categories of bank premises and equipment and accumulated
depreciation are summarized as follows at December 31:
(Dollars in Thousands) 2000 1999
Land $ 2,926 $ 2,786
Building and premises 17,768 16,548
Furniture, fixtures and equipment 11,009 10,380
- -----------------------------------------------------------------------
31,703 29,714
Accumulated depreciation (16,138) (14,393)
- -----------------------------------------------------------------------
Net book value $ 15,565 $ 15,321
=======================================================================
Peoples depreciates its building and premises and furniture, fixtures and
equipment over estimated useful lives ranging from 5 to 20 years and 2 to 10
years, respectively. Depreciation expense was $1,957,000, $1,972,000 and
$1,745,000, for the years ended December 31, 2000, 1999 and 1998, respectively.
Peoples leases certain banking facilities and equipment under various agreements
with original terms providing for fixed monthly payments over periods ranging
from two to ten years. The future minimum payments, by year and in the
aggregate, under noncancelable operating leases with initial or remaining terms
of one year or more consisted of the following at December 31, 2000:
(Dollars in Thousands)
2001 $ 262
2002 233
2003 227
2004 209
2005 190
Thereafter 680
- ------------------------------------------------------
Total minimum lease payments $ 1,801
======================================================
Rent expense was $341,000, $306,000 and $242,000 in 2000, 1999 and 1998,
respectively.
6. Deposits:
Included in interest-bearing deposits are various time deposit products.
The maturities of time deposits for each of the next five years and
thereafter are as follows: $172,645,000 in 2001; $139,100,000 in 2002;
$6,853,000 in 2003; $3,277,000 in 2004; $2,888,000 in 2005; and $575,000
thereafter.
Deposits from related parties approximated $15.2 million and $13.0 million
at December 31, 2000 and 1999, respectively.
7. Short-term Borrowings:
Short-term borrowings are summarized as follows:
Federal Funds
Purchased National
Funds Retail Market Short-term
Purchased Repurchase Repurchase FHLB
(Dollars in Thousands) Purchased Agreements Agreements Advances
--------- ---------- ---------- ----------
2000
Ending balance $ 162 $ 28,767 $ 25,800 $ 65,186
Average balance 209 31,162 27,497 40,454
Highest month end balance 587 35,572 34,010 69,586
Interest expense - YTD 12 1,675 1,779 2,696
Weighted average interest
- -------------------------
End of year 5.21 % 4.24 % 6.68 % 6.75 %
During the year 5.74 5.38 6.37 6.55
1999
Ending balance $ 501 $ 30,478 $ 34,010 $ 22,450
Average balance 137 30,171 18,606 5,477
Highest month end balance 501 31,502 35,000 22,450
Interest expense - YTD 7 1,294 1,058 296
Weighted average interest
- -------------------------
End of year 2.66 % 5.07 % 6.05 % 4.75 %
During the year 4.89 4.29 5.69 5.40
1998
Ending balance $ 131 $ 31,683 -- $ 700
Average balance 996 31,429 -- 12,534
Highest month end balance 1,725 33,457 -- 59,200
Interest expense - YTD 53 1,476 -- 712
Weighted average interest
- -------------------------
End of year 4.18 % 4.52 % -- 5.32 %
During the year 5.45 4.70 -- 5.68
Peoples utilizes FHLB advances and repurchase agreements as sources of funds.
The advances are collateralized by mortgage-backed securities and loans.
Peoples' institutional, national market repurchase agreements are with high
quality, financially secure financial service companies.
8. Long-term Borrowings:
Long-term borrowings consisted of the following at December 31:
(Dollars in Thousands) 2000 1999
Term note payable, at LIBOR (parent company) $ 2,100 $ 2,400
Federal Home Loan Bank advances, bearing interest at rates
ranging from 3.87% to 6.25% 136,411 147,938
- --------------------------------------------------------------------------------
Total long-term borrowings $ 138,511 $ 150,338
================================================================================
The Federal Home Loan Bank ("FHLB") advances consist of various borrowings with
maturities ranging from 10 to 20 years. The advances are collateralized by
Peoples' real estate mortgage portfolio and all of the FHLB common stock owned
by the banking subsidiaries, and other bank assets. The most restrictive
requirement of the debt agreement requires Peoples to provide real estate
mortgage loans as collateral in an amount not less than 150% of advances
outstanding.
The aggregate minimum annual retirements of long-term borrowings in the next
five years and thereafter are as follows:
(Dollars in Thousands)
2001 $ 328
2002 329
2003 1531
2004 32
2005 33
Thereafter 136,258
--------------------------------------------------
Total long-term borrowings $ 138,511
==================================================
9. Employee Benefit Plans:
Peoples sponsors a noncontributory defined benefit pension plan which
covers substantially all employees. The plan provides benefits based on an
employee's years of service and compensation. Peoples' funding policy is
to contribute annually an amount that can be deducted for federal income
tax purposes. Plan assets consist primarily of U.S. Government obligations
and collective stock and bond funds.
Peoples also has a contributory benefit postretirement plan for former
employees who were retired as of December 31, 1992. The plan provides
health and life insurance benefits. Peoples' policy is to fund the cost of
the benefits as they are incurred.
The following tables provide a reconciliation of the changes in the plans'
benefit obligations and fair value of assets over the two-year period
ending December 31, 2000, and a statement of the funded status as of
December 31, 2000 and 1999:
Pension Postretirement
Benefits Benefits
(Dollars in Thousands) 2000 1999 2000 1999
Change in benefit obligation:
Obligation at January 1 $ 6,669 $ 7,301 $ 820 $ 808
Service cost 410 394 -- --
Interest cost 525 500 63 63
Plan participants' contributions -- -- 87 87
Actuarial loss (gain) 177 (610) (2) 78
Benefit payments (805) (916) (154) (216)
Increase due to plan changes -- -- 55 --
- ----------------------------------------------------------------------------
Obligation at December 31 6,976 6,669 869 820
============================================================================
Pension Postretirement
Benefits Benefits
(Dollars in Thousands) 2000 1999 2000 1999
Change in plan assets:
Fair value of plan assets at January 1 7,298 6,807 -- --
Claims payable adjustment -- -- -- --
Actual return on plan assets (109) 568 -- --
Employer contributions 870 840 67 129
Plan participants' contributions -- -- 87 87
Benefit payments (806) (917) (154) (216)
- --------------------------------------------------------------------------------
Fair value of plan assets at December 31 7,253 7,298 0 0
- --------------------------------------------------------------------------------
Funded status:
Funded status at December 31 277 629 (869) (820)
Unrecognized transition obligation (16) (24) -- --
Unrecognized prior-service cost (34) (44) 55 --
Unrecognized net gain 18 (917) 232 250
- --------------------------------------------------------------------------------
Accrued benefit cost $ 245 $ (356) $ (582) $ (570)
================================================================================
The following table provides the components of net periodic benefit cost
for the plans:
Pension Benefits Postretirement Benefits
(Dollars in Thousands) 2000 1999 1998 2000 1999 1998
Service cost $ 410 $ 394 $ 342
Interest cost 525 500 483 $ 62 $ 63 $ 56
Expected return on plan assets (648) (539) (514) -- -- --
Amortization of transition asset (8) (8) (8) -- -- --
Amortization of prior service cost (9) (9) (9) -- -- --
Amortization of net loss -- -- -- 15 20 9
- -----------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 270 $ 338 $ 294 $ 77 $ 83 $ 65
===========================================================================================================
The assumptions used in the measurement of Peoples' benefit obligation at
December 31 are shown in the following table:
Pension Postretirement
Benefits Benefits
2000 1999 2000 1999
Discount rate 7.75 % 8.00 % 7.75 % 8.00 %
Expected return on plan assets 9.00 9.00 n/a n/a
Rate of compensation increase 4.50 5.00 n/a n/a
For measurement purposes, a 10% annual rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) was assumed for 2000,
grading down 1% per year to an ultimate rate of 5%. The health care trend rate
assumption does not have a significant effect on the contributory defined
benefit postretirement plan; therefore, a one percentage point change in the
trend rate is not material in the determination of the accumulated
postretirement benefit obligation or the ongoing expense.
10. Federal Income Taxes:
The effective federal income tax rate in the consolidated statement of
income is less than the statutory corporate tax rate due to the following:
Year ended December 31
2000 1999 1998
Statutory corporate tax rate 35.0 % 35.0 % 35.0 %
Differences in rate resulting from:
Interest on obligations of state and political (3.6) (4.5) (4.0)
subdivisions
Other, net (1.7) 0.5 1.1
- -------------------------------------------------------------------------------
Effective federal income tax rate 29.7 % 31.0 % 32.1 %
===============================================================================
The significant components of Peoples' deferred tax assets and liabilities
consisted of the following at December 31:
(Dollars in Thousands) 2000 1999
Deferred tax assets:
Allowance for loan losses $ 3,751 $ 3,499
Accrued employee benefits 566 487
Deferred loan fees and costs 76 242
Available-for-sale securities 1,606 4,121
Other 247 22
- --------------------------------------------------------------------
Total deferred tax assets 6,246 8,371
- --------------------------------------------------------------------
Deferred tax liabilities:
Bank premises and equipment 810 689
Deferred Income 119 258
Investments 1,420 1,158
Other 499 531
- --------------------------------------------------------------------
Total deferred tax liabilities 2,848 2,636
- --------------------------------------------------------------------
Net deferred tax asset $ 3,398 $ 5,735
====================================================================
The related federal income tax (benefit) expense on securities transactions
approximated ($178,000) in 2000, ($36,000) in 1999 and $146,000 in 1998.
11. Financial Instruments with Off-Balance Sheet Risk:
In the normal course of business, Peoples is party to financial
instruments with off-balance sheet risk necessary to meet the financing
needs of customers and to manage its own exposure to fluctuations in
interest rates. These financial instruments include commitments to extend
credit, standby letters of credit, and interest rate caps. The instruments
involve, to varying degrees, elements of credit and interest rate risk in
excess of the amount recognized in the balance sheets. The contract or
notional amounts of these instruments express the extent of involvement
Peoples has in these financial instruments.
Loan Commitments and Standby Letters of Credit:
Loan commitments are made to accommodate the financial needs of Peoples'
customers. Standby letters of credit commit Peoples to make payments on
behalf of customers when certain specified future events occur.
Historically, most loan commitments and standby letters of credit expire
unused. Peoples' exposure to credit loss in the event of nonperformance by
the counter-party to the financial instrument for loan commitments and
standby letters of credit is represented by the contractual amount of
those instruments. Peoples uses the same underwriting standards in making
commitments and conditional obligations as it does for on-balance sheet
instruments. The amount of collateral obtained is based on management's
credit evaluation of the customer. Collateral held varies, but may include
accounts receivable, inventory, property, plant, and equipment, and
income-producing commercial properties.
The total amounts of loan commitments and standby letters of credit are
summarized as follows at December 31:
Contract Amount
(Dollars in Thousands) 2000 1999
Loan commitments $ 72,201 $ 92,320
Standby letters of credit 1,898 1,301
Unused credit card limits 21,802 19,071
Interest Rate Caps and Floors:
Peoples has entered into several interest rate contracts with an unaffiliated
financial institution as a means of managing the risk of changing interest
rates. The interest rate contracts are agreements to receive payments for
interest rate differentials between an index rate and a specified rate, computed
on notional amounts. At December 31, 2000, Peoples had in place interest rate
cap contracts with notional amounts approximating $30 million. The interest rate
cap subjects Peoples to the risk that the counter-parties may fail to perform.
In order to minimize such risk, Peoples deals only with high-quality,
financially secure financial institutions. These contracts expire as follows:
$10 million in August 2002, $10 million in September 2003 and $10 million in
September 2004. Unrealized gains and losses at December 31, 2000 and 1999, and
the contribution to net interest income for each of the three years in the
period ended December 31, 2000, were not material.
12. Corporation-Obligated Mandatorily Redeemable Capital Securities of
Subsidiary Trusts Holding Solely Debentures of the Corporation:
December 31,
(Dollars in thousands) 2000 1999
8.62% capital securities of PEBO Capital Trust I, due May 1, 2029, $ 29,021 $ 28,986
net of unamortized issuance costs
Total capital securities qualifying for Tier 1 capital 28,726 26,842
The corporation-obligated mandatorily redeemable capital securities (the
"Capital Securities" or "Trust Preferred Securities") of subsidiary trusts
holding solely junior subordinated debt securities of the Corporation (the
"debentures") were issued by a statutory business trust -- PEBO Capital Trust I,
of which 100% of the common equity in the trust is owned by Peoples. The trust
was formed for the purpose of issuing the capital securities and investing the
proceeds from the sale of such capital securities in the debentures. The
debentures held by the trust are the sole assets of that trust. Distributions on
the capital securities issued by the trust are payable semiannually at a rate
per annum equal to the interest rate being earned by the trust on the debentures
held by that trust and are recorded as non-interest expense by Peoples. The
capital securities are subject to mandatory redemption, in whole or in part,
upon repayment of the debentures. Peoples has entered into agreements which,
taken collectively, fully and unconditionally guarantee the capital securities
subject to the terms of each of the guarantees.
The debentures held by PEBO Capital Trust I are first redeemable, in whole or in
part, by the Corporation on May 1, 2009.
13. Regulatory Matters:
The primary source of funds for the dividends paid by Peoples is dividends
received from its banking subsidiary. The payment of dividends by banking
subsidiaries is subject to various banking regulations. The most
restrictive provision requires regulatory approval if dividends declared
in any calendar year exceed the total net profits of that year plus the
retained net profits of the preceding two years. At December 31, 2000,
approximately $15 million of retained net profits plus retained net
profits through the dividend date of the banking subsidiary was available
for the payment of dividends to Peoples without regulatory approval.
Peoples and its banking subsidiary are subject to various regulatory
capital requirements administered by the banking regulatory agencies.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, Peoples and its banking subsidiary must meet specific
capital guidelines that involve quantitative measures of each entity's
assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices. Peoples' and its banking
subsidiary's capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings,
and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require Peoples and its banking subsidiary to maintain minimum amounts and
ratios of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Peoples and its banking subsidiary met all
capital adequacy requirements at December 31, 2000.
As of December 31, 2000, the most recent notifications from the banking
regulatory agencies categorized Peoples and its banking subsidiary as well
capitalized under the regulatory framework for prompt corrective action.
To be categorized as well capitalized, Peoples and its banking subsidiary
must maintain minimum total risk-based, Tier I risk-based and Tier I
leverage ratios as set forth in the table below. There are no conditions
or events since these notifications that management believes have changed
Peoples' or its banking subsidiary's category.
Peoples' and its banking subsidiary's, Peoples Bank, National Association
("Peoples Bank"), actual capital amounts and ratios are also presented in
the following table.
Well Capitalized Under
Prompt Corrective
Actual For Capital Adequacy Action Provision
(Dollars in Thousands) Amount Ratio Amount Ratio Amount Ratio
As of December 31, 2000:
Total Capital (1)
Peoples $ 107,428 14.2 % $ 60,496 8.0 % $ 75,619 10.0 %
Peoples Bank 102,056 13.5 60,335 8.0 75,419 10.0
- ------------------------------------------------------------------------------------------------------------------------
Tier 1 (2)
Peoples 97,056 12.8 30,248 4.0 45,372 6.0
Peoples Bank 92,610 12.3 30,168 4.0 45,252 6.0
- ------------------------------------------------------------------------------------------------------------------------
Tier 1 (3)
Peoples 97,056 8.7 44,661 4.0 55,826 5.0
Peoples Bank 92,610 8.4 44,335 4.0 55,419 5.0
- ------------------------------------------------------------------------------------------------------------------------
As of December 31, 1999:
Total Capital (1)
Peoples $ 99,213 14.3 % $ 55,495 8.0 % $ 69,369 10.0 %
Peoples Bank 73,461 12.2 48,108 8.0 60,135 10.0
- ------------------------------------------------------------------------------------------------------------------------
Tier 1 (2)
Peoples 87,216 12.6 27,748 4.0 41,621 6.0
Peoples Bank 65,930 11.0 24,054 4.0 36,081 6.0
- ------------------------------------------------------------------------------------------------------------------------
Tier 1 (3)
Peoples 87,216 8.3 42,060 4.0 52,576 5.0
Peoples Bank 65,930 7.4 35,519 4.0 44,399 5.0
- ------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Ratio represents total capital to net risk-weighted assets.
(2) Ratio represents Tier 1 capital to net risk-weighted assets.
(3) Ratio represents Tier 1 capital to average assets.
</FN>
14. Federal Reserve Requirements:
The subsidiary banks are required to maintain average reserve balances
with the Federal Reserve Bank. The Reserve requirement is calculated on a
percentage of total deposit liabilities and averaged $8,168,000 for the
year ended December 31, 2000.
15. Acquisitions:
Effective at the close of business on February 23, 2001, Peoples will
acquire Lower Salem Commercial Bank for a total consideration of $2.4
million ($0.9 million in cash and $1.5 million in common stock). The
acquisition will be accounted for under the purchase method of accounting,
and accordingly, the consolidated results will include the operations of
Lower Salem Commercial Bank from the date of acquisition. Lower Salem
Commercial Bank has one full-service banking office located in Lower
Salem, Ohio and had total assets of $22.9 million, deposits of $18.1
million and shareholders' equity of $2.2 million at December 31, 2000.
Peoples will operate the former Lower Salem Commercial Bank as a
full-service sales office of Peoples Bank. This acquisition will not
materially impact Peoples' financial position or results of operations.
On November 2, 1999, Peoples acquired the Lambert Insurance Agency in
Meigs County, Ohio, for $500,000 in a cash transaction that was structured
as a purchase acquisition. The excess of the purchase price over the
identifiable tangible and intangible assets of $400,000 is being amortized
on a straight-line basis over 15 years. The agreement provides for 20% of
the purchase price to be paid at the end of three years, if certain
conditions are satisfied. The Lambert Insurance Agency is a full-service
agency and seller of health, life, property, and casualty insurance and
now operates as a division of Peoples Insurance Agency, Inc.
On November 1, 1999, Peoples acquired approximately $5.0 million in
deposit liabilities and $0.5 million of loan balances from an unaffiliated
institution. On June 26, 1998, Peoples acquired the deposits
(approximately $121 million) and total loans (approximately $8 million) of
four full-service offices in the communities of Point Pleasant (two
offices), New Martinsville, and Steelton, West Virginia, from an
unaffiliated financial institution.
The prices of the purchase acquisitions were allocated to the identifiable
tangible and intangible assets acquired based upon their fair value at the
acquisition date. Goodwill and deposit intangibles, included in other
assets, approximated $17,848,000 and $20,154,000, net of accumulated
amortization of $9,492,000 and $7,208,000, at December 31, 2000 and 1999,
respectively. The balances and operations of these acquisitions are
included in the financial statement of Peoples from the dates of
acquisition and do materially impact Peoples' financial position, results
of operations or cash flows for any period presented.
16. Stock Options:
Peoples' stock option plans provide for the granting of both incentive
stock options and non-qualified stock options of up to 909,523 shares of
common stock. Under the provisions of the plans, the option price per
share shall not be less than the fair market value of the common stock on
the date of grant of such option; therefore, no compensation expense is
recognized. All granted options vest in periods ranging from six months to
eight years and expire 10 years from the date of grant.
The following summarizes Peoples' stock options as of December 31, 2000, 1999
and 1998, and the changes for the years then ended:
2000 1999 1998
--------------------------- --------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Number Exercise Number Exercise Number Exercise
of Shares Price Of Shares Price of Shares Price
--------------------------- --------------------------- ---------------------------
Outstanding at 574,541 $ 16.08 531,708 $ 14.94 573,815 $ 13.96
beginning of year
Granted 78,147 17.21 108,262 19.06 34,640 24.33
Exercised 42,851 10.55 56,897 10.84 57,997 10.57
Canceled 19,442 22.30 8,532 20.37 18,750 15.83
- -------------------------------------------------------------------------------------------------------------------
Outstanding at end of year 590,395 16.42 574,541 16.05 531,708 14.94
===================================================================================================================
Exercisable at end of year 355,451 14.08 351,626 12.83 293,039 11.53
===================================================================================================================
Weighted average fair value of
options granted during the year $ 4.09 $ 4.38 $ 5.07
===================================================================================================================
The following summarizes information concerning Peoples' stock options
outstanding at December 31, 2000:
Options Outstanding Options Exercisable
-------------------------------------------------- -------------------------------
Weighted
Average Weighted Weighted
Option Remaining Average Average
Range of Shares Contractual Exercise Number Exercise
Exercise Prices Outstanding Life Price Exercisable Price
-------------------------------------------------- ---------------------------
$7.97 to $10.45 68,887 3.1 years $ 9.08 68,887 $ 9.08
$10.65 to $10.65 159,463 3.9 years 10.65 159,463 10.65
$10.70 to $18.95 209,477 8.1 years 17.77 47,257 16.35
$19.63 to $27.06 152,568 6.9 years 23.91 79,844 23.92
Peoples has elected to follow Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"), and related
interpretations in accounting for its employee stock options. Under APB 25,
because the exercise price of Peoples' stock options granted is equal to the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. Peoples utilized the Black-Scholes option pricing model
for purposes of providing pro forma disclosures as if Peoples had used the fair
value method for computing compensation expense for its stock-based compensation
plans. The following weighted average assumptions were used in the pricing model
for 2000, 1999 and 1998, respectively: risk-free interest rate of 5.75%, 5.88%,
and 5.25%; dividend yield of 3.29%, 2.56%, and 2.40%; volatility factor of the
expected market price of Peoples' stock of 0.25, 0.19, and 0.15, and a weighted
average expected life of the options of 5 years, 5 years, and 7 years.
Had compensation expense for Peoples' stock-based compensation plans been
determined using the fair value method, net income and earnings per share would
have been as summarized below:
(Dollars in Thousands, except Per Share 2000 1999 1998
Data) Data)
Net Income:
As Reported $ 11,126 $ 10,718 $ 10,045
Pro forma 10,806 10,432 9,811
Basic Earnings Per Share:
As Reported $ 1.71 $ 1.57 $ 1.44
Pro forma 1.66 1.52 1.41
Diluted Earnings Per Share:
As Reported $ 1.69 $ 1.53 $ 1.40
Pro forma 1.64 1.49 1.37
17. Parent Company Only Financial Information:
Condensed Balance Sheets December 31,
(Dollars in Thousands) 2000 1999
Assets:
Cash $ 50 $ 50
Interest bearing deposits in subsidiary bank 2,111 6,186
Receivable from subsidiary bank 1,311 1,560
Investment securities: Available-for-sale (amortized cost of $1,156 and
$1,528 at December 31, 2000 and 1999, respectively) 2,505 4,109
Investments in subsidiaries:
Bank 106,330 92,175
Non-bank 1,202 1,210
Other assets 3,282 1,963
- ---------------------------------------------------------------------------------------------------------------
Total assets $ 116,791 $ 107,253
===============================================================================================================
Liabilities:
Accrued expenses and other liabilities $ 1,562 $ 2,148
Dividends payable 914 845
Long-term borrowings 2,100 2,400
- ---------------------------------------------------------------------------------------------------------------
Total liabilities 4,576 5,393
- ---------------------------------------------------------------------------------------------------------------
Guaranteed preferred beneficial interests in junior subordinated debentures 29,021 28,986
- ---------------------------------------------------------------------------------------------------------------
Stockholders' equity 83,194 72,874
- ---------------------------------------------------------------------------------------------------------------
Total liabilities, minority interests and stockholders' equity $ 116,791 $ 107,253
===============================================================================================================
Consolidated Statements of Income Year ended December 31,
(Dollars in Thousands) 2000 1999 1998
Income:
Dividends from subsidiary bank $ 4,900 $ 3,680 $ 13,157
Dividends from other subsidiaries 80 80 40
Interest 299 454 179
Management fees from subsidiaries 989 947 909
Other 28 34 548
- --------------------------------------------------------------------------------------------------------------------------
Total income 6,296 5,195 14,833
- --------------------------------------------------------------------------------------------------------------------------
Expenses:
Salaries and benefits 1,285 1,240 1,175
Interest 162 158 186
Trust Preferred Securities expense 2,623 1,840 --
Other 1,042 873 749
- --------------------------------------------------------------------------------------------------------------------------
Total expenses 5,112 4,111 2,110
==========================================================================================================================
Income before federal income taxes and equity in undistributed
earnings of (excess dividends from) subsidiaries 1,184 1,084 12,723
Applicable income tax benefit (1,267) (599) (75)
Equity in undistributed earnings of
- --------------------------------------------------------------------------------------------------------------------------
(excess dividends from) subsidiaries 8,675 9,035 (2,753)
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 11,126 $ 10,718 $ 10,045
==========================================================================================================================
Statements of Cash Flows Year ended December 31,
(Dollars in Thousands) 2000 1999 1998
Cash flows from operating activities:
Net income $ 11,126 $ 10,718 $ 10,045
Adjustment to reconcile net income to cash provided by operations:
Amortization and depreciation 205 208 223
(Equity in undistributed earnings of) excess dividends from subsidiaries (8,675) (9,035) 2,753
Gain on securities transactions -- -- (517)
Other, net (961) (1,480) 1,165
- --------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,695 411 13,669
- --------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales of (purchases of) investment securities 310 (364) 693
Expenditures for premises and equipment (39) (73) (36)
Investment in subsidiaries -- (9,910) (9,819)
Investment in tax credit funds (400) (1,200) --
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (129) (11,547) (9,162)
- ---------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of Trust Preferred Securities -- 30,000 --
Payments on long-term borrowings (300) (300) (300)
Purchase of treasury stock (2,717) (10,255) (2,059)
Change in receivable from subsidiary 249 209 (601)
Proceeds from issuance of common stock 389 478 607
Cash dividends paid (3,262) (2,926) (2,538)
- --------------------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (5,641) 17,206 (4,891)
- --------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash (4,075) 6,070 (384)
Cash and cash equivalents at the beginning of the year 6,236 166 550
- --------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at the end of the year $ 2,161 $ 6,236 $ 166
==========================================================================================================================
Supplemental cash flow information:
Interest paid $ 162 $ 158 $ 186
- --------------------------------------------------------------------------------------------------------------------------
18. Summarized Quarterly Information (Unaudited):
A summary of selected quarterly financial information for 2000 and 1999
follows:
(Dollars in Thousands, except Per Share Data)
2000
First Second Third Fourth
Quarter Quarter Quarter Quarter
Interest income $ 20,112 $ 20,924 $ 21,799 $ 22,294
Interest expense 10,008 10,699 11,804 12,328
Net interest income 10,104 10,225 9,995 9,966
Provision for possible loan losses 522 600 600 600
Investment securities (losses) gains (11) (45) 66 --
Asset disposals (losses) gains (6) (140) 36 --
Other income 2,129 2,233 2,327 2,339
Amortization of intangibles 571 571 571 571
Other expenses 6,982 7,223 7,179 7,394
Income taxes 1,279 1,179 1,192 1,058
Net income 2,862 2,700 2,882 2,682
Earnings per share:
Basic 0.43 0.41 0.44 0.41
Diluted $ 0.43 $ 0.41 $ 0.44 $ 0.41
Weighted average shares outstanding:
Basic 6,602,504 6,515,837 6,518,187 6,498,168
Diluted 6,705,526 6,600,252 6,583,143 6,553,007
1999
First Second Third Fourth
Quarter Quarter Quarter Quarter
Interest income $ 15,985 $ 17,622 $ 19,104 $ 19,635
Interest expense 7,242 8,162 9,049 9,805
Net interest income 8,743 9,460 10,055 9,830
Provision for possible loan losses 537 447 447 447
Investment securities gains (losses) -- 1 (115) 10
Other income 1,844 1,820 1,924 2,045
Other expenses 6,236 7,084 7,329 7,548
Income taxes 1,184 1,201 1,330 1,109
Net income 2,630 2,549 2,758 2,781
Earnings per share:
Basic 0.38 0.37 0.41 0.42
Diluted $ 0.37 $ 0.36 $ 0.39 $ 0.41
Weighted average shares outstanding:
Basic 6,979,409 6,943,855 6,799,034 6,665,949
Diluted 7,140,949 7,121,186 7,013,027 6,824,486
REPORT OF INDEPENDENT AUDITORS
To the Stockholders and Board of Directors:
We have audited the accompanying consolidated balance sheets of Peoples Bancorp
Inc. and Subsidiaries as of December 31, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 2000. These financial
statements are the responsibility of Peoples' management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Peoples
Bancorp Inc. and Subsidiaries at December 31, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 2000, in conformity with accounting
principles generally accepted in the United States.
/S/ ERNST & YOUNG, LLP
---------------------
Ernst & Young, LLP
Charleston, West Virginia
February 2, 2001
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- -------------------------------------------------------------
Directors of Peoples include those persons identified under "Election of
Directors" on pages 5 through 7 of Peoples' definitive Proxy Statement relating
to Peoples' Annual Meeting of Shareholders to be held April 12, 2001, which
section is expressly incorporated by reference. In addition to Robert E. Evans,
Chief Executive Officer, the Executive Officers of Peoples are David B. Baker
(54), Executive Vice President; Mark F. Bradley (31), Chief Integration Officer
and Controller; John (Jack) W. Conlon (55), Chief Financial Officer and
Treasurer; Larry E. Holdren (53), Executive Vice President; Carol A.
Schneeberger (44), Executive Vice President/Operations; and Joseph S. Yazombek
(47), Executive Vice President/Chief Lending Officer.
Mr. Baker became Executive Vice President of Peoples in February 1999. In
February 2000, Mr. Baker was appointed President of Peoples Bank's Investment
and Insurance Services, as Peoples realigned its sales management structure to
enhance financial product and service delivery. Mr. Baker previously served as
President of Peoples Bank's Investment and Business Division, beginning January
1998, and President of the Investment and Trust Division of Peoples Bank, a
position he held between 1991 and 1998. Mr. Baker has held various positions in
the Investment and Trust Division for Peoples Bank since 1974.
Mr. Bradley was appointed Chief Integration Officer in January 2001. Mr. Bradley
has also held the position of Controller of Peoples since January 1997. Prior
thereto, he was Manager of Accounting and External Reporting for Peoples from
February 1995 to January 1997. He has been Controller for Peoples Bank since
March 1997. He was Manager of Accounting and External Reporting for Peoples Bank
from February 1995 to January 1997. Prior to February 1995, Mr. Bradley served
as a staff accountant of Peoples beginning in 1991.
Mr. Conlon has been Chief Financial Officer of Peoples since April 1991. He
became Treasurer of Peoples in April 1999. He has also been Chief Financial
Officer and Treasurer of Peoples Bank for more than five years.
Mr. Holdren became Executive Vice President of Peoples in February 1999. He has
also been President of the Retail and Banking Division for Peoples Bank since
January 1998. Between 1987 and 1998, Mr. Holdren served as Executive Vice
President of Human Resources for Peoples Bank.
Ms. Schneeberger became Executive Vice President/Operations of Peoples in April
1999. Since February 2000, Ms. Schneeberger has also been Executive Vice
President/Operations of Peoples Bank. Prior thereto, she was Vice
President/Operations of Peoples since October 1988. Prior thereto, she was
Auditor of Peoples from August 1987 to October 1988 and Auditor of Peoples Bank
from January 1986 to October 1988.
Mr. Yazombek was appointed Executive Vice President/Chief Lending Officer of
Peoples in January 2000. Mr. Yazombek has also held the position of Executive
Vice President and Chief Lending Officer of Peoples Bank since October 1998. He
was an Executive Vice President of Peoples Bank's Consumer and Mortgage Lending
areas from May 1996 to October 1998 where he also directly managed Peoples
Bank's collections efforts. Mr. Yazombek joined Peoples Bank in 1983 and served
as a real estate lender until May 1996.
The information required to be disclosed under Item 405 of Regulation S-K is
included under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" on page 5 of Peoples' definitive Proxy Statement, which is
incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
- ---------------------------------
See "Compensation of Executive Officers and Directors" on pages 9 through 13 of
Peoples' definitive Proxy Statement relating to Peoples' Annual Meeting of
Shareholders to be held April 12, 2001, which is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
-------------------------------------------------------------------------
See "Security Ownership of Certain Beneficial Owners and Management" on pages 2
through 5 of Peoples' definitive Proxy Statement relating to Peoples' Annual
Meeting of Shareholders to be held April 12, 2001, which section is expressly
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- ---------------------------------------------------------
See "Transactions Involving Management" on page 8 of Peoples' definitive Proxy
Statement relating to Peoples' Annual Meeting of Shareholders to be held April
12, 2001, which section is expressly incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- ---------------------------------------------------------------------------
a)(1) Financial Statements:
---------------------
The following consolidated financial statements of Peoples Bancorp
Inc. and subsidiaries are included in Item 8:
Page
----
Report of Independent Auditors (Ernst & Young LLP) 53
Consolidated Balance Sheets as of December 31, 2000 and 1999 33
Consolidated Statements of Income for each of the three years ended
December 31, 2000 34
Consolidated Statements of Stockholders' Equity for each of the three years
ended December 31, 2000 35
Consolidated Statements of Cash Flows for each of the three years
ended December 31, 1999 36
Notes to the Consolidated Financial Statements 37
Peoples Bancorp Inc.: (Parent Company Only Financial Statements are
included in Note 17 of the Notes to the Consolidated Financial
Statements) 50
(a)(2) Financial Statement Schedules
-----------------------------
All schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are
inapplicable and, therefore, have been omitted.
(a)(3) Exhibits
--------
Exhibits filed with this Annual Report on Form 10-K are attached
hereto. For a list of such exhibits, see "Exhibit Index" beginning
at page 58. The Exhibit Index specifically identifies each
management contract or compensatory plan required to be filed as
an exhibit to this Form 10-K.
(b) Reports on Form 8-K:
--------------------
Peoples filed the following reports on Form 8-K during the three
months ended December 31, 2000:
1) Filed October 13, 2000 - News release announcing the release
date of Peoples' earnings statement for the third quarter of 2000.
2) Filed October 23, 2000 - News release announcing Peoples'
earnings for the third quarter of 2000. 3) Filed November 13, 2000
- News release announcing the declaration of a $0.14 per share
quarterly dividend by the Peoples' Board of Directors.
4) Filed December 5, 2000 - New release announcing Peoples'
recognition in the Tenth Annual Edition of America's Finest
Companies.
(c) Exhibits
--------
Exhibits filed with Annual Report on Form 10-K are attached
hereto. For a list of such exhibits, see "Exhibit Index" beginning
at page 58.
(d) Financial Statement Schedules
-----------------------------
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PEOPLES BANCORP INC.
Date: February 27, 2001 By: /s/ ROBERT E. EVANS
-------------------------
Robert E.Evans, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ ROBERT E. EVANS President and Chief Executive February 27, 2001
- ------------------------ Officer and Director
Robert E. Evans
/s/ CARL BAKER, JR. Director February 28, 2001
- ------------------------
Carl Baker, Jr.
/s/ GEORGE E. BROUGHTON Director February 27, 2001
- ------------------------
George W. Broughton
/s/ FRANK L. CHRISTY Director March 1, 2001
- ------------------------
Frank L. Christy
/s/ WILFORD D. DIMIT Director February 27, 2001
- ------------------------
Wilford D. Dimit
/s/ REX E. MAIDEN Director February 28, 2001
- ------------------------
Rex E. Maiden
/s/ ROBERT W. PRICE Director February 27, 2001
- ------------------------
Robert W. Price
/s/ PAUL T. THEISEN Director March 1, 2001
- ------------------------
Paul T. Theisen
/s/ THOMAS C. VADAKIN Director March 1, 2001
- ------------------------
Thomas C. Vadakin
/s/ JOSEPH H. WESEL Chairman of the Board and Director February 27, 2001
- ------------------------
Joseph H. Wesel
/s/ JOHN W. CONLON Chief Financial Officer and Treasurer March 2, 2001
- ------------------------ (Principal Accounting Officer)
John W. Conlon
/s/ MARK F. BRADLEY Chief Integration Officer March 2, 2001
- ------------------------ and Controller
Mark F. Bradley
EXHIBIT INDEX
PEOPLES BANCORP INC. ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2000
Exhibit
Number Description Exhibit Location
- ----------- ------------------------------------------------------- -----------------------------------------------------
2 Agreement and Plan of Acquisition and Merger by and Incorporated herein by reference to Appendix A-1
among Peoples Bancorp Inc.; Peoples Bank, National of Registrants' Registration Statement on Form S-4
Association; and The Lower Salem Commercial Bank, (Registration No. 333-52134) effective January 5,
dated October 24, 2000, as amended 2001.
3(a)(1) Amended Articles of Incorporation of Peoples Bancorp Incorporated herein by reference to Exhibit 3(a)
Inc. (as filed with the Ohio Secretary of State on to Peoples' Registration Statement on Form 8-B
May 3, 1993) filed July 20, 1993 (File No. 0-16772).
3(a)(2) Certificate of Amendment to the Amended Articles of Incorporated herein by reference to Exhibit
Peoples Bancorp Inc. (as filed with the Ohio 3(a)(2) to Peoples' Annual Report on Form 10-K for
Secretary of State on April 22, 1994) fiscal year ended December 31, 1997 (File No.
0-16772) (the "1997 Form 10-K").
3(a)(3) Certificate of Amendment to the Amended Articles of Incorporated herein by reference to Exhibit
Peoples Bancorp Inc. (as filed with the Ohio 3(a)(3) to Peoples' 1997 Form 10-K.
Secretary of State on April 9, 1996)
3(a)(4) Amended Articles of Incorporation of Peoples Bancorp Incorporated herein by reference to Exhibit
Inc. (reflecting amendments through April 9, 1996) 3(a)(4) to Peoples' 1997 Form 10-K.
[For SEC reporting compliance purposes only -- not
filed with Ohio Secretary of State]
3(b) Regulations of Peoples Bancorp Inc. Incorporated herein by reference to Exhibit 3(b)
to Peoples' Registration Statement on Form 8-B
filed July 20, 1993 (File No. 0-16772).
4(a) Agreement to furnish instruments and agreements Filed herewith.
defining rights of holders of long-term debt
4(b) Indenture, dated as of April 20, 1999, between Incorporated herein by reference to Exhibit 4.1 to
Peoples Bancorp Inc. and Wilmington Trust Company, the Registration Statement on Form S-4
as Debenture Trustee, relating to Junior (Registration No. 333-81251) filed on June 22,
Subordinated Deferrable Interest Debentures. 1999 by Peoples Bancorp Inc. and PEBO Capital
Trust I (the "1999 Form S-4").
4(c) Form of Certificate of Series B 8.62% Junior Incorporated herein by reference to Exhibit 4.2 to
Subordinated Deferrable Interest Debenture of the 1999 Form S-4.
Peoples Bancorp Inc.
4(d) Form of Certificate of Series A 8.62% Junior Incorporated herein by reference to Exhibit 4.3 to
Subordinated Deferrable Interest Debenture of the 1999 Form S-4.
Peoples Bancorp Inc.
4(e) Certificate of Trust of PEBO Capital Trust I. Incorporated herein by reference to Exhibit 4.4 to
the 1999 Form S-4.
4(f) Amended and Restated Declaration of Trust of PEBO Incorporated herein by reference to Exhibit 4.5 to
Capital Trust I, dated as of April 20, 1999. the 1999 Form S-4.
4(g) Form of Common Security of PEBO Capital Trust I. Incorporated herein by reference to Exhibit 4.6 to
the 1999 Form S-4.
4(h) Form of Series B 8.62% Capital Security Certificate Incorporated herein by reference to Exhibit 4.7 to
of PEBO Capital Trust I. the 1999 Form S-4.
4(i) Series B Capital Securities Guarantee Agreement, Incorporated herein by reference to Exhibit 4 (i)
dated as of September 23, 1999, between Peoples of Peoples' Annual Report on Form 10-K for the
Bancorp Inc. and Wilmington Trust Company, as fiscal year ended December 31, 1999 (File No. 0-16772).
Guarantee Trustee, relating to Series B 8.62%
Capital Securities.
10(a) Deferred Compensation Agreement dated November 16, Incorporated herein by reference to Exhibit 6(g)
1976, between Robert E. Evans and The Peoples to Peoples' Registration Statement No. 2-68524 on
Banking and Trust Company, as amended March 13, Form S-14 of Peoples Delaware, Peoples'
1979.* predecessor.
10(b)(1) Peoples Bancorp Inc. Deferred Compensation Plan for Incorporated herein by reference to Exhibit 10(a)
Directors of Peoples Bancorp Inc. and Subsidiaries of Peoples' Registration Statement on Form S-8
(Amended and Restated Effective January 2, 1998.)* filed December 31, 1997 (Registration No.
333-43629).
10(b)(2) Amendment No. 1 to Peoples Bancorp Inc. Deferred Incorporated herein by reference to Exhibit 10(b)
Compensation Plan for Directors of Peoples Bancorp of the Peoples' Post-Effective Amendment No. 1 to
Inc. and Subsidiaries effective January 2, 1998.* Form S-8 filed September 4, 1998 (Registration No.
333-43629).
10(c) Summary of the Performance Compensation Plan for Incorporated herein by reference to Exhibit 10(f)
Peoples Bancorp Inc. effective for calendar year of Peoples' Annual Report on Form 10-K for fiscal
beginning January 1, 1997.* year ended December 31, 1996 (File No. 0-16772).
10(d) Peoples Bancorp Inc. Amended and Restated 1993 Stock Incorporated herein by reference to Exhibit 4 of
Option Plan.* Peoples' Registration Statement on Form S-8 filed
August 25, 1993 (Registration Statement No.
33-67878).
10(e) Form of Stock Option Agreement used in connection Incorporated herein by reference to Exhibit 10(g)
with grant of non-qualified stock options under of Peoples' Annual Report on Form 10-K for fiscal
Peoples Bancorp Inc. Amended and Restated 1993 Stock year ended December 31, 1995 (File No. 0-16772).
Option Plan.*
10(f) Form of Stock Option Agreement dated May 20, 1993, Incorporated herein by reference to Exhibit 10(h)
used in connection with grant of incentive stock of Peoples' Annual Report on Form 10-K for fiscal
options under Peoples Bancorp Inc. Amended and year ended December 31, 1995 (File No. 0-16772).
Restated 1993 Stock Option Plan.*
10(g) Form of Stock Option Agreement dated November 10, Incorporated herein by reference to Exhibit 10(i)
1994, used in connection with grant of incentive of Peoples' Annual Report on Form 10-K for fiscal
stock options under Peoples Bancorp Inc. Amended and year ended December 31, 1995 (File No. 0-16772).
Restated 1993 Stock Option Plan.*
10(h) Peoples Bancorp Inc. 1995 Stock Option Plan.* Incorporated herein by reference to Exhibit 4 of
Peoples' Form S-8 filed May 24, 1995 (Registration
Statement No. 33-59569).
10(i) Form of Stock Option Agreement used in connection Incorporated herein by reference to Exhibit 10(k)
with grant of non-qualified stock options to of Peoples' Annual Report on Form 10-K for fiscal
non-employee directors of Peoples under Peoples year ended December 31, 1995 (File No. 0-16772).
Bancorp Inc. 1995 Stock Option Plan.*
10(j) Form of Stock Option Agreement used in connection Incorporated herein by reference to Exhibit 10(l)
with grant of non-qualified stock options to of Peoples' Annual Report on Form 10-K for fiscal
non-employee directors of Peoples' subsidiaries year ended December 31, 1995 (File No. 0-16772).
under Peoples Bancorp Inc. 1995 Stock Option Plan.*
10(k) Form of Stock Option Agreement used in connection Incorporated herein by reference to Exhibit 10(m)
with grant of incentive stock options under Peoples of Peoples' Annual Report on Form 10-K for fiscal
Bancorp Inc. 1995 Stock Option Plan.* year ended December 31, 1998 (File No. 0-16772).
10(l) Peoples Bancorp Inc. 1998 Stock Option Plan.* Incorporated herein by reference to Exhibit 10 of
Peoples' Form S-8 filed September 4, 1998
(Registration Statement No. 333-62935).
10(m) Form of Stock Option Agreement used in connection Incorporated herein by reference to Exhibit 10(o)
with grant of non-qualified stock options to of Peoples' Annual Report on Form 10-K for fiscal
non-employee directors of Peoples under Peoples year ended December 31, 1998 (File No. 0-16772).
Bancorp Inc. 1998 Stock Option Plan.*
10(n) Form of Stock Option Agreement used in connection Incorporated herein by reference to Exhibit 10(p)
with grant of non-qualified stock options to of Peoples' Annual Report on Form 10-K for fiscal
consultants/advisors of Peoples under Peoples year ended December 31, 1998 (File No. 0-16772).
Bancorp Inc. 1998 Stock Option Plan.*
10(o) Form of Stock Option Agreement used in connection Incorporated herein by reference to Exhibit 10(o)
with grant of incentive stock options under Peoples of Peoples' Annual Report on Form 10-K for the
Bancorp Inc. 1998 Stock Option Plan.* fiscal year ended December 31, 1999(File
No.0-16772).
10(p) Registration Rights Agreement, dated April 20, 1999, Incorporated herein by reference to Exhibit 4.11
among Peoples Bancorp Inc., PEBO Capital Trust I and to the 1999 Form S-4.
Sandler O'Neill & Partners, L.P.
12 Statements of Computation of Ratios. Filed herewith.
21 Subsidiaries of Peoples Bancorp Inc. Filed herewith.
23 Consent of Independent Auditors - Ernst & Young LLP. Filed herewith.
*Management Compensation Plan